#031: Are fintechs replacing big banks?
Fintechs hope to “democratise” financial access and give accounts to the bankless -- but are they meeting their mission?
Hola technopolists,
In most weeks, we look at Latin America as its own universe. This week reminded us of the global stories that put LatAm in conversation with the world.
Story #1 is the reversal of the capital. Normally, we see VC dollars getting invested into LatAm tech. Carson Block subverted that norm as his short-selling firm, Muddy Waters, unveiled a short position that took half of the capitalisation out of Uruguay’s darling, dLocal. More below.
Story #2 is the river of digital nomads flowing to urban hubs like Mexico City. Sometimes Twitter handles this story with vinegar; other times, with humour:
Story #3 is the Story of the Moment: the Men’s World Cup. At the outset, the Ecuadorians summarily dispatched the Qatari hosts with a convincing 2-0 victory in the tournament’s opening match. The Brazilian canaries are favoured to win, and the Argentinians have high hopes for what will likely be Messi’s last World Cup, too — though, to keep perspective, Argentinians are 9x more likely to want to solve inflation rather than bring the Rimet trophy home.
What’s hot
📊 LatAm isn’t letting any crisis go to waste. Two distinct crises have sent tech companies reaching for new safeguards. First, FTX’s explosive collapse has renewed Brazil’s push towards regulating crypto markets. Their crypto bill received approval from the Senate months ago, and with a new president elected, the legislature has said they want to vote on the final bill within the coming weeks. Separately, AirBnB has announced the rollout of new transparency and host assistance features. The timing is uncanny: two weeks ago, 3 foreign tourists were found dead in a Mexico City AirBnB due to carbon monoxide poisoning. AirBnB’s co-founder stated that the new features have been in development for months and are not being released in response to the tragedy, though he does acknowledge that more could be done in LatAm to educate hosts. The new initiatives include voice/video chat between guest and host, increased property damage insurance, transparent pricing around cleaning fees, and a LatAm-specific educational push around carbon monoxide monitors. (Reuters)
🏦 Pix is going global. By now, the breakout success of the Brazilian digital payments system, Pix should be no secret: nearly 500mn accounts have been registered toby roughly half of the country in its two brief years of operation. Last week, the Brazilian central bank announced plans to take Pix international — for free. Colombia, Uruguay, and Peru had all previously expressed interest in replicating Pix’s success; now, Brazil seems poised to roll out the platform abroad. The announcement dovetails with a separate announcement earlier in November that Pix will be made open source to spur further development and feature integrations, like international payments. (Latam List)
💸 Google activates its wallet in Mexico. The American tech behemoth announced last week that its mobile app-based wallet will soon be available in Mexico. The wallet, which stores payment and loyalty cards for contactless payments in much the same way as Apple’s wallet, was launched in partnership with many of Mexico’s major banks. Google has stated that they’re hoping to drive digitisation with the release; over three-quarters of mobile smartphones in Mexico run on Android and would be strong targets for the launch. The wallet is currently available in Chile, making Mexico the second country in LatAm where the wallet is active.
What’s not
🔻 El Gran Short. dLocal, the Uruguayan payments unicorn, was delivered a catastrophic blow to its market cap last Wednesday when Carson Block, an investor at American short selling firm Muddy Waters, announced a short position on the company. (NB: short sellers benefit from declines in a company’s stock price). Muddy Waters believes that dLocal’s labyrinthine corporate structure has been used to hide systematic accounting fraud. They detail their position in a 46-page report, which is full of colourful, no-nonsense language like: “Management & directors dumped an extraordinary ~$1bn in shares within the first 5 months of DLO being public. A spate of recent high-level departures brings to mind the idiom about “rats fleeing a sinking ship.” Shares tumbled 51% on the announcement, knocking $3bn off dLocal’s market cap. (FT)
📉 Bukele buys the dip… again. The FTX aftermath has sent bitcoin prices down a further 20% since the beginning of November, and Salvadoran President Nayib Bukele isn’t missing his chance. After a 6-month hiatus, he announced that his country will resume buying one bitcoin per day through the dip. The ‘world’s coolest dictator’ appears defiant to all external parties (including his own constituents) in his renewed commitment to bitcoin. Over two-thirds of Salvadorans disprove of Bukele’s bitcoin policy, and three-quarters have never touched the cryptocurrency. El Salvador has spent over $100mn of public money gambling on bitcoin in the last year and currently carries losses worth two-thirds of the bet. In September, Fitch Ratings downgraded Salvadoran debt to near junk status, with doubts about the country’s ability to make an $800mn repayment to the IMF in January. (The Economist)
Stat of the week
Google’s new wallet announcement is another reminder of the fintechs who target digitisation and financial inclusion.
