by Laura Molloy
Markets across Latin America are expected to go into recession in 2020 due to the impact of the coronavirus and associated, unprecedented outward capital flows. However, two of the most promising growth sectors in Latin America – fintech and e-commerce – align with consumer needs during the pandemic and are likely to contribute to permanent changes in consumer behavior, providing opportunities for investors to buy into these long-term growth sectors on favorable terms.
In 2019, Latin American fintech companies raised a total of US $2.66 billion in 94 deals. Nearly 70% of investment was directed toward Brazilian firms, followed by Mexico (20.6%) and Argentina (7.9%).
One of the key disruptors has been Nubank, a Sao Paulo-headquartered mobile-only bank, valued at US $10 billion. In early March, Nubank launched its fee-free credit card in Mexico, where over half of the population is “unbanked” and the government has introduced a ‘fintech law’ to aid financial inclusion.
Despite Nubank’s preeminent status, there is room in the market for other players given market segmentation. For example, Mexican digital bank Albo, which serves a broader range of customers including those without credit history, also recently secured US $26.4 million in funding. Credijusto, a Mexican fintech startup that lends to SMEs, closed a deal to raise US $100 million in debt from Credit Suisse at the height of the pandemic.
Research shows that digital services have gained in popularity since the onset of the coronavirus in Latin America. In response to a March survey 63% of Argentinians said they will use digital banking services to avoid going to a bank or ATM. Therefore, this may be a golden opportunity for digital banks to win customers from the often-monopolistic traditional banking giants, permanently transforming consumer habits.
Adoption of digital banking and payment services drives growth in another key sector, e-commerce, allowing consumers to obtain essential goods from home. In the same March survey, 44% of Argentinians said they planned to buy more items online. MercadoLibre, the Argentine-headquartered “Latin American eBay” has re-branded as an ally in the fight against coronavirus by reducing commissions on basic goods and resisting ‘price gouging’. Despite volatility in its share price, MercadoLibre reported triple-digit revenue growth in Mexico in the month of March.
E-commerce is supported by food delivery, another key digital industry offering consumers familiar comforts during the pandemic. This sector is led by Colombian unicorn, Rappi. The company, which has raised over US $1.4 billion in funding, reported a 30% increase in deliveries across nine countries in the first two months of 2020 compared to the final months of 2019. This included an uptick in supermarket orders as Latin Americans began to self-isolate.
While the virus is wreaking social and economic havoc around the globe, there remain significant, long term growth sectors in Latin America worth consideration for savvy investors.
For more information on Gryphon’s LatAm team and Global Strategic Advisory Practice, please contact Laura Molloy at [email protected] and Pablo Gil De Montes at [email protected]
