Fintech in Colombia

The Colombian economy is characterized by being prudent, as after slowing down to 1.4 percent in 2017, economic growth accelerated to 3.3 percent in 2019, driven by robust private consumption and stronger investment. However, due to the covid-19 pandemic, the economy was hard hit, causing a very deep recession, with an estimated contraction of 6.8% (World Bank, 2021). Moreover, it is expected that the dynamic of private consumption and investment will allow a 4.8 percent growth for 2021 and 3.8% for 2022 (BBVA Research, 2021)

In Colombia, 99% of the productive units are MSMEs  (72% headed by natural persons), although this makes them the main structure of the national productive activity, responsible for 67% of employment and about 38% of the GDP, the financial ecosystem in which they subsist, has failed to live up to the challenges they face. Likewise, SMEs have a 70% probability of failing in the first five years (Colombia Fintech, 2020)

Fintech ecosystem

Colombia’s Fintech ecosystem has been growing in recent years, ranking in the 40th position of the countries with the greatest advance in the sector (Findexable, 2020). Likewise, in Latin America it is in third place only behind Brazil and Mexico. 2019, had a total of 123 Fintech, while at the end of 2020, it had more than 200 Fintechs

In relation to job creation, Finnovista’s Fintech Radar reflects the key role that Fintechs currently play in Colombia, as the report shows that the sector creates more than 7,000 jobs in the country, with an average of 34 employees per startup. Moreover, 61% of the enterprises in the sector have received external financing, an indicator that shows the level of confidence of investors in the Colombian Fintech market, and which has been maintained over the last few years (Finnovista, 2020)

However, currently Colombia does not have specific regulations for the industry and this same lack of regulation generates legal gaps and uncertainty

Digital Lending in Colombia

Among the main sectors, according to the Colombian Fintech companies association, we have the lending, payments and business technology segments, the latter being the one that is emerging. Likewise, the lending segment is the most important (EY, 2020). As of 2020, there were already more than 40 lending platforms (almost 25% of the Fintech sector), where these lending procedures can be carried out quickly, easily and without much documentation. These loans are generally aimed at microcredits, since banks do not offer this type of loan due to affordability.

In Colombia, one of the advantages that allow the growth of Fintech is that the Colombian population has a high penetration of smartphones, which allows access to digital banking. Likewise, new foreign actors are promoting Fintech in the country as allies for the development of payment services, security, remittances, among others (EY, 2020)

Fintech lending represents a great opportunity for SMEs; however, the regulation of this industry is necessary both for cybersecurity issues and in taking care of the interest rates applied to these microcredits, so that they do not take advantage of the SMEs