Fintechs in an Argentina in decline

Argentina has been going through difficult economic times for several years now, despite being one of the largest economies in Latin America, with a Gross Domestic Product (GDP) of approximately US $ 450 billion. Since 2018, the country has experienced an economic recession that worsened with the Covid-19 pandemic.

Urban poverty in Argentina continues to be high and in the first semester of 2020 it reached 40.9% of the population, with an indigence rate of 10.5% and child poverty (children under 14 years of age) of 56.3 %. Likewise, it has an annual inflation of over 40% despite the existence of price controls (World Bank, 2020)

Argentina Fintech

Argentina is the 3rd country in terms of capital invested in Fintech, with a total of 150 million and it´s also the 3rd country with the highest number of Fintechs in Latin America, behind México and Brazil. Furthermore, the largest sectors are payments and lending (32 Fintechs) and by 2020, there were 270 fintechs in Argentina (Argentinian Fintech chamber, 2020), of which 79% were created in the last 6 years

Similarly, FinTech companies in Argentina focus on serving unbanked or underbanked consumers and / or SMEs. It is important to mention that Argentina has a population of 42 million; however 50% of the adult population does not have access to an official bank account (Finnovista, 2018). Also, the share of smartphone users of Argentina’s population was 55% in 2019

Another aspect of Argentinian fintechs is the fact that they have forced traditional banks to digitalize in order to not lose competitiveness.

Lending Fintechs 

In the case of the lending sector, only between 2016 and 2018, there was a growth of 138% and currently lending fintechs represent 24% of total fintechs making it the largest category. 

The Argentine credit market stands out for having three types of financing FinTech (EY, 2020), which are:

• Those that use their own capital
• Those that are funded with a risk capital
• Those that offer platforms to interconnect demand and supply (Crowdlending)

The high demand of lending fintechs is mainly due to the existing financing gap in the country, which has led more people and companies to request credit from Fintech companies. According to the World Bank’s Findex report, only 22.7% of the Argentine population has access to bank loans, while in the private sector the ratio of loans to the country’s GDP is only 14% (Finnovista, 2018). Likewise, according to the Inter-American Development Bank (IDB), in Argentina there is a financing gap that also implies a gender gap since the rate of rejection of loans is also influenced by the gender of managers

As can be seen, lending fintechs have been growing over the years and only during 2017, they granted loans for an average amount of 250,000 Argentine pesos with terms of between three and six months (Argentinian Fintech chamber, 2020). Therefore, this sector represents a good opportunity to support the SME´s, which have been affected by the recession.