It is widely known that the Latin American tech ecosystem has seen its largest successes in two core sectors: E-commerce and Fintech. However, in case the point needs proving:
- E-commerce and fintech firms raised an annual average of 75% of investment dollars from 2016 to 2021.
- E-commerce and fintech firms made up an annual average of 51% of exits from 2016 to 2021.
- E-commerce and fintech firms made up 66% of regional technology IPOs since 2017 (there were no technology IPOs in 2016).
None of this was pre-ordained of course. While secular trends like a burgeoning middle class with additional money to spend, manage, and invest drove the attractiveness of these sectors, the region has both strong traditional firms and digital immigrants from Silicon Valley operating in these categories. So, why have Latin American e-commerce and fintech firms performed so well?
The obvious answer is outcompeting via innovation, but this could mean anything when divorced from context. In Latin America, outcompeting via innovation for e-commerce and fintech firms specifically has meant managing complexity, as opposed to streamlining. These can be differentiated as below:
- Managing complexity: Accepting that complexity in commercial, logistical, and financial practices exists and creating technology solutions that work within this complexity to the benefit of users.
- Streamlining: Squaring off against the specter of complexity, denying it should exist at all, and aiming to replace complex practices with innovative, simplified technology solutions.
Streamlining is a common innovation strategy. Take Amazon as a ‘prime’ example. Amazon has grown to become the Everything Store: a one-stop shop for anything you need (or don’t), increasingly sold directly by Amazon and delivered to your door in 2 days or less, often by Amazon’s own drivers. Less thinking and less steps, with Amazon replacing physical retailers, consumer brands, and parcel carriers.
Compare this with Latin American firms like VTEX (IPO, 2021) or Tiendanube/Nuvemshop. While admittedly different business models, these firms raised a combined $993 million in venture capital not by replacing service providers, but by bringing them together onto cohesive platforms where individuals and businesses can better manage the complexity of reaching customers, accepting their chosen form of payment, and getting products into their hands.
In fintech, things are a little more complicated. Many Latin American fintechs actually have the goal of streamlining payments processes by replacing predominant cash-based payments with digital payments. However, their growth relies heavily on getting the unbanked population banked. With that in mind, fintechs like Nubank have had to take the route of managing complexity to hit hypergrowth: accepting that many of the unbanked prefer cash and minimizing cash withdrawal fees to attract such users.
Interestingly, we even have mixed-model examples like Rappi, a ‘super-app’ of on-demand commerce services. Among many other things, Rappi enables the delivery of cash to end users, an e-commerce transaction for an analog payment medium.
Managing complexity has the added bonus of being to some degree anti-monopolistic. This is not to imply that these firms will never start vertically integrating and replacing payment providers and logistics carriers with their own services (price pressures will likely make it so). But as long as they are in the business of managing complexity versus streamlining systems, these firms add to the top line of the businesses they partner with. This literally spreads the wealth, further building what is still a burgeoning regional technology ecosystem, rather than slowly destroying it via consolidation and uniformity.
Managing complexity has the added bonus of being to some degree anti-monopolistic. This is not to imply that these firms will never start vertically integrating and replacing payment providers and logistics carriers with their own services (price pressures will likely make it so). But as long as they are in the business of managing complexity versus streamlining systems, these firms add to the top line of the businesses they partner with. This literally spreads the wealth, further building what is still a burgeoning regional technology ecosystem, rather than slowly destroying it via consolidation and uniformity.
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