The FinTech ecosystem in Latin American countries is living a moment of great expectation. The sector has shown accelerated growth levels, leading its main exponents to look to the future with enthusiasm. Jason Simon, an expert in the behavior of this area, discusses the different challenges and innovations expected for FinTech this year.

With 67 startups, the FinTech ecosystem in a country like Chile is evidencing growth at a rate of 38% per year, reaching 179 startups in the past year. Different reports indicate that the prevalent business model in the industry is business-to-business (B2B), as 68% of Chilean FinTech companies target their solutions to various types of companies, among which unbanked and underbanked SMEs stand out, with a prevalence of 71% and 76%, respectively.

In Simon’s view, if during 2021 FinTech activity was seen to grow, 2022 will be the year of total expansion, both in Chile and throughout Latin America. “Markets are open to new ways of consuming financial services, and there were sufficient conditions for confidence in specialized FinTech services to reach all segments of the industry,” he says.

Many other specialists add that, from the onset of the pandemic, many banks were forced to digitally evolve their systems, services, and processes. In this way, FinTechs gained strength as a key player in the digitization of banking. That is why they will continue to have an important development and an essential role in the evolution of the industry. They have earned a space, as they have enabled banks to renew their relationship with customers with innovative services, products, and applications.

Simon believes that the region will be a leader in digital banking due to the large untapped potential of the unbanked and underbanked population, coupled with the high penetration of smartphones. They call it a solid launching pad for digital financial services.

Simon argues that customers demand digital functionalities and personalized services across their entire banking experience, from opening accounts to applying for credit.

“A digital transformation, with the right technology, enables banks to drive their sales margins through fully digital channels, leaving the customer’s visit to the branch to open a bank account in the past, replacing it with a streamlined process with their cell phone and a couple of biometrics,” Simon states.

These types of innovations and new insights highlight that, to succeed in the new financial ecosystem, adding a dash of digital to traditional processes will not be enough; a digital and customer experience-centric approach must be implemented at all levels of the organization.

According to Simon’s analysis, the challenge for most FinTechs is to scale their operations. In addition, a suitable regulation could be a relevant factor to facilitate the development of certain business models, since 48% of the startups surveyed consider that there is currently no specific regulation for their business model.

In different Latin American countries, one of the main challenges faced by FinTech companies is that there is still no adequate and modern regulatory framework that would allow technology finance companies to bring their full potential to the market. People need more financial services, with better rates, with guarantees, fairer for everyone.

“One of the challenges, without a doubt, is regulation and legislation that must be modernized in response to the new way of doing business,” Simon explains. “The current legal framework is designed for traditional banking and not for today’s digital financial systems.”

Another challenge for these companies is to ensure the security of their systems that guard customer data, considering that cyberattacks are becoming increasingly elaborate. Protecting customer data and privacy is a key value. Any cyber-attack or data theft can generate problems in the credibility of these companies.

Regarding future projections for this industry, experts agree with Simon that FinTech companies have provided innovative and optimized models for knowing the client and the use of technology to minimize costs and time, providing evolution, transparency, and operational speed, and eliminating physical and geographic barriers.

Simon maintains that FinTechs have great room to grow and evolve: “These groups are much more agile than traditional banks in creating new offerings, products, and experiences, so their penetration, particularly among the younger generations, is expected to continue to increase,” concludes the specialist.