country scenario

Fintech in Uruguay: why the Country Ranks Among Global Top20

uruguay fintech

Starting from the bottom list, Uruguay is now validated as a fintech hub, emerging as a new and dynamic actor on the LatAm digital finance scene. Today its firms are ready going global

As we witnessed in recent years, Fintech companies have grown exponentially across Latin America, leveraging technology to undercut and outperform banks. In this framework Brazil and Mexico are leading the game, but a surprise contender has emerged from behind: Uruguay. Let’s see how this less than 4mln people country burst into the global Top 20 in the 2021 edition of the Global Fintech Index.

The first unicorn! Uruguay has been - finally - validated as a technology hub

According to Statista, last year, Uruguay boasted 63 fintech companies, offering a broad range of financial services. A quarter of these firms provide specialist technology to financial institutions, the largest segment. The second-biggest segment is electronic lending, followed by payments and remittances. By the way, some of the most notable providers of fintech in Uruguay other than dLocal include the likes of Bankingly, Inswitch, MiFinanzas, Paganza, and Prometeo.

The country’s impressive boom in the Index follows the country’s fintech industry attracting widespread attention among investors, after Montevideo-based electronic payments company dLocal saw its share price jump 48% on first day trading after floating on the Nasdaq in June 2021, becoming the South American country’s first unicorn in working in Fintech. 

Founded in 2016, the cross-border payment platform helps international merchants reach customers in emerging markets across Latin America, Africa and even Asia. So far, the company has formed successful partnerships with multinational giants such-as Amazon, Uber and Nike. After that, the whole Uruguayan Fintech sector was spotted under the light generating significant interest in other companies dedicated to digital finance. 

As underlined by local newspaper El Pais, the success of dLocal was already fuelling optimism in the Uruguay fintech sector, with Ximena Aleman, co-founder of open banking platform Prometeo, telling the Uruguayan media that finally “Uruguay has been validated as a technology hub, especially in fintech”.

A Strategic Long Term View

How did this small country achieve such an incredible result? Private initiatives and strong government support have boosted fintech activity in Uruguay. Since 2014, the country has implemented a financial inclusion law that opened the door to more fintech innovation by supporting the use of electronic payments over cash. 

The Uruguayan Fintech Chamber, launched in 2017, has also propelled growth in the sector. This organization promotes greater coordination between the state and the entrepreneurial ecosystem. The main goal is to encourage and support  government involvement in fintech initiatives and promote beneficial legislation.

Moreover, the country is also hosting the Montevideo Fintech Forum, the first of its kind big event in the southern area of LatAm region. Since 2016, the forum has hosted more than 200 speakers and helped connect firms with investors, regulators and banks. “The regulator’s relationship with the sector is good, and there is permanent communication, which gives Uruguay a strategic advantage over other countries in the region,” said to media Sebastian Olivera, the founder of the Montevideo Fintech Forum and the secretary of the Uruguayan Fintech Chamber.

The “Switzerland of South America”, Why Fintech Boom in Uruguay is Different 

Nevertheless, according to experts, the main engine that made Uruguay’s fintech growth possible was actually its developed market and its impreditorial network. Uruguay’s sturdy financial structures were another catalyst for fintech growth. “The country’s fintech sector has benefitted from the consumer protections that help build trust with new customers”, stated Sebastian Olivera.

If we deeply analyze the country, the case of Uruguay is totally different from that of other countries - such as Brazil - where the Fintech growth has mainly been due to poor service - or the lack of service - from traditional landers. Instead, in Uruguay, the fintech boom was mainly driven by the same entrepreneurial culture of the country and its need to expand itself to global markets.

We should not forget that the Uruguayan market is one of the most developed in Latin America, offering an ideal base for the growth of fintech in Uruguay. An estimated 60% of the country’s 3.5 million population is considered middle class, while the country ranks third in the region in the UN’s Human Development Index. Moreover, the country, widely referred to as the “Switzerland of South America”, had a long history of economic and political stability, as well as some of the lowest rates of crime in Latin America and the Caribbean.

The country is also a major trade hub and founding member of the Southern Common Market (Mercosur), a 30-year-old economic integration initiative that also includes Argentina, Brazil, and Paraguay.These factors, combined with a secure and highly secretive banking system, give the perfect basis to boost Fintech. 

Now it’s Time to Go Global. Opportunities are Here, but the Country is Unknown 

While Uruguay boasts excellent fundamentals when it comes to its financial system and talent pool, entrepreneurs still face significant barriers to growth. According to data, not every fintech segment has enjoyed the same level of support. Generally, more disruptive technologies have met with more opposition. “There has been a disparity in results in the different verticals,” Olivera added. “We have seen great development in the payment system, a bumpy path in relation to crowdfunding platforms and resistance – from the financial sector – to cryptocurrencies and crypto assets”. Despite the Government support, here it is much more difficult for fintech companies to access credit when compared to the United States or even Mexico or Brazil. Thus, there’s definitely an opportunity to improve.

Last year, President Luis Lacalle Pou signed a law that made it easier for startups to access loans through crowdfunding. However, the sector would gain significantly with more support from traditional lenders. Domestic bank credit to the private sector as a percentage of GDP stood at 28% last year, compared to 52% in the United States and 64% in neighboring Brazil.

External financing can also be a challenge for Uruguayan fintechs. Despite its financial solidity, getting money from abroad, especially from venture capital, is one of the problems that fintechs should solve. The reason? Foreing investors don’t know much about the country and its tech excellences remain an unknown entity to most investors. “You have to explain that you come from a small market, it’s not like saying ‘I’m a Mexican’ or ‘I’m a Brazilian'”, Rodrigo Tumaián,  Co-Founder and CEO at Prometeo.

What is the future of fintech in Uruguay? Drawn by favorable banking regulations, a skilled workforce and a variety of incentives, technology companies, including in fintech, success stories such as dLocal prove that Uruguayan firms can generate enough funding to break the barriers to internationalization. Opportunities are here.