How Fintech Companies and Banks Complement and Compete with Each Other

The number of fintech companies in Colombia keeps increasing. The fintech industry in Colombia has 369 entities dedicated to various banking and insurance activities and presents good growth, investment, and employment generation figures, as revealed by Gabriel Santos, president of Colombia Fintech, which recently held the Latam Fintech Market, with the presence of 1,200 attendees from Colombia and several countries in America, Europe, and Asia.

For the President of Colombia fintech, it has been seen in a historical way that the fintech sector grows from 17 to 20% per year and there are some business verticals that drive strongly.

In this sense, he highlighted that there is consolidation in the neobanks Lulo Bank or Nubank that although with little competition, are important drivers and said that two other important sectors are digital credit and digital payments and crypto-assets are on the rise, smaller than those seen so far, but with very innovative ideas.

He assured that there are other ways to mobilize digital credit: with factoring and crowdfunding with less money in a unitary way many resources are mobilized.

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Fintech companies are lending to the most excluded and therefore the risk exceeds the capacity of the entity

For example, Finaktiva has just announced that it has mobilized $10 billion, Sempli, which has just received US$6 million from Citi to support micro-enterprises and SMEs.

He said that in any case “we are in the middle of a perfect storm due to the deceleration of the Colombian economy, which causes consumption to slow down, the portfolio to deteriorate and this, together with high-interest rates, makes capital costly. We are facing immense challenges that make bringing that money to lend it to the most vulnerable Colombians more and more expensive and when that ceiling begins to stick to the usury rate we see that there are difficulties to lend.”

That is why, as Santos said, the amounts disbursed have been decreasing.

The leader said that in 2022 a survey was conducted to determine who asked for credit to a fintech company and more than 70% were rejected from traditional banking, more than 60% were women without access to the labor market, more than 63% were older than 45 years or under 25 and more than 50% had no primary education.

That is where you see that digital credit fintech companies are lending to the most excluded and therefore the risk exceeds the capacity of the entity, he revealed.

He said that if a good interoperable payment system and good open finance standards are issued, the sector will not grow at 20% as it has been doing so far, but at unimaginable rates.

He commented that there are cases in India, Brazil with the entry of people of all strata and informality to the digital economy, it is seen that the future is designed to compete with good standards in this regard.

He warned that in some segments there is competition of fintechs with the traditional financial system because, for example, banks must be more conservative to lend resources while fintechs lend with their own capital, so they can take more risks.

“We become the first credit capillary so that later they can be attended by traditional banks and in another part where we compete is in immediate payments,” Santos said.

The leader revealed that 6.8% of fintech companies have between 2 and 4 employees, while 14% have between 5 and 9 employees.

These numbers indicate that a considerable proportion of fintech companies operate on a smaller scale, with smaller teams, i.e., about 21% of fintechs in the country have between 2 to 9 employees, 17.8% of the companies surveyed have between 10 and 19 employees, and a significant 22.9% have a range of 20 to 49 employees.

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(Featured image by Adeolu Eletu via Unsplash)

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First published in Portafolio. A third-party contributor translated and adapted the article from the original. In case of discrepancy, the original will prevail.

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