Previous data shows that while LatAm has made long-term gains in financial inclusion, more recently, fintechs in Mexico have failed to make much of a dent.
A new survey posed the question anew, in slightly different terms: who is only using these fintechs, and who is switching from their traditional bank?
So what? Neobanks and digital fintechs have succeeded in their goal of becoming common, but typically as add-ons rather than replacements for traditional banking. The new crop of fintechs, from Nubank to Klar to Fondeadora, have not yet vanquished their looming incumbents; most often, they’re meeting demand in use cases that traditional banks can’t (or won’t) serve, like credit cards and short-term lending. Yes, the fintechs are democratising access to some things, though the data suggest they’re not financial missionaries bringing tokenised gospel to the downtrodden. For now, Mexicans are using these new companies to get the best of both worlds.
Smart links
Twitter drama has Brazilians flocking to Indian platform Koo (Rest of World)
Google activates its digital wallet in Mexico in alliance with banks and neobanks (Bloomberg Linea)
Stone beats guidance with efficiency gains and increase in take rate (Brazil Journal)
Alibaba eyes logistics growth in LatAm as China commerce slows (TechCrunch)
Mexico City’s murder rate is lower than Portland or Dallas — it’s a reason the gringos are flocking here (Ioan Grillo)
Deals (November 16 - 22, 2022)
M&A
🇦🇷 Globant, a software conglomerate, bought 🇦🇺 eWave, a Salesforce/Adobe digital commerce consultancy, for an undisclosed amount in order to expand to Australia and Asia
🇨🇱 Banco BCI, a Chilean bank, bought 🇨🇱 Krip, a cashback fintech, for an undisclosed amount
🇺🇸 Blueground, an American proptech, bought 🇧🇷 Tabas, a Brazilian proptech for medium to long-term rentals, for an undisclosed amount
Fundraising
🇧🇷 CERC, a receivables factoring fintech, raised a $65mn investment from Mubadala and Valor Capital
🇧🇷 Flapper, an aviation-on-demand mobility company, raised a $5.6mn Series A extension from DXA and Arien Invest
🇨🇴 Zulu, a digital wallet builder, raised a $5mn seed led by Cadenza Ventures with participation from Nexo Ventures, Simplex, CMT Digital, Gaingels, and angels
🇲🇽 Trully, a fraud prevention platform, raised a $4.1mn seed round led by Costanoa ventures with participation from angels including co-founders of Belvo and Rappi
🇵🇪 Laboratoria, an edtech working to reduce the gender gap in tech, raised a $4mn investment from Mackenzie Scott (Jeff Bezos’ ex-wife)
🇨🇴 Trii, an investments fintech that allows customers to trade on US exchanges, raised a $3mn investment from Bancolombia
🇲🇽 Atria, a used car financier, raised a $3mn investment from Addem Capital
🇲🇽 Pet’s Table, a natural petfood provider, raised a $2mn seed led by Left Lane Capital with participation from Goodwater Capital
🇵🇪 NetZun, a virtual course platform, raised a $1.4mn pre-seed from GrupoRPP
🇲🇽 Hitter Brands, a whitelabelling foodtech, raised a $1.2mn seed from Variv, Angel Ventures, Simón Borrero, Sebastián Mejía, and angels
🇨🇱 Wited, a Chilean edtech, raised a $1mn seed round led by Weboost
🇲🇽 Leadsales, a CRM for WhatsApp, raised a $400k seed from Ulu Ventures
🇧🇷 Fácil Consulta, a digital health scheduling platform, raised $220k in crowdfunding via EqSeed
🇧🇷 NeuralMed, a healthtech, raised an undisclosed investment from Good Karma Ventures
Ad hoc
🇨🇴 Finkargo, a supply chain lender, raised a $75mn credit facility from Community Investment Fund
🇨🇴 Tul, a construction and hardware ecommerce marketplace, raised $7.7mn in financing from Bancolombia
Did I miss any deals? Let me know!