country scenario

Peru Sees Booming New Fintech Solutions

peru fintech

Fintech is rocketing in Peru. The finch activity is mainly in online lending, and payments and remittance. New startup creation is at its highest rate ever and the country is ready to furthermore boost the whole sector. 

Peru’s fintech industry has been growing consistently these past years. Today the country ranks 6th in Latin America in terms of the number of Fintech startups and the importance of its Fintech ecosystem.

The Peruvian Fintech market is a clear example of how the advance of smartphone penetration, the use of digital services by a large proportion of the population and the low cost of technologies is stimulating the emergence of technological entrepreneurships that offer alternate and innovative financial products and services, which threaten the traditional banking and financial sector. 

By the way, despite notable growth, all figures indicate that Peru’s fintech industry remains fairly nascent compared to regional leaders Brazil and Mexico, but a growing economy, rising affluent middle class, large population of unbanked and high mobile penetration rate are setting the stage of strong growth, surging to 171 fintech companies operating locally, as of September 2021. All figures represent a +16% from 2020, and an annual average growth rate of 20% over the last seven years, according to a new report by EY Law. 

How the Government is Boosting FinTech 

The main challenge for a foreign Fintech company that is currently seeking to enter the Peruvian market is the lack of regulation of the activity, which generates uncertainty regarding the regulatory treatment. However, Peruvian regulators are working to further boost the whole sector. For example, the government-backed program Innóvate Perú has financed more than 3,400 entrepreneurial projects to date, and more than 25 private institutions are now accelerating, incubating and investing in Peruvian startups.

Moreover, last year the government announced several initiatives. According to local media, in 2021 the Ministry of Economy and Finance, in coordination with other state-run agencies, introduced the Multisectoral Strategic Plan, with the aim to improve financial inclusion to 75% by 2030. 

In May 2021, authorities wrote new crowdfunding rules, setting the foundation for the sector to thrive. The same month, a draft legislation was published to set up a financial regulatory sandbox that would allow the testing of innovative solutions, while in November of the same year. the Central Reserve Bank of Peru’s (BCRP) president, Julio Velarde, unveiled plans to develop a central bank digital currency (CBDC). The project includes involvement of other central banks around the globe, including Singapore and India.

The Heterogeneous Peru Fintech Ecosystem 

In Peru we can highlight the existence of a group of startups that have already achieved a high level of development (measured in terms of clients, revenues or financing raised), as is the case of EFL Global, Comparabien, Bitinka, Seguro Simple or Andy of Latin Fintech, and some of them with international presence beyond Peru and Latin America. All of them already reached a world-class status. For example, in 2019 Keynua and Apurata were selected by top global accelerator Y-Combinator.

Also the same year, asset management startup Zest followed the footsteps of lender LatinFintech and digital insurance broker SeguroSimple to become the third team of fintech founders in Peru to reach Endeavor Entrepreneur status

According to Finnovista, it is interesting to highlight how, unlike other countries in the region, Fintech startups in Peru are more equally distributed along the different segments. The finch activity is mainly in online lending, and payments and remittance, but unlike other countries, in Peru there is no segment with more than 30% of the identified startups in the country, while in countries like Argentina, Brazil, Mexico and Chile the segment of Payments and Remittances represents 30% or more of the Fintech startups of the country.

But new players are entering into the finch arena. Afli, SomosMoto, Valía and Pagadespues have all burst onto the scene in 2019. Alfi was accelerated by LIQUID Venture Studio.

Moreover, startups are branching out now. Some founders who used Peru as an initial testing ground are now exploring neighboring markets. Some startups made the jump by joining international acceleration programs, while others are evaluating expanding to other countries on their own. With programs like Startupbootcamp and “trips” like the fintech mission to Mexico led by EmprendeUP and PromPeru, it is getting easier and easier to evaluate geographic expansion.

Local market dynamics in Peru have created conditions that have allowed two fintech segments, Factoring and FX, to reach critical mass. Various companies, including Innova Funding, Innova Factoring and Facturedo, Kambista and Rextie are taking advantage of unique conditions in Peru to quickly achieve solid traction. These startups are now in a strong position to branch out to new markets.

Opportunities For International Players in Peruvian Fintech

New startup creation is at its highest rate ever; however, these companies are outgrowing their angel and seed-stage supporters and are now seeking ways to take their ventures to the next level. And local players are seeking for foreign partnerships. An analysis of each fintech segment by S-GE suggests that opportunities exist across all major segments. In deposit and lending, the paper notes that the lack of alternative financing options with quick and short approval times and reliable credit scoring systems represents an untapped opportunity. In payments, the boom in e-commerce and food delivery apps during the COVID-19 lockdown will continue fueling the growth in mobile payments. Banking-as-a-service (BaaS) and banking infrastructure is another segment poised for growth.

This will build on rising demand from legacy banks for solutions to integrate innovative digital financial services.

Latin America is a top destination for impact investment capital, outpacing many other regions in the world, with a 15% compound annual growth rate over the last five years, according to the Global Impact Investing Network. In this framework,

Peru attracted more impact investment capital than Mexico, a longtime leader in the region.. Much of this investment is focused on improving Peru’s Fintech system. Local startups are addressing everything from mobile payments to factoring, and as more success stories emerge, more resources will be needed to fully tap into Latin America’s large markets for these solutions.