Is fraud killing ecommerce in LatAm?
#024: The lines between traditional finance and crypto get even blurrier — for better, and for worse
Hola technopolists (testing out Tuesdays for a change),
It’s a hot and seedy week, with crypto crime rings facing the music. That’s why we’re looking at financial fraud rates around to region to see what impact they’re having on tech businesses.
What’s hot
💳 Blurred lines. The lines between crypto and ‘traditional’ finance blurred further this week with two payments product launches. Bitso, the Mexico-based crypto exchange, launched QR code crypto payments in Argentina, allowing users to pay using their Bitso wallet through fiat currency (Argentine pesos), USDC stablecoins, and big-name cryptocurrencies (Bitcoin, Ethereum, and DAI). QR code payments are highly common in LatAm and especially in Argentina, where nearly two-thirds of adults have used them; plus, the option to spend in USDC gives users a way around the inflation-plagued peso and more volatile cryptocurrencies. Further north, the (very) early-stage crypto startup Crecy partnered with Pomelo to launch a crypto credit card, which allows customers to use their existing crypto holdings as collateral to open up a line of credit. Crypto-based cards aren’t a new genre of payment methods, but the real news here is that Crecy is one of the first (and only) companies to lend against a customer’s crypto while not really performing any credit checks other than verifying the crypto holdings. (Contxto)
🚘 Gig work grey areas. With the backdrop of Uber’s Mexico City conference last week, the Mexican government is exploring new legislation that would provide greater legal protections to gig workers. The sweeping proposal put forward by Mexico’s labour department could seek to recognise gig workers as full-time employees, guaranteeing rights to social security, minimum wages, and unionisation. The major players — Didi, Uber, and Rappi — have yet to make a move, but it’s no secret that such legislation could upend their already-unprofitable business models. Yet it’s not a simple issue of labour (and the government) against capital; per reports from Rest of World, some gig workers have already critiqued the proposal for being overly broad, since a significant portion gig workers benefit from the flexibility of independent work and would make unwanted sacrifices as full-time employees (such as having to work a minimum number of hours). Per those same reports, the apps themselves are now drafting counter-proposals. (Bloomberg Linea)
🏦 Mini-markets. At a time when the outlook for LatAm’s public markets is grim from a dearth of local IPOs and prominent de-listings, a new “startup exchange” has begun trading in Brazil. BEE4, a regulated securities exchange for Brazilian SMEs, opened its first session of trading on Monday. The new exchange hopes to support Brazilian SMEs by providing alternatives to venture capital and venture debt for companies that aren’t ready for a traditional IPO, and companies of $2mn - $60mn in annual revenue can raise capital via crowdfunding and support secondary market trading. BEE4 is the first of its kind in Brazil and is modelled on similar foreign exchanges like the AIM in London, though it’s playing catch-up to similar markets within LatAm like Argentina’s MAV. Their goals are noble and their first day of trading internal expectations, but with daily volumes circling $65k, BEE4 has a long way to go. (Pipeline Valor)
What’s not
🪓 Retrenchments. SoftBank, the bellwether of foreign venture activity in Latin America, announced 18% cuts to its LatAm Vision Fund staff in a sign that the market correction is still very much a thing. The layoffs were part of a reductions package that bid arigato to 30% of SoftBank’s global employee base, which should come as little surprise following previous signalling and the fund’s $23bn of losses in 2022. To keep things in proportion, the 18% of LatAm staff converts to only 10 employees. In a more substantial sign of the ongoing onslaught, Konfio, the Mexican fintech unicorn, said adios the week before to 180 employees that represent ~20% of total headcount. The company cited a new ‘strategic’ direction when it notified employees of the cuts via Zoom. (Expansion)
👮🏽 Whatcha gonna do? Brazilian Federal Police last week raided 6 unnamed crypto exchanges as part of Operation Colossus, an investigation into an international crime ring that used cryptocurrencies to launder money and evade taxes in the country. Authorities have issued over 100 warrants and frozen ~$238mn in assets in São Paulo based on alleged crimes that took place from 2017-21. The feds also raided 15 additional crypto companies as part of a separate investigation into a crypto ‘pyramid scheme’ in the states of Santa Catarina and São Paulo; authorities estimate that $5.6mn was fleeced from unwitting victims who were scammed by the prospect of ‘guaranteed returns’. These raids aren’t the first of their kind, as Brazilian authorities opened a decisive offensive on crypto-criminals in July when they arrested 5 people and carried out 60 seizure warrants for an alleged money laundering scheme that processed $3bn related to illegal gold mining. Details in both cases have been scarce as investigations are ongoing, but both stoke fears that underscore a governmental proposal to regulate the booming market. The current ‘Bitcoin Bill’ to regulate the industry has been awaiting congressional approval for weeks, with a vote planned following Brazil’s contested election. (CoinDesk)
Stat of the week
Ecommerce in LatAm has grown astonishingly quickly compared to most other regions around the world, but LatAm is also an epicentre for financial fraud; according to MRC Research, 3.5% of LatAm’s ecommerce transactions in 2021 were fraud attempts — 34% higher than the global average (2.6%). By other estimates, one in five reviewed transactions were declined as fraud attempts — twice the global average.
