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Banco Inter, which provides consumers with free digital checking accounts as well as corporate accounts for businesses and microenterprises, sold additional equity earlier this week when it sold 31 million units worth 1.25 billion reais ($330 million), according to sources close to the matter cited by Bloomberg.
This comes after the fintech went public last year, raising $208 million. Softbank was the main buyer of the shares purchased this week, and existing stockholders also used their rights of preference to purchase more shares.
Here’s what it means: The Latin American fintech ecosystem continues to attract investor money, and investments are likely to accelerate in the future.
- While fintech funding in South America dipped in Q1 2019, the region is set to receive record-breaking funding this year. In Q1 2019, fintechs in the region secured just $43 million, down 80% from $211 million in Q4 2018. However, fintech funding activity has since picked up in the region: Neobank Nubank scooped up a $400 million funding round earlier this week, while alt lender Creditassecured a $200 million round last month. These two rounds alone total to more than the overall funding of $544 million throughout 2018.
- Big names in the investment industry continue to look to South America for deals, and funding likely isn’t going anywhere. Chinese tech giant Tencent has been investing in Nubank since 2018. Additionally, Softbank already led the latest round in Creditas, and while its investment in Nubank reportedly fell through earlier this year, the investment behemoth announced plans to launch a $5 billion innovation fund in Latin America to fuel the region’s startup scene. And with fintech being the top sector for VC investment by funding and number of deals in Latin America, per TechCrunch, it seems likely that Softbank will continue to target the fintech industry in the region for future investments.
The bigger picture: As fintechs in Latin America aim to overhaul the finance industry, banks should be worried about their market share in the region.
Fintechs have already successfully won over a share of consumers.Nubank, for example, is the sixth-largest financial institution (FI) by customers in Brazil, as well as the country’s fifth-biggest credit card issuer.
And while the top five banks in Brazil hold 82% of total assets in the country — in the US and UK, top banks only hold 43% and 48%, respectively — it is expected that fintechs will be particularly threatening in fee-based businesses like asset management and credit card and merchant acquiring, per UBS strategist Philip Finch cited by Reuters.
As such, the top four banks have already taken precautions to fight off competition by revamping their asset management offerings and lowering fees, for example. Over time, we will probably see more fintechs dipping into incumbents’ market share, likely increasing competition in the region and forcing incumbents to revamp their own offerings to remain relevant in an attempt to defend their market share.
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