There are four things that I believe must be present for a fintech boom to occur. Think of it as a recipe for expansion, the exact measurements of which may vary from region to region. They are:
- regulatory clarity
- entrepreneurial fabric
- talent pipeline
- investment capital support
I approach this thesis in combination with one I borrow from Rajesh Agrawal, the Deputy Mayor of London for Business, who on our keynote stage pronounced that while the 19th century was defined by empires vying for primacy, and the 20th century by nation-states, the 21st century will be defined by cities. Thus I think of cities, not countries, leading the world in fintech. This is why places like Singapore and Dubai have a seat at the table, battling with the eminent cities of New York and London for preeminence. The list of cities where fintech is on the rise is too numerous to enumerate, but in this article I’ll add one stalwart to the list: Sao Paulo.
With that said, Sao Paulo, like the rest of Latin America, has a long way to go.
While at table with two-dozen leaders from the fintech world at the lovely and lively restaurant Fasano, Joy Schwartz and I heard firsthand what makes Sao Paulo so dynamic and prosperous, along with what’s holding it back.
“The central bank is supportive,” said one entrepreneur. Another claimed the government was doing “an amazing job.” These are not words I often hear innovators say of government institutions. Sandboxes, instant payment, open banking, it’s all here… or nearly all. ACH is still lacking, apparently, and the CVM, Brazil’s SEC, “treats everyone the same… like a bank… it’s very slow.” Also, the taxation system in Brazil is still quite complex, which presents barriers to efficiency as well as to onboarding the underbanked.
Undisputed Heavyweight Champion of LatAm
Coming to Sao Paulo is like arriving in Manhattan after visits to Detroit, Denver, and Dallas — all of which are important cities, capitals of commerce for their regions. But for a fintech company-builder, no city is more important in North America than New York, where technology, capital and human talent come together in a magical way to ignite innovation.
After taking a sampling of the fintechs being built today in Sao Paulo, it felt like we had arrived in the equivalent of a 2011-2012 New York fintech scene. And the entrepreneurs with whom I met did not disagree. “What,” they asked, “can we learn from the mistakes of those that went before?” What landmines did we step on that Brazilian entrepreneurs can avoid?
One unsurprising challenge faced by the fintech entrepreneurs of Sao Paulo is the availability of ready-to-deploy talent. It seems the education system didn’t plan for this surge in tech, data science and financial service innovation, and the output of talent is far behind what fintechs are seeking. According to the executives with whom we met, there is a “massive pinch” on talent, where they need “not hundreds or thousands, but hundreds of thousands” of talented workers to enter the force. The state education system has not been responding to market dynamics. Nota Bene: English and Spanish speakers are welcome. “We’ll take anyone!” they exclaimed.
In Sao Paulo we did see some glimmers of hope for women in fintech, the plight of which is well known. (Our own little company, LendIt Fintech, has been pushing hard at this flywheel for years, thanks especially to the dedicated efforts of my partners Joy Schwartz and Peter Renton. Thank you Joy & Peter!) In Sao Paulo, 25% of the fintechs at our table had female co-founders, and one of our guests reported that 45% of its employees were women — and more than 50% of its senior execs were also women. These are encouraging statistics indeed, though clearly not the norm in Sao Paulo nor Latin America.
In the enclosed video I report that foreign direct investment into Brazil was at an all-time low, which was true indeed — for a moment. The fact is, however, that FDI has been on a pretty steady increase since about 2010, and suddenly hit a 25-year low, which set off some alarm bells. Still, I believe the re-allocation of capital theme, which I underscore in the video, holds a lot of water.
Sao Paulo lives up to expectations. It is the capital of South American fintech innovation. Sao Paulo has a lot of battles ahead, and no doubt will face as rocky a road as entrepreneurs have experienced elsewhere in the world, but it is off to an excellent start.
I invite you to join me in Miami on Dec 3-4 to learn more about opportunities in Latin America. FINNOSUMMIT Miami by LendIt Fintech connects innovators, investors and bankers from around the world who are focused on advancing financial services in Latin America.