A startup investment boom is transforming Latin America’s economy

Brazilian startup Nubank went public this week and is now the most valuable bank in Latin America. The financial industry in the region is experiencing the most powerful upheaval in its history. But the same thing is happening in other industries right now. Latin America’s economy is gaining productivity.

by Alexander Busch, Latin America correspondent for Handelsblatt and Neue Zürcher Zeitung

 

Brazil’s Nubank started with free credit cards eight years ago and is still only making losses. Nevertheless, as of this week it is worth more than the Brazilian private bank Itaú-Unibanco, which was previously the leading institution by market capitalization in the region.

With the IPO, Nubank is also playing the pioneer of an entire industry on Wall Street: Nubank’s successful IPO is now seen as a reference for other global neobanks such as Chime from California or Revolut from the UK, which also want to open their capital.

But Nubank is not alone: there are now about two dozen fintechs in Latin America that are competing with the established banks. Stone, PagSeguro or XP from the Brazilian financial sector have also listed their shares in New York.

This displacement process is also taking place in other sectors: Quinto Andar or Loft are shaking up the Brazilian real estate sector. Rappi from Colombia or ifood have completely changed the food industry. Loggi is rolling up the logistics sector. Ualá from Argentina is successful as a fintech and is now going to Mexico. Satellogic from Uruguay is the first unicorn among the AgTechs – i.e. a startup that is worth over a billion dollars after the first financing rounds.

The value of fintechs like other startups in the region is driven both by the general hype around neobanks worldwide and the interest of venture capital investors in high tech companies in Latin America: between January and November this year alone, $14 billion of capital flowed into these companies. That’s three times more than the previous record year of 2020, and the number of unicorns in Latin America has doubled every year since 2018. Today, 26 startups are considered unicorns.

Japanese investment conglomerate Softbank has just increased its Latin America fund to a total of eight billion dollars. Softbank has stakes in 48 startups in Latin America, 15 of which are unicorns.

In the meantime, traditional investors are also putting their money into Brazilian fintechs: Warren Buffet’s US investor Berkshire Hathaway invested in Nubank in the middle of the year. At C6 in Brazil, for example, JP Morgan took over 40 percent of the capital.

For Latin America, this is good news: If governments have barely managed to reform for years, the biggest productivity gains at the moment are likely to come from digital transformation.

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