This is an excerpt from The Future of Fintech in Latin America 2023 report.
According to S&P Global Market Intelligence research, Latin America presented itself as a “propitious location for cloud industry developments” before the events of 2020. The article continued to explore how “the underserved status of the region, its large
population (often concentrated in major metropolitan hubs), and receptivity to U.S. and Chinese providers” ensured that Latin America was an area ripe with opportunity for the fintech industry to grow.
After the Covid-19 pandemic, cloud providers such as Amazon Web Services, Google Cloud, Microsoft Azure, Oracle, Huawei and Tencent increased investment into Latin America and announced new cloud regions. Brazil, Mexico, and Chile have seen much of this
funding, but with continued new cloud provider activity, data centre markets in smaller local sectors have been elevated to become major regional rivals of the larger countries – to the benefit of the fintech industry.
451 Research's Datacenter Knowledge Base found that CAGR for both Chilean and Mexican markets significantly changed when comparing the 2015-2020 period with 451's 2020-2025 forecast. “The Chilean market saw a 16% CAGR in the first period and is expected
to grow at a 22.5% CAGR from 2020 to 2025. Mexico demonstrated a more modest 2.1% rate from 2015 to 2020, which is expected to increase tenfold to 22.2% for the period from 2020 to 2025.”
Further to this, as alluded to above, with “Latin America emerging as neutral ground in the battle of the cloud giants, its local tech industries may stand to gain the most, as cloud activity has already bolstered associated sectors, including the region
’s leased data center industry. These new developments could also bring about decentralization of Brazil in the regional cloud scene, as providers find service options in other countries, which may also be cheaper.”
According to Alexandre Magnani, CEO, PagBank PagSeguro, cloud adoption is becoming increasingly mainstream in Brazil’s financial services and fintech industry, as companies are looking to reduce costs, improve scalability, and access new technologies. “Cloud-based
solutions are being used to automate processes, improve customer experiences, and enable faster, more secure payments. Additionally, cloud services are being used to enable the development of APIs and open banking solutions, which can help to increase financial
inclusion.”
Krishna Venkatraman, chief data Officer, Kueski surmises that it is not becoming mainstream, but that cloud is already “mainstream and standard for financial services and fintechs in Latin America. It makes the most sense for businesses, as it allows easy
access to data, cloud services, etc. The cloud makes it incredibly easy to access data, storage, and computing. It’s allowed fintechs to quickly combine knowledge about the local market with world class technology and talent to solve important problems for
millions of people.”
The B2B market for cloud will become an opportunity across Latin America
Cloud adoption has also spearheaded the rapid growth of digital commerce; one such example of payments innovation is the boom in alternative payment methods (APM s and the increased associated account-based transfer or instant payments because of Brazil’s
Pix and Colombia’s PSE. According to AMI, account-based transfer APMs should reach $121 billion in volume after a 33% CAGR growth in 2025.
Digital wallet usage is also expected to increase by 20% every year until 2025, surpassing $70 billion in value which is around 10% of Latin America’s digital commerce market. Argentina and El Salvador will lead in this area, with their 23% share, followed
by Bolivia with 14%; Peru, 13%; Uruguay, 12%; Brazil, 11%; and Mexico, 8%.
As a recent EBANX report highlighted, when analysing “the movements of digital commerce – especially in Latin America – it is important to highlight the growth of the SaaS (Software as a Service) and cloud industries. As small and medium enterprises became
increasingly digitized, and broadband internet access in the region doubled in the last decade, big tech companies have eyed LaTam and other rising markets, looking for untapped opportunities.”
EBANX calculations revealed that Latin America is the fastest growing SaaS and cloud market in the world, pacing at 26% per year through to 2026. SaaS is not a regional technology; it is global by nature and Latin America’s success with SaaS will support
international growth. However, as cloud computing evolves, and digitisation becomes more widespread in Latin America, SaaS and cloud providers need to ensure they are able to process and receive large payments online.
The research also shows that the B2B cloud market represents around 80% of the Latin American industry. Organisations and individuals require faster and simpler billing options, competitive rates and transparency and the cloud can help with this. The EBANX
report explored how: “Billing requires manual processing, complex tax burdens, and a growing effort from internal teams to support and manage payments.
“This tangled payment process is also a blocker for companies' scalability, harming the customer experience and recurrence features. To sum it up, there is still a lot of friction.” Cloud can alleviate these issues.
Venkatraman shares this view and says that “customers benefit greatly from the competition of cloud providers. Not only do cloud providers become competitively priced but the services are constantly being improved upon as each seeks to be better than the
competition. So, services are becoming more and more intelligent, especially as cloud services start to utilise generative AI, which allows us to utilise it better to create greater functionality for more personalised experiences.”
Cloud has been a key driver of improved financial inclusion in Latin America
The Institute of International Finance released a paper on ‘Cloud in Latin America: Opportunities and challenges for financial services’ which stated that in the region, “cloud-enabled services have been a key enabler of dramatic increases in financial inclusion
measures during the pandemic. We also see that cloud adoption is increasingly becoming mainstream in financial services and e-commerce. However, barriers and challenges to cloud adoption remain, including regulatory ambiguity and data localization measures.”
After the events of 2020 and the introduction of relief payments to bank accounts through applications, this provided digital banking to the underserved and unbanked. Brazil has reduced its unbanked population by 73% and Colombia and Argentina also made
reductions of 8% and 18% respectively.
On this topic, Venkatraman believes that speed to market is key. “Fintechs that are increasing access to financial services for consumers across Latin America are able to get to market much faster than in the past. And, when backed by the cloud, when these
products gain traction, it’s a much easier path to scaling.”
He continues: “The key to financial inclusion is being able to validate data when someone is applying for credit or trying to make a purchase. People who aren’t included, underbanked individuals, are the ones for whom it can be hard to find data. Cloud enabled
technologies allow us to call on more data sources meaning we have a much better chance of getting the information needed to make a decision. In addition, customers are now in greater control of their data than ever before, and with the click of a few buttons,
they can give permission to access data.
“This is worlds away from the previous weeks-long traditional banking process of filling out forms, submitting them, waiting for processing, and then finding out if you were approved or not. Not only is it faster, but utilizing the cloud makes this infinitely
less expensive, meaning fintechs can provide access at a much lower cost.”