By Mike Packer
At QED Investors, we have witnessed tremendous growth in the LatAm fintech market since our first investment in Nubank more than seven years ago. The market continues to introduce interesting solutions across verticals, but one subset that should expect continued focus is small businesses. Startups are innovating for the more than 10 million SMBs in Latin America.
Fintechs have established themselves at the forefront of providing the more than 10 million SMBs in Latin America with implementation of digital strategies and processes that accelerate growth. Given the importance of SMBs to the region, this previously unexperienced efficiency in this helps uplift hyper-local and nationwide economies.
When looking at the majority of SMBs across Latin America, many rely on analog systems to run operations. According to a 2020 LABS study, 43 percent of SMBs still do financial management “in a notebook or on a paper sheet,” and only 27 percent said they use Excel. As a result, small businesses spend a large amount of time focused on their finances and common problems that exist with service businesses, such as collecting invoices.
On the flip side, 83 percent of small and medium-sized companies are investing a large portion of their budget to implement digital strategies. We are witnessing the most successful fintechs support SMBs through digital operations, such as accounting, insurance, benefits and B2B payments – revolutionizing the way small businesses solve operational pain points.
What’s more, the COVID-19 pandemic catalyzed the need for innovation for SMBs. A study from Intuit found that 49.7 percent of SMBs based in Brazil are more digitally enabled now than prior to the coronavirus crisis. This is a really big deal and just might be the catalyst for major innovation around the corner.
In the race to ride this trend, challenger banks based in Brazil, like Nubank and Neon, are focusing more and more on the segment. We are also seeing corporate card fintech companies launch in LatAm – Jeeves, Clara, and Tribal are all working on making an impact in the market. The airport advertising is hard to miss for those traveling in LatAm.
SMBs are also transitioning more and more to selling online. A great example of a company enabling e-commerce for SMBs is Melonn, which provides fulfillment solutions and tech infrastructure to SMBs to enter and scale e-commerce businesses across Colombia and Mexico. One of the fastest growing e-commerce markets on the planet, the company is currently processing more than 100,000 items each month and expects to grow 10x in 2022, servicing more than 2,000 sellers.
Other notable fintechs serving SMBs in LatAm include Cora, Xepelin, Fairplay and Hash – all of which are working to streamline transaction and financial processes in addition to offering lending and payment services to their clients.
QED recently invested in the Series C milestone for Betterfly, a Chile-based leading technology company that combines insurance, wellbeing and social purpose with a mission to help people – especially small business employees – do better, live better and be better. Betterfly now has over 2,500 clients across LatAm, many of which are SMBs. The company reaches hundreds of thousands of employees through its platform and is growing at an astounding rate by offering benefits to employees and manage HR digitally for the first time.
With VC support for fintechs that are paving the way for how small businesses operate effectively and strategically, startups can make lasting impressions on local economies, which serve as the basis of the LatAm economy.
It is why the VC community is hyper-focused on this sector and continues to recognize the role fintech plays in creating more systematic approaches to everyday processes for SMBs in the region. I expect the next wave of fintech to enable more and more SMBs to thrive in the coming years.
Mike Packer is a partner at QED Investors, focusing on supporting the portfolio and finding new investment opportunities – with a current focus on Latin America as a region. Prior to QED, Packer spent 10 years with Capital One working across several functions and business lines developing a skill set in strategy and analytics.
Illustration: Dom Guzman
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