Tech in Latin America

38 Pages·2016·3.03 MB·English

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LATAM
DIGITAL
Tech in Latin America
NOVEMBER 2016
SPECIAL THANKS TO:
I-DEV would like to thank Brad Michaels and his company, Social Labs, for collaborating to pull the cutting-edge market insights
in this report. Together, we interviewed over 35 thought leaders, innovators and investors across Latin America’s tech sector:
Jackie Hyland Liliana Gallego Adalberto Flores Armando Jara
Acción Venture Lab Creame Kueski Redelcom
Facundo Turconi Amparo Nalvarte Ana Paula Gónzales Enrique A Hablutzel
Afluenta Culqi New Ventures Mexico Seedstars World
Carolina Medina Augusto Ruiz Tagle Ciro Luis Echesortu Pascal Finette
Agruppa Destácame NXTP Labs Singularity University
Guillermo de Vivanco Jared Miller Rafa de la Guia Horacio Melo
Angel Ventures Peru EFL Global Omidyar Network Start-Up Chile
Cesar Z Huedeberte Andres Fontao Miguel Arce Julie McPherson
Asix Finnovista Pagos Digitales Peru Tiaxa
Fernando Luege Andy Lieberman Jessica Salazar Alexander Gomez
Bankaool GSBI Pago Digitales Peru Telefónica – Wayra
Sebastian Serrano Francisco Sandoval Paul Proctor Dan Cohen
BitPagos i2btech Parity Pay Tienda Pago
Jeffrey Bower Maria Laura Cuya Martin Schrimpff Maria E Miranda
Bower & Partners InnovaFunding PayU Visanet
Andres Barriga Juan Fermín Rodriguez Andrés Alban Analia Ferrero
Cornershop Kingo Puntored Visanet
We’d also like to thank Merche Calleja from the Taller de Arquitectura & Diseño in Puebla, Mexico for designing our cover.
From BitPagos to BiM, Latin American innovators are taking
advantage of high mobile penetration, a strong middle class and a
unified culture to capture new opportunities in the digital economy.
ABOUT THIS REPORT
While Brazil tends to attract the majority
With twice the US population at 641 of the buzz, boasting 209 million people
SECTION 1
million people and nearly 70% mobile and tech innovations that have attracted a
What’s Driving Digital?
penetration, Latin America poses a large range of investors seeking to tap this large
and attractive business opportunity for market, we have chosen to focus our Page 4
digital tech innovators. While it may not analysis on the burgeoning opportunity
get the attention of East Africa’s ‘Silicon for the rest of the region – with leading
Savannah’ and the US’s start-up innovation countries Mexico, Colombia, Peru, Chile
scene, growing per-capita wealth, high and Argentina representing a market of
mobile penetration and a large number 432 million people primed for a digital SECTION 2
of un- and under-banked people and revolution. Setting the Pace:
businesses make Latin America one of
Top Trends to Watch
the highest potential digital economies in
the world. In this report, we highlight key Page 8
trends to watch out for and opportunities
to further unlock growth in this market–
particularly in ways that people make
SECTION 3
payments, do business and access capital.
Barriers & Challenges
Page 33
3
SECTION 1
What’s Driving Digital?
Latin America vs. the World:
Drivers of the Digital Economy
Urbanization GNI per capita
Mobile user pentration
GROWING WEALTH & RAPID URBANIZATION
MIDDLE CLASS
Latin America and the Caribbean have 80% 67%
In the past decade, the number of people the largest urbanized population in 63%
in Latin America’s middle class grew the world, with 80% of people living
by 50%, incorporating 50 million new in cities; this compares to only 45% in 8.9k
consumers. During this time, Gross Asia and 37% in Sub-Saharan Africa.2
National Income (GNI) per capita Rapid urbanization in the region is 45%
38%
has grown at 11-12% per annum – driven by jobs – and with jobs come 5.6k
approximately the same rate as in Sub- steady incomes and rich, concentrated 40%
Saharan Africa, but with an average markets for new products and services
income 5.5x higher at ~$9,000.1 Greater as well as client acquisition. Yet, with the 1.7k
income affords greater disposable income population relocating to big cities, the
to spend on products and services, sense of local community and human
more frequent transaction needs, and a connectivity is eroded – driving people
willingness to pay for financial services toward digital and social media solutions
such as loans or wealth management. to stay informed and connected. LATIN SUB-SAHARAN ASIA
AMERICA AFRICA
Sources: World Bank & eMarketer data, 2015–2016
1. Economic Mobility & the Rise of the Middle Class, World Bank, 2013
2. World Bank data, 2015
4
Despite high mobile and internet penetration in Latin America, UNBANKED POPULATION
the majority of the population remains unbanked
0% 50%
PERU 22.1M
TODAY...
