The lowdown on Chile's fintech sector

Chile’s vibrant fintech ecosystem is growing, and concrete links with the traditional banking sector are starting to form. 

The local fintech industry is led by the FinteChile association, which has seen the number of players almost double in the two years since its formation. 

While a regional leader in terms of financial inclusion, Chile still has space to grow in this area. Indeed, a major focus of fintechs is the underbanked and easing friction.

To find out more about the local sector, BNamericas spoke with Ángel Sierra, executive director of FinteChile.

Co-authored by Ulric Rindebro, the interview was conducted earlier this quarter and first published in the BNamericas Intelligence Series report Stormy Waters: Banks and Insurers Weather Chile’s Crisis. 

BNamericas: How did the fintech sector evolve in 2019 and what’s the outlook for 2020?

Sierra: The fintech sector in Chile keeps growing apace. When the association was formed, in January 2018, we identified 85 fintechs in the country. Today, two years later, there are 145, and they keep arriving and they keep being formed. 

This will certainly continue as they still see opportunities in the sphere of financial inclusion, where fintechs will always be present. The momentum will be sustained over the coming years. 

BNamericas: How many insurtechs are there in Chile and do you expect the number to grow?

Sierra: Today in Chile we have identified 22 insurtechs. It’s a significant number because, in 2018, we saw five. What is spurring this is the fact the insurance sector began its digital transformation process almost a decade after the banking industry. The insurance sector is exhibiting an important lag and, naturally, startups have realized this and begun to establish their own insurtechs to create value for the insurance industry. We’ve identified 22 companies and this will keep growing. 

BNamericas: Last year, local financial services player Grupo Consorcio, which has a bank, said it would invest US$500,000 in the payments gateway Pago Fácil and the same amount in SME-focused online insurance broker ElegirSeguro. How significant is this, especially if you consider that fintechs want to collaborate with traditional banks?

Sierra: It’s a very important signal to the market, an achievement, because, effectively, it’s the first financial group that has openly declared to having invested in a fintech company. And the reality is that, based on the association’s knowledge and what we observe in the industry, the synergies that Consorcio and Pago Facíl are capturing are enormous. They complement each other extremely well. Fintechs bring to the traditional sector capacities that a bank or insurer doesn't have.   

The investment in ElegirSeguro, which happened a few months later, corroborated that Consorcio has effectively validated the fact there is value in the fintech sector.

Here at FinteChile, what we hope is that, over the coming months, the rest of the banks in the system also start to take these steps, start to invest in fintechs, because together banks and fintechs, and insurers and insurtechs, can capture a lot of value.

BNamericas: What’s the state of play in terms of regulation, in particular the fintech bill?

Sierra: Last year consultation group meetings, led by the financial services commission [CMF], were held. A fintech bill blueprint was drawn up and this was going to be sent to the finance ministry to be advanced. What happened is that things progressed well in the first few months of the year and when the absorption of [banking regulator] Sbif into CMF happened the process halted and has not yet resumed. And when social unrest erupted, it became an even smaller priority. Things are on standby mode.

Several weeks ago, we attended a meeting of the senate economy committee, participating in the financial portability bill debate. There, senators indicated it would be highly advisable to include fintech companies in this bill as providers of financial services. In the debate we had in this committee, it was asserted that it was important for fintechs to be regulated. The finance committee has officially asked the finance ministry to clarify what the route map for fintech regulation is. 

BNamericas: Is the association still pushing for the creation of an open banking ecosystem?

Sierra: Open banking is one of the main areas that the association promotes. Curiously, today we see that banks, too, have started to ask about open banking. We don’t rule out that, in Chile, the same could happen as what occurred in countries like Singapore, where open banking was born out of the industry, not out of regulation. 

Here, because of what is happening on the communications front between banks and fintechs, because of what we see at FinteChile, there are signals – and the conditions – that open banking could be born out of the industry. We’ll continue providing support. We want this to happen but we’ll see how the market develops. It’s an evolving issue between banks and fintechs. 

What we see as an association is that where the industry has the requisite cybersecurity measures in place and the client data is transferred with the client’s consent, that is open banking. In fact, in some respects, that's already happening in Chile. There are fintechs connected to banks via APIs. The issue is that, for open banking at a country level, all banks must have their APIs, all must be communicating. There's still a long way to go in this regard, but the reality is that this could happen. 

In Singapore it happened, in the US it happened. Who knows whether there will be regulations in the future – but today they are advancing without being regulated. 

BNamericas: Do you have an estimate of how much money has been invested in the local fintech industry?

Sierra: Not from the beginning, but a report from a Spanish company [Finnovating] has come out which measures fintech investment in 2019. In Chile in 2019, according to Finnovating, US$6.5mn was invested, which is 0.34% of what was invested in Latin America. It’s a small amount compared with Brazil, accounting for US$1.3bn and 70% of investment. 

You can see this in two ways. It is a small amount, that’s a fact. But it's also interesting that, with just US$6.5mn, the ecosystem grew from 85 companies to 145. Clearly the [Finnovating] figures don’t paint the full picture. The sum of US$6.5mn is what Finnovating was informed of; many funding rounds are conducted privately, so there's a lot of data missing. 

What we do know is that fintech investment opportunities in Chile are enormous. We're not yet seeing the same sums observed in Brazil – we’re taking about dozens of millions of dollars – but Chile will get there one day. 

Again, the data tells us two things. We’re lagging in terms of investment but, nevertheless, with the little investment made, there is a vibrant, growing ecosystem that creates value for the economy.

BNamericas: Finally, do you think the social unrest and the increase in the level of uncertainty linked to the constitutional plebiscite may discourage foreign fintech investors thinking of entering Chile?

Sierra: Yes, definitely. Many companies will be questioning whether to come to Chile but nevertheless they are still coming. At FinteChile we’ve been receiving companies from Mexico, Argentina, Spain. But of course, if it weren’t for the social unrest, we would have an even bigger flow.

After April, when the plebiscite [to decide whether to write a new constitution] will be held, we'll have greater clarity. A ‘no’ decision would generate more certainty; a ‘yes’ would create even more ambiguities.