We held our 8th roundtable edition in Peru on 23 August, providentially the Feast of St. Rose of Lima. Beyond all expectation, we filled the private dining room at Astrid y Gaston with 17 guests from the fintech leadership of Peru, including founders, VCs, advisors and bank innovators.
Peru is poised for growth
Peru is the sixth largest economy in South America, has a pro-growth government, and legislative support for fintech innovation. On top of that, the Peruvian people have an entrepreneurial culture, one that is accepting of taking risks. Lima is the largest Peruvian city by far, with a population numbering nearly 9 million. Following the pattern of many South American countries, roughly 30% of the total population of Peru resides in Lima’s metropolitan area. Solving the concerns of both rural and metro populations are on the minds of the fintech entrepreneurs.
The challenge of informality
One challenge not unique to Peru, but certainly of pronounced quality here, is that of providing financial services to a population that is more than 60% informal — that is, untracked and untaxed. The University of Denver’s school of international studies published a study which estimates that Peru’s informal sector will remain at more than 30% of total employment beyond the year 2050… I’ll just wonder-out-loud whether the pace of change in the fintech industry — including all the advancements in AI/ML, biometrics, and mobile commerce — will accelerate the rate of formalization here. This seems to be a terrific untapped opportunity, ripe for the kinds of technologies that fintech is famous for, including the capability to provide credit to people using non-standard data.
The government, particularly the Ministry of Production, has a pro-growth stance, and has produced e-invoicing and e-wallet legislation to the benefit of the fintech builders here in Peru. But when I asked directly whether the government and incumbents were overall helpful, the roundtable participants were not completely in agreement.
“There are aspects that are working… and then there are the regulation enforcement agencies, and the banks,” one participant said. Certainly, in every ecosystem we’ll find entrepreneurs that have complaints about regulators and incumbents. But to have established legislation enabling digital banking, and to have the leadership of the incumbent banks — at least their leadership, if not their masses of employees — showing support for digitization, these are good signs for the future.
The government also appears to recognize financial inclusion as a strategic priority. Recently Peru has attempted to enact labor law reforms to assist in the formalization of its workforce. While yet unsuccessful, these efforts do reinforce the point that Peruvian lawmakers are leaning in to progress. As I note in my video commentary, fintech can play a special role here. By motivating the Peruvian citizenry to enter the formal economy by adopting financial tools and services, fintechs and banks together can create a strong engine of growth, grow their government’s tax base, and accelerate GDP growth.
A culture supportive of risk-taking
Of course there are large corporations with vast workforces in Peru, but this country seems to be built on entrepreneurship. “Here it is acceptable to take risks” said one executive at our roundtable discussion. This is a key advantage for Peru, as many cultures we visit around the world do not promote — nor even accept — career risk-taking. Such a positive attitude toward entrepreneurship promotes the emergence and strength of chapter-based organizations like Endeavor, and Startup Peru, a government association that promotes — and funds — entrepreneurs.
Predictably, there is a perceived capital gap in Peru, particularly for early-stage ventures. Friends-and-family funding appears to function much like does elsewhere — it’s all about who you know. Angel networks are apparently quite new, and small, and therefore they are viewed by founders as unsophisticated when compared to more developed venture ecosystems. Also, Peruvian family offices — which have the capacity to fill the capital gap many times over — tend to shy away from technology risk. This is a shame. On the bright side, however, there is one new Seed Stage investment fund, Salkantay Partners, which has been established in Lima. I imagine their dealflow will be extremely robust, having a monopoly position in the venture space. For the benefit of the ecosystem, let’s hope that monopoly doesn’t last too long.
I was impressed with what I saw from the Peruvian fintech entrepreneurs. I will be back, with friends.