MEXICO 29.6M
COLOMBIA 74.6M
CHILE 6.7M
400 182 350 Total Users
M M M
BRAZIL 65.4M 320M
Mobile phone users Smartphone users Internet users
KENYA
Sources: eMarketer data, 2014–2016; World Bank Global Findex
Database, 2014
CHEAPER TECHNOLOGY & Now, with a basic phone for $20 and challenging, Latin America is unified
HIGH CONNECTIVITY a smartphone under $100, mobile on a different, cultural level – and by
penetration is soaring, making online a common language, if we exclude
Growing wealth combined with more presence and mobile-enabled services Brazil! Go to Colombia, Mexico, or
affordable technology has led to an a growing imperative for businesses Chile, and many will recognize the same
explosion in connectivity in Latin America, to remain competitive, boost product Latin singers, authors and celebrities.
with rapid adoption of smartphones and sales, engage consumers and improve Even telecom companies and banks
the Internet in the last 5 years. Sixty-eight operational efficiency. While these are can be found across the region, having
percent of Latin Americans have mobile indicators of the regional potential, there established a foothold long ago. Leading
phone subscriptions, the highest after is a lot of room for growth – under 60% telcos Movistar and Claro can be found
Europe and North America, and about of the population connects to internet in almost every Latin American country,
45% of subscribers use smartphones.1 at least once a month despite regional while BBVA, Santander and Citibank
One third of Latin Americans currently mobile internet coverage of 90%.3 have similar reach.
access the internet via their mobile
phones, and it is expected that by the STRONG COMMON REGIONAL LARGE UNBANKED & UNDER-
end of 2016, more than 60% of the PRIDE, LANGUAGE & CULTURE BANKED POPULATIONS
population will be online, connecting
from an array of devices including first While Latin America has diverse Despite high mobile penetration, the
and foremost smartphones, followed by policies and regulations that many will full potential for a thriving e- and
PCs and tablets.2 argue makes cross-border expansion m-commerce ecosystem is constrained
1. IDC FutureScape: Latin America IT Industry 2016 Predictions
2. GSMA Mobile Economy Report, 2015
3. GSMA Intelligence, 2016
5
by a large unbanked population that KEY PLAYERS DRIVING THE DIGITAL ECONOMY
relies only on cash payments. Forty-
nine percent of Latin American adults
are without a bank account, and up to
Developers of new products/services to
70% are considered “underbanked” –
better address consumer and business
without access to products like loans needs, such as operations, purchasing Consumers and companies who
or credit cards. Brazil and Chile lead in experience or access to capital anticipate the future and who will take
banked populations with 68% and 63% the risk to realize the potential future
benefits of first mover innovation
with formal accounts, while others like
1
Colombia, Mexico and Peru lag behind
at 39%, 39% and 29%, respectively.1 TECHNOLOGY 2
While Latin America has higher per
INNOVATORS
EARLY
capita bank branches and ATMs than
other regions, banks are not reaching the ADOPTERS
greater population, opening a lucrative
gap in the market for innovators.
Extra wealth and owning a phone are just
a few factors that create the foundation of
a strong future digital economy. Critical
to its growth are three collaborators
who, when linked effectively, foster 2
the development of impactful, highly
scalable solutions: (1) technology
3
innovators, (2) early adopters, and (3)
Governments, companies
ecosystem enablers. and investors who pave the
ECOSYSTEM
way for digital disruption
In this report, we explore these three by breaking down barriers ENABLERS
in policy, funding and
actors, regional successes and the range
infrastructure needs
of opportunities we see ahead to unlock DIGITAL
full market potential.
ECONOMY
1. World Bank Global Findex Database, 2014
6
From TV, music, and books, to companies like
Bimbo, Movistar and major banks – LatAm not
only shares a common language, but also has
a long history of sharing across borders from
Puerto Rico to Peru. This makes it a very scalable
marketplace twice the size of the US. What
happens in Colombia or Mexico doesn’t stay in
Colombia or Mexico......”
