Friday Briefing: Itaú: Challenging investment landscape in Brazil

January 27, 2023

#TopStory 🔝

Brazil: Investor caution raises odds for fintech M&A

Brazilian fintechs face a challenging year ahead when it comes to raising fresh capital and maintaining operations amid expectations of lower economic growth. According to Julia de Luca, who oversees Itaú BBA’s venture capital funds, raising equity will be more difficult, which will lead startups to make spending cuts or look for buyers.

The first half of 2023 is expected to follow 2022’s downward trend in terms of investment. “Most startups, or a large number of them, that raised funds will need to raise more starting in Q2. Last year, companies
began to make cash adjustments, and by mid-2023 there will be companies that need cash,” she tells iupana.

Brazil, the largest fintech market in LatAm, gives us a guide of what to expected in the rest of the region. Following a period of sustained increases in investment and growth, the fintech economy has begun to show signs of recession since mid-2022, such as slower growth and layoffs.

Investors are increasingly cautious and are rightly spending longer on due diligence, De Luca says. This leads to a slower release of funds, which can lead to startups taking on more debt or considering mergers and stake sales. “We think 2023 will see a lot of M&A transactions, which ends up being an exit alternative for
founders and an alternative in cases where there isn’t as much capital available,” she says.

VC and growth funds investing in technology may have raised a record amount of capital but that doesn’t mean they’ll be in a hurry to invest, De Luca says.

“In previous years we had a boom and we saw several fintechs emerge to solve very specific pains. Now, we will see various startups coming together to survive in the financial services sector,” she says, describing it as a natural consolidation.

#Strategic Plays 📊

Chile’s Transbank up for sale

The banks that own Transbank, the largest Chilean payment acquirer, plan to sell their stakes as part of a reform of the payment system. It’s a development that will have an impact on the entire payment ecosystem. The four-part model implemented by regulators is expected to increase competition between
acquirers and issuers in the signing up of merchants, collection of fees and processing of transactions. Transbank’s shareholders are Banco de Chile, Santander, Scotiabank, BCI, BancoEstado and Itaú.

AstroPay and Tebca launch Visa card in Peru

AstroPay, a London-based digital bank specializing in international purchases, launched a prepaid Visa card in Peru as part of its plan to expand in LatAm. Astropay’s card is issued by Tebca, a fintech that develops electronic payment programs.

EU proposes ‘prohibitive’ capital requirements for crypto assets

European Union legislators approved draft legislation with what they consider “prohibitive” capital requirements to cover potential risks associated with crypto assets. Under the proposed roles, banks must reserve one euro of their own capital for every euro they hold in crypto. The standard is part of the Basel III provisions to be implemented starting January 2025. Although the Basel rules are not mandatory, they tend to be adopted
globally.

Also:

• The Argentine fintech Fiwind enabled a new functionality in its wallet that will allow in-store payments with cryptocurrencies using QR codes.
• Nubank do Brasil will allow users to see the balances of the accounts they hold at other banks, in line with the open finance process backed by local regulators.

#Investments 📈

Yotepresto and Zenfi raise US$8.5m

Mexican personal loan fintech Yotepresto and financial health platform Zenfi closed a joint round for US$8.5 million to strengthen their operations. The companies have some 3 million users combined.

#People 🫂

Payflow appoints Colombia manager

Payflow, a Spanish fintech, has appointed Catalina Villegas its new country manager in Colombia. Villegas worked at the artificial intelligence (AI) company Tractable and led international projects at Boston Consulting Group.

Kueski signs ex-Stripe director

Kueski, a
consumer-lending platform, has appointed Fausto Ibarra product director for LatAm. Ibarra served in the same role at payment giant Stripe and has also worked at Big Tech firms such as Meta, Google and Microsoft.

#iupanaExclusive 🔥

A flagging global economy will not be the only headache for the fintech industry this year. Cyberattacks, such as ransomware, card testing, and phishing can deal a potentially fatal blow to new businesses. Payment giant Stripe explains to us how it is using AI to see off such threats, but what about smaller fintechs?

• Stripe thwarted more than 20 million card tests in a single day last year and expects such fraud attempts to increase in 2023.
• Fintechs are especially vulnerable because they do not necessarily have large human or technological resources to dedicate to
  cybersecurity.
• Lumu Technologies, a cybersecurity company, says that up to 60% of fintechs hit by a cyberattack end up going bankrupt.

Learn more about the current cybersecurity landscape in this week’s iupanaExclusive.