Venture

How Latin American Startups Are Following in China’s Footsteps

Aron Schwarzkopf is the CEO of Kushki, a Latin America-based payment platform that standardizes local payments and conversion rates across borders.

Latin America is home to over 30 nations and a growing population that now exceeds 600 million. The diverse region is also the second-fastest growing mobile market in the world, behind sub-Saharan Africa.

With more than 200 million smartphone users, the latest generation of technology startups in Latin America is increasingly turning to China for inspiration to solve the same problems China faced approximately ten years ago. Among one of the primary challenges these companies are trying to solve is bringing the massively under- and unbanked population in Latin America into the financial system and improving their lives with technology.

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“Historically, Latin America has looked to Silicon Valley and New York for business, but there are innovations in China that could be even more applicable to the Latin American reality,” said Felipe Henriquez, Managing Partner at Mountain Nazca, in a recent Bloomberg interview. “When you go to China, you see what’s going to happen in Latin America in five more years. Today, we look at China. We look at Meituan, Alibaba, and Tencent to see what we can do in the future.”

Here’s a deeper look at how Latin America’s technology startups are following in China’s footsteps.

A Mobile-First Approach To Payments

As the largest e-commerce market in the world, China is unsurprisingly the leader in mobile payment technology as well. Chinese mobile payments hit a new record in 2018 with 60.5 billion mobile payment transactions, or a 61.2% annual growth in the number of mobile transactions, according to a People’s Bank of China report.

Similarly to China, mobile payments are booming in Latin America. Traditional banks and financial institutions have struggled to meet the digital needs of consumers in Latin America today, leaving significant opportunities for mobile and fintech startups to fill the space. The Latin American payments sector is one of the fastest-growing in the world, expected to achieve an average annual growth of 8% over the next five years, second only to the Asia-Pacific region.

Latin America is well on its way to becoming a mobile-first society with new mobile payment solutions popping up all of the time, many of which are drawing inspiration from the success of Alipay and Wechat Pay in China. The region’s millions of smartphone users are quickly adopting mobile payment apps, wallets, and QR codes to shop online, send money, pay bills, and more. Two out of three Internet users said they would be likely to use mobile wallets or similar payment methods this year.

Forming A Collaborative Economy

Approximately 54% of the world’s population resides in cities. In Latin America, the urban population is growing at a rate of 1.5% per year and is expected to account for nearly 90% of the region’s population in the coming decades. Some of the largest cities in the world are in Latin America, which presents numerous opportunities for the collaborative, or sharing, economy.

From shared transportation and accommodation platforms to collective financing services, Latin American startups are adopting many of the same initiatives that have been implemented successfully in China to spur growth in the region. China’s sharing economy is expected to grow by an average annual rate of 30% over the next five years, according to a State Information Center report. Many of China’s top technology unicorns are in the sharing industry as well – including the ride-hailing giant Didi Chuxing and bicycle-sharing firms Mobike and Ofo.

In Latin America, a wave of sharing economy startups are gaining traction. Workana offers a platform for businesses to find freelancers and tech talent to complete projects. There are currently more than one million users signed up on the platform. IguanaFix connects users with more than 20,000 professional service providers for home repairs. Afluenta is one of the largest peer-to-peer lending platforms in Latin America, with more than 11,000 investors and 15,000 loans granted successfully through the platform.

Just like Chinese sharing economy startups, these Latin America-based companies have tapped into the increasingly connected urban populations and helped bring the informal economy into the mainstream.

More Entrepreneurs Are Staying In Latin America

As the U.S. pulls away from Latin America and economic relationships between Latin America and the U.S. remain uncertain, China is becoming an increasingly important partner for businesses looking for partnerships and investment.

Trade between China and Latin America has surged, increasing from $12 billion in 2000 to nearly $306 billion in 2018. And while the bulk of these investments were in energy and infrastructure projects, a number of investments in Latin America’s technology sector broke records in 2018. This influx of capital, coupled with the increasing difficulty of taking one’s startup to Silicon Valley, is making it more appealing for entrepreneurs to stay in Latin America and focus on innovating and solving problems in their home countries.

This trend is not unlike what’s currently taking place in China. Chinese technology talent is not only heading back to China, but it’s growing there in record numbers. According to the Ministry of Education, 432,500, or nearly 80% of Chinese overseas students, recently chose to go back to China after completing their studies.

The Chinese tech scene is benefiting from the mass influx of “Sea Turtles” (a name for Chinese returnees who studied abroad in the US), and the rise of a young, tech-savvy middle class. Latin America’s middle class has also been growing steadily over the past few years, driving growth across all consumer categories. The expansion of the middle class in Latin America has not only been good for business, but it’s also been essential for keeping and increasing local tech talent. Guadalajara, for example, is part of Mexico’s “Silicon Valley” and sees 85,000 graduates in IT each year. Meanwhile, São Paulo, Brazil is now home to more than 2,000 startups.

New Latin America-China Partnerships

As ties between Latin America and China strengthen, it’s becoming increasingly likely that the two regions will be home to the tech hubs of the future. Silicon Valley startups may still attract more capital today, but startups in cities like Beijing and Shanghai in China and São Paulo and Medellín in Latin America are generating high-growth companies, raising mega-rounds of capital, and solving crucial problems in their respective developing markets.

As partnerships between the two regions continue to rise, Latin America’s startups will undoubtedly continue to be inspired by China’s successes – whether it’s by adopting similar business models and applying them locally or by partnering with Chinese talent to achieve a wider reach faster.