Facing tighter financing conditions, several financial technology companies in Latin America have accelerated mergers and acquisitions plans in the past months.
It’s a trend analysts believe will likely intensify as fresh funding becomes increasingly scarce.
Last week, Argentine fintech unicorn Ualá bought buy now, pay later company Ceibo Creditos. It was the latest in a series of acquisitions in the regional sector, where well-capitalized fintechs take advantage of better prices to scoop deals. At the same time, smaller-sized startups decide to join forces to weather this more complex scenario.
“We believe this is a complementary product to debit and credit,” Uala’s CEO and founder Pierpaolo Barbieri said in an interview with Bloomberg. “It’s another step up the credit ladder.”
The rise in interest rates worldwide and a global aversion to riskier assets has upended many smaller-sized startups, with little access to capital and often no solid revenue streams to depend on. Experts said this is leading to a broad reconfiguration in the entire Latin American fintech industry.
“Everybody in fintech revised their growth plans,” Sergio Furio, CEO of Brazilian Creditas, one of the largest lending fintechs in Brazil, said in a recent interview with Fintech Nexus. He warned that although strong companies will continue to secure financing, the environment could get particularly treacherous for smaller lenders who took funding at high valuations.
Venture capital investments into Latin American startups halved in the year’s second quarter, amounting to 2.5 billion compared to 5 billion in the year-ago quarter. For the entire first half, funding dropped by 19.4% year over year, amounting to $5.4 billion compared to $6.7 billion in the year before, according to data from the Latin America Private Capital Association. A majority of those funds target financial technology startups or fintechs.
Lower financing has led many fintechs to moderate their growth strategies and pay greater attention to increasing profitability sooner rather than later.
“The rules of the game have changed, and big fintech companies in this new paradigm are buying and acquiring firms,” Ignacio Carballo, a fintech adviser, told Fintech Nexus. “The sector is being reorganized, and this will undoubtedly lead to a transformation: the most established companies will come out stronger while those not so much will have to restructure and adjust their business plans.”
Time to find efficiencies
Many of the latest acquisitions by larger financial technology companies aim to either strengthen their product offering or address costs.
For big fintech companies like Creditas, now is the right time to focus on efficiency and shorten the path toward profitability. The fintech has acquired Andbank’s digital license in Brazil to improve its cost of funding.
Other players have been active as well. In August, Ecuadorian unicorn company Kushki announced it was acquiring Mexican payments firm Billpocket. Also, Mexican Open Banking firm Finerio Connect partnered with TecBan to launch in Brazil. In this last case, the former gets to set foot in Latin America’s largest market, while the latter, TecBan, expands its open banking capabilities.
For new companies, analysts predict that the case for smaller-sized fintechs to partner or merge could become stronger in the upcoming quarters.
“Many tech companies had projected their growth plans in a world where there was extreme capital injection and laxity in demanding yields,” Carballo said. “With this paradigm shift, small and medium-sized tech companies that had not yet reached breakeven find themselves in trouble.”
“This is when the possibility of mergers and acquisitions comes to life,” he added.
David Feliba is a Latin American business journalist with expertise in capital markets, banking, and financial technology. His work includes interviews with top executives and policymakers in the region and coverage of banking and fintech trends. He has reported from multiple countries across the Americas and has covered conferences both locally and abroad.
Over the past years, his features have been frequently published in leading local and international news outlets. Some of it can be read at his personal site.
He lives in Buenos Aires.