– Jason Spindler, Managing Director at I-DEV International
Photo: Courtesy of Bower & Partners
SECTION 2
Setting the Pace: Top Trends To Watch
1 New players are driving mobile 4 Mobile solutions are streamlining
money & digital payment adoption logistics & delivery
Page 9 Page 21
2 Alternative banking & loans 5 Latin American innovation hubs
services are filling the gap are on the rise
Page 14 Page 26
3 B2C players bet on booming digital 6 Investors chase the “El Dorados”
commerce of e-commerce & fintech
4 MPagoeb 1i6le solutions are streamlining Page 29
logistics & delivery
Page 21
8
Low acceptance of traditional
banking has opened a significant
1 market for m- & e-solutions
New players are driving mobile
% OF THE POPULATION
money & digital payment adoption 50%
Bank account
Traditional banks have failed to capture the masses,
40
opening a broad opportunity for digital innovators %
Debit cards
20
%
Credit cards
Source:World Bank Global Findex Database, 2014
Cashless payments are a critical building EASING THE UNBANKED TOWARD appliances and electronics, in ‘cuotas’ or
block to e- and m-commerce but are E- & M-COMMERCE installments, online payment processors
often taken for granted, especially in a can offer lay-away or installment
cash-focused culture. In Latin America, In a region with low trust and high options to adapt to this custom. Kingo
only 40% of consumers have debit cash dependency, hybrid solutions in Guatemala, for example, allows
cards and 20% credit cards, compared are being developed to ease skeptical consumers to pre-pay for solar energy
to double this in high-income OECD consumers toward alternative and online by the hour, day, week or month at their
countries. Less than 4% have a mobile payment options. For example, PayU local kiosk, where shop owners are
bank account, and only 50% have any (international) and Puntored (Colombia), connected to the mobile platform.
kind of bank account.1 With low banking 2 online payment processors, have
rates and low trust in banks, there is a partnered with convenience store chains Mobile money is also a critical and high
gap in the market for new entrants who like Oxxo in Brazil and Mexico to allow potential opportunity to attract the large
offer seamless and trustworthy alternative customers to pay for online purchases unbanked population. M-PESA in Kenya
solutions. via cash in their local store. For low to remains the strongest success story of
middle income consumers who are used the potential for mobile to change a
to paying for expensive products, such as developing economy, allowing customers
1.World Bank Global Findex Database, 2014
9
Mobile money is a challenging product.
You need a value proposition significant enough
that the incentives to participate reach a point
where it becomes more difficult to be
out of the system than in.”
– Jeffrey Bower, Managing Partner at Bower & Partners
to send and receive money from anyone Mobile money players have popped up BrasPag and MercadoPago are among the
with a mobile phone and an M-PESA in Latin America already, for example: online and mobile payment processors
account. More trusted and secure than Tigo in Central America, Bolivia, and that have achieved scale in penetrating
cash, it has also driven financial inclusion Uruguay; recently launched BiM in multiple Latin American markets.
in areas unreached by banks in Kenya, Peru; and Telefónica partnerships with
and has prompted countries with high banks in Brazil. Yet, these initiatives In addition to carving out a share of the
unbanked populations all around the have far to go to achieve critical mass market, these players are also pushing
world to attempt to replicate this system. or similar success. The backing of strong incumbent banks and credit card
M-PESA was launched and promoted by incumbents who leverage existing processors to explore better solutions to
incumbent telco Safaricom and has been infrastructure, combined with more user- stay relevant and attract an increasingly
a critical driver of Kenyans’ adoption friendly, diversified solutions that have tech-savvy, still bank-averse population.
of mobile money, with 90% of the day-to-day practicality, can incentivize a Some businesses have done this through
population using M-PESA on a regular dramatic shift. partnerships, while others have avoided
basis1 compared to fewer than 4% of traditional banking altogether.
Latin Americans using any mobile money ENTRANTS OFFERING INTEGRATED
platform. With a similar traditional bank & MORE AFFORDABLE PAYMENTS These rising stars are shifting the market
account penetration to Kenya prior to by offering a better user experience,
M-PESA (50%), Latin America is ripe for While innovators have struggled to scale better pricing, and seamless integration.
a new entrant, such as a mobile money and navigate fragmented Latin American Key innovators can secure their
player, to capture this opportunity.2 markets, success cases like PayU, AllPago, relevance and growth by offering
1. Communications Authority of Kenya
2. World Bank Global Findex Database, 2014
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