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 adoption of digital services by a large proportion of the population, combined with the relatively low cost of technology, results in the demand for innovative banking products and services. Paving the way for a new generation of players, that threaten the raditional banking and financial sector.
As of September 2021, at least 171 fintech companies were operating in Peru, benefiting from an annual average growth rate of 20% over the previous seven years, according to a new report by EY Law. The local economy is growing, the affluent middle class is rising, and, despite the high mobile penetration rate, many people are still unbanked. This creates a fertile soil for Fintech initiatives.
How the Government is Boosting FinTech
The main challenge for global fintechs is the lack of regulation, 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, in 2021 the government announced several initiatives. According to local media, 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 rules for the crowdfunding industry, setting the foundation for it 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
A group of startups have already achieved a high level of development, in terms of clients, revenues, or financing raised. Among them, EFL Global, Comparabien, Bitinka, Seguro Simple or Andy of LatinFintech, and some of them with international presence beyond Peru and Latin America. 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, Fintech startups in Peru are more equally distributed along the different segments. Most of them operate in online lending, payments or remittances. But unlike other countries, Peru has no concentration in specific areas of business. In Argentina, Brazil, Mexico and Chile, on the opposite, more than 30% of the identified fintechs offer payments and/or remittances.
Also, new players are entering the fintech market. 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 neighbouring markets. Some startups made the jump by joining international acceleration programs, while others are evaluating expanding 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.
