Generation Fintech: why Gen Z and Millennials are boosting the economy in Latin America
When you ask teens or young people in their 20s when was the last time they stepped on a bank, you may get “never” for an answer. But if you ask for their most recent wire transfer, they would probably answer “Just a few minutes ago”. Nowadays, going to the bank seems like an old practice from years ago, and because of the pandemic, the boost of digitalization, and young generations as the top consumers, the banking game has changed, and so it will continue.
Fintechs show up with the leading part in this landscape, especially in Latin America. According to the report “Latin America and the Caribbean: a consolidated ecosystem for recovery” performed by IDB, in 2021, the number of fintech platforms reached a total of 2,482, representing a growth of 112% between 2018 and 2021, and the numbers keep rising.
Fintechs are occupying a bigger space in Latin America’s economy, and Millennials and Gen Z have a lot to do with it. Keep reading this blog and find out the current outlook of Fintech in Latin America, the causes of its rising, the reasons why younger generations love them, and what’s coming in the future.
Fintech Landscape in Latin America
Fintech in Latin America has recently been in the eye of global investors. According to CB Insights, a data provider, over 20 billion dollars of venture capital went into 952 deals in Latin America in 2021. This is nearly four times more than in 2019, when Latin American fintechs received 40% of venture funding in 2020.
Plus, due to covid-19, money was mostly disbursed digitally. This made an estimated 40 million unbanked people sign up for traditional and digital accounts in countries like Brazil, Colombia, and Argentina.
This is precisely where Fintech aims. In a survey performed by IDB and Finnovista, 36% of the fintech startups surveyed answered that they present solutions targeted to segments of the population totally or partially excluded from the formal financial system and who are included in this population? Millennials and Gen Z: People with no job experience, financial record, or stable incomes but still are the primary workforce and most of all, the bigger consumers.
Why are Fintechs growing so fast?
There are many reasons to explain the rapid rising of fintech platforms, but we’re resuming them in three facts:
1. Traditional banks are supporting Fintech: Fintechs are not growing and doing it all on their own. Just like venture capital is betting on them, traditional banks are getting close to them, too. According to Finnovista, 6 out of 10 fintech companies in Mexico, Colombia, Chile, and Peru reported collaborations with incumbent financial institutions. This reveals banks and fintech are likely to operate in a symbiotic relationship.
2. E-wallets: being able to pay or collect without touching cash or having to swipe a card is another reason why Fintechs are continuously growing, and as a result of the pandemic, people lost their fear of using these means due to the restrictions to stay indoors. According to Research Lab (AyerViernes), currently, 30% of people in Latin America admit they have a downloaded digital wallet. Even though people continue to use cash, debit, and credit cards, in countries like Argentina users already identify e-wallets as their main payment method. In Colombia, e-wallets have reached millions of users who just need a phone number to join the platforms, such as the case of Daviplata (5,9 million) and Nequi (1,3 million).
Last but not least, Nubank, the Brazilian Fintech, offers credit cards with no handling fees, no formalities, and lots of flexibility. For example, users choose their own payment deadlines and don’t need to worry to call the bank when going abroad because their cards will work no matter where they are.
3. Government cooperation: governments have also made it easier for Fintechs. For example, Fintechs in Colombia gets going without meeting the full requirements of a financial-service license.
Fintechs: the favorites of Millennials and Gen Z
Millennials and Gen Z are the people who were born between 1981 and 1995 and between 1995 and 2010 respectively. And from now, these generations will be protagonists in all economies, including banking. There are several reasons why younger generations are preferring fintech platforms and it goes beyond fulfilling an unattended population.
A June 2021 survey by EY found that 51% of Gen Z consumers name a fintech company as their most trusted financial brand, while only 23% name a national bank. And why does it happen? According to The Wall Street Journal, three patterns show why Gen Z lean toward Fintech to manage their finances:
– A dislike of credit-card debt.
– An expectation that brands will reflect their values.
– A desire for community, networking, and self-education within financial services that invest in fun and recreational activities.
Fintech companies make a point to innovate by trying to reflect the values and appeal to the social concerns of the new generations: climate change, diversity, inclusion, etc. which has been a huge weakness of existing banks. Fintech appears like an easy, fun, and relatable alternative that communicates in the same language, and understands their needs like no other business.
What’s coming up for Fintechs?
How do you imagine banks in the future? For Millennials and Gen Z, there are no banks at all in the landscape. 33% of them believe that banks will not exist within five years. Fintechs have erased physical boundaries and opened brand new possibilities for anyone with a phone or internet connection.
For the next few years, Fintech’s goal is the integration of new services. The trend is for a single Fintech to offer the services that in previous years were offered by two or three companies, such as payment gateways in alliance with important companies, and to strengthen the features of their credit products, in addition, to scaling its offer to foreign markets.
Even though Fintechs are big enough in Latin America, the world leader in this field is still Asia. They’re paving the way for the evolution of the sector in the United States, Europe, and the rest of the world.
Whether they keep growing or not, Fintech companies have given all types of industries a lesson in product development and audience engagement. They’re filling the blank with the exact things their consumers want: an easy and simple product that fulfills their needs whenever they want, however they need to, and shaped to who they are.
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