While investors took a raincheck on most deals this season, open banking platform Belvo struck gold in LATAM, as Co-founder Pablo Viguera explains.
COVID-19 has seen whole sections of national economies put on ice, so it’s no surprise to learn that investment in fintech has suffered, too.
In its report analysing deals done in the first quarter of 2020, market intelligence agency CB Insights calculated that 404 deals were struck at a value of $6.1billion globally – the fewest number of deals since Q1 of 2016 and the lowest deal value total since Q1 of 2017. Of course, the impact of coronavirus didn’t begin to bite hard outside of China until March, so we can expect the performance for April to June to be far more depressing.
It makes one LATAM-based fintech’s success in securing $10million in May to finance its product development and expansion all the more impressive.
Maybe Belvo – launched last year in Mexico and Colombia to connect institutions, fintechs and developers over an open banking platform – got lucky. Or maybe investors judged it to be just too good an opportunity to miss. That’s because Belvo is positioning itself as one of the essential building blocks for the next generation of financial businesses in LATAM (Latin America) – a region where fewer than half the population have bank accounts and where platform solutions such as Belvo’s are seen as essential to building the financial infrastructure that governments are keen to promote. Or, as co-founder Pablo Viguera describes it, Belvo is providing the ‘picks and shovels’ to fintech innovators so that they can transform financial services in the region (with or without the banks).
It’s been likened to Plaid – the financial services API (application programming interface) startup that helps developers in the UK and Europe share banking and other financial information. If Belvo is the ‘Plaid of South America’, then investors who poured money into it in the middle of a pandemic were probably given a confidence boost by the then still recent acquisition of Plaid by Visa for more than $5billion at the start of this year.Viguera acknowledges that Belvo was ‘very fortunate to have completed this fundraise’.
“It’s testament, obviously, to the hard work the team has been putting in over the past year, but also it’s testament to the potential of fintech in LATAM,” he says. “It has the potential to be a transformational force across the region. Ultimately, we built the picks and shovels of the fintech innovators and, for us, it’s great to have the resources to then go on and equip these fintech innovators of today, or even those of tomorrow that will be able to exist because of us.
“We’re extremely happy to be bringing onboard top-tier investors that can really help us for the months, years, and decades to come, and that not only share our vision about providing next-generation infrastructure but also have deep operational expertise in scaling infrastructure software-as-a-service, and specifically in LATAM.”
SoftBank leads charge
Investment in LATAM-based fintechs had been accelerating hard before the global pandemic slammed on the brakes. The annual report from the Latin American Private Equity and Venture Capital Association (LACVA) revealed that venture capital investment in the region had soared from around £2billion in 2018 to $4.6billion last year. Fintech accounted for the biggest slice of the pie at 31 per cent.
The $5billion SoftBank Innovation Fund, launched in early 2019, was a major factor in last year‘s growth, and was by far the biggest-ever technology fund to target the region. The Japanese bank’s interest could be a rising tide that lifts all boats – given that it increases competition for seed-stage investment.
Colombian delivery startup Rappi received a $1billion investment led by the SoftBank fund in April 2019, with other big deals including Brazilian digital bank Banco Inter ($330million), Brazilian lender Creditas ($231million), Argentine personal finance app Ualá ($150million), Mexican digital lenders Konfio ($100million) and AlphaCredit ($125million).
SoftBank partnered with LATAM-based funds to increase the investment power, and benefit from their local knowledge. One of those funds is Argentina’s Kaszek Ventures, which, alongside Silicon Valley’s Founders Fund, was the group behind the Belvo deal.
Viguera identified the opportunity for entering the LATAM market when working for peer-to-peer lender Verse. He was struck by the lack of inter-banking infrastructure, which would make expansion there difficult for Verse. Because Belvo‘s product provides some of the first open banking API rails for Latin America, demand is potentially huge – and growing fast due to the added pressure from coronavirus to develop digital banking.
Mexico and Brazil lead the way in digitisation, with regulators in both countries driving open banking forward as a method of stimulating the economy and financial sectors. Both have worked closely with the UK’s Financial Conduct Authority to create systems that build on the British experience. But beyond Mexico and Brazil, Viguera says the LATAM picture is fragmented, with wide variation between national financial systems.
“Scratch beneath the surface and it’s very different to what you can see in the UK or Europe,” he says.
“You find different legislation, different banking landscapes, different banking infrastructure. To navigate that is very tricky, and there won’t be, anytime soon, a common banking industry agenda or banking industry regulation in the way the revised Payment Services Directive or open banking has swept across Europe.
“But in Brazil the agenda is kicking off in a few months, with the intended completion of open banking planned for the end of 2021. Then, as we’ve seen in Europe, there will be a period of time where adoption will need to kick in, and where every stakeholder will need to comply, whether that’s public API development or technical requirements or onboarding, and so on. There will also need to be a lot of education from all the stakeholders involved.”
Spotting the opportunity
Viguera has experience of the UK open banking process from his time working at Revolut, where he was one of the early employees. Realising the same process would be undertaken in Latin America, and knowing there was no infrastructure to support it, was enough for him and fellow Belvo co-founder Oriol Tintore to realise they had a business. Interest was strong from the start and the company won support from sources including the Y Combinator accelerator, and David Vélez, co-founder of Brazil’s lending startup Nubank.
Viguera says May’s $10million investment will be spent on product development and geographical expansion beyond Mexico and Colombia, where product delivery has already begun. Headcount will be expanded, too, building on teams that were launched in Mexico City and Barcelona.
“Part of the goal with this new fundraise will be to speed things up and to build an amazing product faster,” he says. “One of the things we’re actively doing now is extending coverage to other countries like Brazil, where we’ll be launching very soon. We’re also looking at specific verticals, and specific developer tools, so that we can keep adding to our API to ensure it remains the go-to platform for developers to plug into financial data across the continent.
“One of the products we’re developing at the moment is what we call an intelligence API, which goes beyond being the pipes through which you can access data by contextualising that data. So, being able to not only get a specific end user’s transaction data on a credit card, but being able to answer questions about the person’s income, or their liabilities, and so on. That’s going to be a big part of the next few months.
“To execute this plan we need the best and brightest people. We have this really cool dual-hub setup, we’re in Mexico and in Barcelona, and an office in Sao Paulo is coming soon. We’re hiring across the board – in engineering, product and business development.”
Viguera is clearly excited by the potential presented by fintech in Latin America – ‘democratisation of finance’ is much talked about in a region where cash is still king and around half of adults are unbanked. But he recognises the responsibility financial players carry, too, since lending done badly can quickly become bad debt, wrecking lives and businesses. To that end, Viguera says financial education is ‘extremely important to keep those people creditworthy’.
As for the immediate future, ‘the pandemic will drive digitisation across the board’ he says.
“In areas of finance where the touchpoints with the consumer do not have to be physical, there will be an acceleration of digitisation and investment in new processes. That will ultimately drive greater fintech adoption. Regarding infrastructure, there is a real pressure on the legacy players, such as banks, to invest
in the technology that will enable this.
“After the financial crisis, banks in Europe became more open, but in LATAM, the time of reckoning for banks had not yet arrived.
“Then challenger Nubank launched [in 2013] and people who were trapped by the traditional banking system could suddenly get a credit card. Now Nubank is launching, very successfully, in Mexico.
“We’ll start seeing many more cases like that, especially as talent and capital flow into fintech in LATAM.”