The pandemic accelerated LatAm’s ecommerce wave – so did it do the same for fraud? Here’s a look at where fraud grew the quickest on the continent in the 2 years since 2019:
So what? The good news: no, fraud doesn’t seem to be killing ecommerce. Most of ecommerce growth seems to involve good people just trying to do business online. The bad news: although fraud growth slowed versus the e-commerce boom since 2019, overall fraud rates are still high compared to the global average.
What next? A large part of the problem — roughly half of chargeback fraud in the region — is estimated to be ‘friendly’ fraud that arises from a lack of financial education and friction in the claims process. In other words, it’s not people trying to game the system, it’s people who either don’t understand it or simply get worn out trying to correct errors. The tip for companies? Just make statements and claims processes simpler, and your fraud rates should keep going down. It’s not a reason to take your eye off of malicious fraud, but it’s a simple start.
Smart links
Uber carries on with popular moto taxis despite legal grey area (Rest of World)
Through BNPL for PIX, Mercado Livre triples its volume of financed purchases (Fintechs Brasil)
Nubank hits 70mn customers in Latin America (Startups BR)
Carrefour partners with Uber’s Cornershop to launch rapid grocery deliveries in Brazil (Startups BR)
List: LatAm’s top startups 2022 (LinkedIn)
List: Top DeFi investments in LatAm in 2022 (Latam List)
El Salvador may soon have its own Bitcoin Island (Diario Bitcoin)
Brazil cost of living: the delivery drivers who can’t afford to eat (BBC)
Mexican government suffers major data hack, president's health issues revealed (Reuters)
Trump-nominated IDB head voted out of role, threatens legal action (Reuters)
Opinion: Remittance flow into Mexico hints at heat in US economy (FT)
Charts: Hurricanes, Blueberries, and Cemex (Latinometrics)
Deals (September 27 - October 3, 2022)
Late stage
🇧🇷 Cortex, a big data analytics platform, raised a $48mn Series C led by Lightrock with participation from SoftBank and Riverwood Capital
Early stage
🇧🇷 Ali Credito, a payroll lending fintech, raised a $26mn Series A led by BoostLAB with participation from an undisclosed corporate venture fund
🇨🇷 Greenergy, a Costa Rican cleantech financier, raised a $5mn early stage round from Deetken Impact Sustainable Energy
🇨🇴 Minteo, a Colombian NTF marketplace, raised a $4.3mn seed from OpenSea Ventures, Fabric Ventures, Dune Ventures, CMT Digital, Impatient VC, Susquehanna Private Equity Investments, SevenX Ventures, FJ Labs, Big Brain Holdings, G20 Ventures, Alliance DAO, Zero Knowledge, and angels
🇧🇷 Medipreço, a Brazilian healthtech, raised a $1mn Series A led by Valutia Capital with participation from OSinova Participações
🇧🇷 Veggi, a Brazilian vegan delivery app, raised $200k in crowdfunding
🇧🇷 Just Travel, a Brazilian tourism provider, raised $240k in venture funding from Bossa Nova Investimentos, Grupo Rede+, Sai do Papel Capital,
Ad hoc
🇲🇽 Parco, a Mexican paytech, raised an undisclosed amount from Magma Partners
🇨🇴 Uptime Analytics, a Colombian analytics platform, raised an undisclosed amount from Axon Partners Group and Ventures EPM