Dominican Republic leads the way among Caribbean fintechs

The largest economy in the region, the Dominican Republic, juts out as a fertile ground for financial technology innovations in Central America and the Caribbean, with growth in the number of startups accelerating sharply since 2017.

According to a study by the Inter-American Development Bank, the island seeks to consolidate itself as a leading fintech hub in the region, with 55 reported fintech companies as of 2021. Average growth per year has been around 130%, and it is one of the fastest-growing ecosystems in Latin America.

Just five years ago, the island country reported only two fintech companies. Its growth is the latest illustration of how the sector is moving by leaps and bounds in almost every country in the region.

“The industry in the Dominican Republic is going full steam ahead,” Rolphy Martínez, Co-Founder and Product Manager of Raik Capital, a local investment advisory firm, told Fintech Nexus. “It is one of the countries with the most potential to become a technology hub focused on the financial sector.”

A need to think regionally

With over fifty companies, the Dominican Republic boasts the largest ecosystem in the region, followed by Costa Rica, with over forty companies. Although most companies are still domestically focused, some believe there is an opportunity to expand internationally through other islands in the region.

The Caribbean comprises roughly 26 countries with a total population of 40 million habitants that speak several different languages.

“The size of the local market is small, so it is important to promote and take advantage of the economic and regulatory conditions that stimulate growth,” Randall Barquero, a director at Fintech Association of Central America, said to Fintech Nexus.

Randall Barquero headshot
Randall Barquero, director at FinTech Centroamérica.

According to him, these countries share similar economic and legal frameworks, which should ease the process of international expansion.

Focusing on several smaller-sized economies simultaneously would guarantee a more significant addressable market and potentially more access to venture capital funding.

 “It is convenient to take advantage of the integration opportunities in the regional market in Central America and the Caribbean,” he said.

Financial inclusion is the main focus

Securing further access to top investment capital is the most significant concern for fintechs in the Dominican Republic, a survey by the country’s sector association showed. According to the entity, 75% of all fintechs are Dominicana-based.

Indeed, financial inclusion is a significant driver explaining the sharp growth of the sector in Central America and the Caribbean. The share of startups specializing in the underbanked ranges from 53% in Guatemala to 65% in the Dominican Republic, 67% in Panama, and 80% in El Salvador.

The case for bridging financial services to the population is even more significant for Dominicans. Loans to the private sector as a percentage of GDP averaged 26.6% in 2019 on the island, compared to 64.7% in Honduras, 60.5% in Costa Rica, and 50% in El Salvador.

Data on financing to companies in the region is far from encouraging. “Around half of this credit is destined mainly for large companies, leaving little space for MSMEs, representing 99% of existing companies,” said Martínez.

He says that loans are usually short-term, and companies have few options. In this regard, fintechs have emerged as a supplier of working capital.

Demand for talent

But for the industry to continue at its stellar pace, local leaders argue that there are several hurdles, including an unfulfilled demand for talent and a need for some regulation.

“For fintech companies to continue growing at such a fast pace, they need more specialized talent such as data analysts, developers, or artificial intelligence specialists,” Martinez said. “Those are some of the most demanded and are very scarce in the region.”

According to the Dominican fintech association, 40% of all financial technology companies would welcome tailor-made regulation for the sector. Moreover, recent trends in Latin America, such as open banking and crypto, could also bode well for the industry’s future growth. “There is a need to accelerate dialogue on how to regulate issues such as open finance and digital assets,” Barquero said.

  • David Feliba

    David Feliba is a Latin American financial and business journalist. He reports fintech, banking, and economic news for global news organizations. His work includes interviews with senior executives, cabinet members, and policymakers across the region. Over the past years, David has reported from several locations in the Americas. His features have been published in leading global media such as The Washington Post, The Financial Times, Americas Quarterly and S&P Global news. He lives in Buenos Aires.