As of April 2023, there were 1,000 active fintechs in Latin America (LatAm) with a vast majority focusing on financial inclusion, tackling the issue of 70 per cent of the population not having access to formal financial services. Em Conversa looks to uncover what the future holds for fintech in the region as it was valued at $2.1billion in 2022 and continues to rapidly grow.
To get a better understanding of the business-to-business (B2B) market in LatAm and how new technologies are impacting the sector, we sit down with Justin Smith, managing partner of Recharge Capital.
Can you tell me more about the company and your role within it?
Recharge Capital is a thematic-first, integrated private investment firm that connects new technologies with built-in distribution, creating powerful ecosystems within our thematic focuses. Guided by our value chain frameworks in sectors with strong macro tailwinds, Recharge focuses on integrating its portfolio companies to achieve competitive advantages in distribution, financing, costs, and product development.
Its core thematic sectors include fintech infrastructure, women’s healthcare, synthetic biology, semiconductor enablement, and digital assets.
I’m a managing partner at Recharge Capital and lead our venture strategy, Recharge Thematic Ventures. We invest specifically in fintech, healthcare, and consumer brands that gain a competitive edge through our distribution networks. I sit on the investment committee and specialise in go-to-market strategies. I help our portfolio companies build their sales and partnership teams, find efficiencies within sales operations, and allocate resources toward the highest ROI distribution channels.
What are some B2B trends we’re seeing in LatAm?
Enterprise cloud adoption continues to be a trend driving a fundamental shift in how businesses allocate resources and engage with their end customers. LatAm is going through a continued digitisation process of core workflows and an emphasis on better utilisation of data to automate business decisions. Similar to trends in the US promoting technology application to workflows, LatAm businesses understand that proper investment in technology is a key tenant to achieving sustainable profitability.
The cloud allows businesses to store, access, and analyse data in ways that quite easily correlate to bottom-line profit. We think emerging market regions have historically lagged initial adoption of cloud solutions relative to the US (mostly because of cost), but now implementation is happening at a much more rapid pace given the demonstrated success of these technologies across both US and multinational companies.
What is Recharge Capital doing to improve the B2B sector in LatAm?
Historically, we have been primarily focused on the financial services sector within LatAm. Our previous investments in Nubank, Uala, and Bankuish all centred around a thesis that the LatAm consumer was ready to be activated into the global financial system.
Although building LTV on a per-consumer basis continues to be a challenge in the region, we still believe holistic consumer digital adoption is the key to unlocking value across populations. Regardless of the particular country or regulator.
Our continued focus in LatAm now tends to aim at geographies where we believe digital adoption is pervasive enough that businesses stand a great deal to gain by investing in technology to fuel their distribution. Consequently, this has caused us to shift our investments more towards enterprise tools and less on-point solution consumer financial products/services.
How does the LatAm B2B sector compare to that of the rest of the world?
The B2B sector in LatAm follows similar trends to other emerging markets, like Southeast Asia. Businesses have been slow to adopt technology compared to their developed counterparts, primarily because it has been cost-prohibitive.
However, now with the obvious proof points and correlations to profitability, LatAm and other emerging market regions have begun to invest in their data capture, data organisation, and data analysis to compete. LatAm, in some respects, is probably in a more enjoyable position than other emerging markets. Especially considering the impact of the current geopolitical environment on trade throughout Europe, the Middle East, and Asia.
What are some unique challenges associated with the region in the B2B space?
While we do see significant opportunities for growth, barriers like infrastructure limitations are slowing down B2B development with transportation and cloud communication hindering local markets, especially in remote areas.
There are also several uncertainties with economic conditions across different countries in the region, with currency fluctuations, payment delays, and limited financing options increasing financial risks for B2B transactions. These bring security concerns relating to cyber theft posing challenges in safeguarding business data. As political cycles fluctuate, there are also diverse legal requirements, tax laws, and trade regulations that create uncertainty for B2B businesses operating across borders in Latin America.
Plans for the future (roadmap and growth plan) and final thoughts
We will continue to invest in LatAm businesses that either provide a potentially ubiquitous solution to core workflows for other businesses or have developed thoughtful infrastructure to better automate servicing their end customers.
Francis Bignell
