Over the past 20 years, the biggest transformations in the payment industry have revolved around the physical characteristics of plastics and network security in terms of encryption methods, upgrades to acceptance network and terminals, and messaging. Banks have evolved their technological architecture, but further development is needed to operate more agile platforms.
Major changes in banking systems have been motivated by the need to comply with banking rules. By comparison, very little effort has gone into fostering the development of new products and platforms. As a result, few banks in Latin America have developed the capabilities to operate and consume APIs in order to interact with an ecosystem that continues to expand on a daily basis.
In contrast, during the past six years, we have witnessed an explosion of new applications coming from small technology players that use simpler operations, processes and innovation models to bring us new ways to pay. Several of these players have grown quickly and become additional engines to drive the industry. In Latin America and the Caribbean, the fintech sector, composed by companies that develop technology for the financial industry, is thriving. Their future looks promising, in part because of the support provided by institutions that are playing a role as catalysts in each of the markets.
Venture capital investment and institutional investors are still shy, amounting to around US$500 million according to CB Insights, a company that tracks investments in this segment. For reference purposes, fintech investments worldwide exceed US$23 billion.
A couple of weeks ago, I was in Brazil, visiting the headquarters of Startupfarm (http://www.startupfarm.com.br) and GSV Labs (http://www.track.gsvlabs.com.br), two companies with which we are working based on a collaborative model. The conclusion of our meetings, discussions and joint experiences is that fintech companies in the region will become an important contributor of new banking technologies and will help make payment methods more dynamic. The future of banks and fintech companies is interconnected.
At Visa, we recognize that the ecosystem is evolving rapidly, and this is the foundation of our approach to and support of the fintech sector. We are committed to continue linking the ideas generated by new players to the scalability and security that is inherent to banking. The Visa API platform (https://developer.visa.com) allows banks and fintech companies to develop solutions based on a collaborative model.
According to a number of studies, 70% of fintech companies want to develop partnerships with banks to bring solutions for new consumers, help expand mobile payments, make e-commerce payment acceptance more dynamic, and solve problems for merchants. The latter offers the biggest challenge. From a broader economic perspective, the value added by onboarding a merchant is greater than the value of attracting a new consumer. Therefore, technologies that help small merchants participate in the digital economy have a multiplier effect for financial inclusion and for national economies, but, even more importantly, for the future of millions of families operating small businesses.
Note: Views and opinions expressed in this article are my own.