Stephen WoodmanFintech companies have grown exponentially across Latin America in recent years, leveraging technology to undercut and outperform banks.
Uruguay has emerged as a surprise contender on this front. Earlier this year, the fintech venture dLocal reached a valuation of US$1.2 billion, making it the country’s first unicorn. But given Uruguay has a population of around 3.5 million, the country’s entrepreneurs are compelled to grow and reach clients and investors beyond the domestic market.
“If you’re going to try you have to try abroad. That is definitely the mindset,” said Rodrigo Tumaian, the president of the Uruguayan Fintech Chamber and the CEO of the fintech venture Prometeo OpenBanking. “If you create your company to match the size [of the country], you’re missing out on a lot of opportunities.”
Last year, Uruguay boasted 63 fintech companies, offering a broad range of financial services. A quarter of these firms provide specialist technology to financial institutions, the largest segment. The second-biggest segment is electronic lending, followed by payments and remittances.
Interest in the once overlooked fintech ecosystem has soared since the payment platform dLocal obtained unicorn status. Founded in 2016, the cross-border payment platform helps international merchants reach customers in emerging markets across Latin America, Africa and Asia. So far, the company has formed successful deals with multinational giants including Amazon, Uber and Nike.
Several other Uruguayan fintech stars have begun to internationalize their operations. Regum Capital, an investment platform headquartered in Montevideo recently opened an office in New York. Prex, a digital wallet service, has secured deals with clients including PayPal, Payoneer and Mastercard.
Uruguay is also a founding member of Mercosur, the South American trade bloc, and Aladi, a trade association that includes ten South American countries, as well as Cuba, Mexico and Panama. These treaties provide access to major technology markets in Latin America, such as Brazil, Mexico and Argentina.
A Strategic Advantage
Private initiatives and strong government support have propelled fintech activity in Uruguay. The Montevideo Fintech Forum was the first of its kind in the southern cone region. Since 2016, the forum has hosted more than 200 speakers and helped connect firms with investors, regulators and banks.
The Uruguayan Fintech Chamber has also accelerated growth in the sector. Established in 2017, this organization promotes greater coordination between the state and the entrepreneurial ecosystem. The aim is to encourage government involvement in fintech initiatives and promote beneficial legislation.
“The regulator’s relationship with the sector is good, and there is permanent communication, which gives Uruguay a strategic advantage over other countries in the region,” said Sebastian Olivera, the founder of the Montevideo Fintech Forum and the secretary of the Uruguayan Fintech Chamber.
In 2014, the government implemented a financial inclusion law that opened the door to more fintech innovation by supporting the use of electronic payments over cash.
“What Uruguay has to do right now is start telling everyone that it’s not just about the market,” Tumaian said. “It’s about the products that we create as a country.”
Olivera said Uruguay’s sturdy financial structures were another catalyst for fintech growth. The country’s fintech sector has benefitted from the consumer protections that help build trust with new customers.
“The case of Uruguay is different from that of other countries, where the disruption has mainly been due to poor service or the lack of service from traditional providers,” he said.
Instead, Olivera argues that the fintech boom was due to the “entrepreneurial culture of Uruguay and the need to expand to global markets.”
Nevertheless, not every fintech segment has enjoyed the same level of support. Generally, more disruptive technologies have met with more opposition.
“There has been a disparity in results in the different verticals,” Olivera said. “[We have seen] great development in the payment system, a bumpy path in relation to crowdfunding platforms and resistance – from the financial sector – to cryptocurrencies and crypto assets.”
Obstacles to Internationalization
While Uruguay boasts excellent fundamentals when it comes to its financial system and talent pool, entrepreneurs still face significant barriers to growth.
“It’s much more difficult for fintech companies to access credit when compared to the United States,” said Mauro Taroco, the CEO and co-founder of ThinkUp, a mobile app development company that has several fintech clients. “There’s definitely an opportunity to improve there.”
Last year, President Luis Lacalle Pou signed a law that made it easier for startups to access loans through crowdfunding. However, the sector would gain significantly with more support from traditional lenders. Domestic bank credit to the private sector as a percentage of GDP stood at 28% last year, compared to 52% in the United States and 64% in neighboring Brazil.
External financing can also be a challenge for Uruguayan fintechs, who remain an unknown quantity to most investors. “One of the problems that Uruguay has for getting money from abroad, especially from venture capital, is that people don’t know much about [the country],” said Promoteo’s Tumaian. “You have to explain that you come from a small market… it’s not like saying ‘I’m a Mexican’ or ‘I’m a Brazilian’”.
Nevertheless, success stories such as dLocal prove that Uruguayan firms can generate enough funding to break the barriers to internationalization.
“What Uruguay has to do right now is start telling everyone that it’s not just about the market,” Tumaian said. “It’s about the products that we create as a country.”
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