Cash continues to account for the bulk of transactions in Latin America, which poses an obstacle for consumer goods companies that, each day, distribute their products to millions of points of sale. Tackling this problem is one of the goals of Kamay Ventures, a venture capital fund backed by Coca-Cola and Arcor that’s ready to invest in fintechs that can streamline the operations and payments of small businesses within the value chain.
Kamay says that, despite the tightening in capital for the fintech industry in the last year, funds such as theirs see investment opportunities in tools that allow micro, small and medium-sized companies (MSMEs) to organize cashflow, control inventory and tap financing—especially those that do business with multinational food and beverage companies.
Fintech growth in the region has focused on digital solutions aimed at individuals and end users, spearheaded by neobanks and digital wallets. Now, big players such as Nubank or Ualá are moving to the next stage of scale and diversification by launching services such as marketplaces, savings accounts, and crypto exchanges.
However, according to Kamay, a space is opening up for digital companies that can integrate SMEs and micro-businesses into the financial ecosystem and capitalize on the growing interest of consumers in virtual means.
“One of our major motivators is that we have access to 12 million points of sale in Latin America: Coca-Cola through its bottlers and Arcor through its distribution. Points of sale that are tending towards digitalization,” Antonio Peña, managing partner at Kamay, tells iupana.
Peña, who’s in charge of the fund’s investments, says Kamay is interested in ventures that adds value to the the entire supply chain in Latin America, all the way down to the vast network of neighborhood stores. For example, fintech solutions for activating points of sale, cash management, switching from cash to digital, and credit-related services.
Peña says that this year and next, the VC fund will be looking out for solutions that promote the inclusion of micro and small businesses in the financial services sector, “with a strong focus on fintech.”). Such firms are often preyed upon by “sharks and speculators” charging usurious rates, he says.
The keys to credit for SMEs
It’s precisely in credit where the fintech market has seen a proliferation in new initiatives. At iupana, we’ve previously highlighted how fintechs are collecting transactional data at points of sale for their use in credit-risk assessments.
However, there’s still a way to go. According to a study by the Inter-American Development Bank published in August, only 50% of MSMEs in LatAm have ever received and accepted an offer of a bank loan. The same study says these companies are turning more frequently to fintechs due to the competitive rates they’re able to offer thanks to data analysis.
Cumplo, a fintech specialized in factoring that has operations in Mexico, Chile, and Peru, boasts non-performing loan ratios below 1%, which it attributed to its risk engine, Ada. This, it says, has allowed it to maintain solid balance sheets despite the adverse environment.
Nevertheless, the firm’s founder and president, Nicolás Shea, says formalization is the key to increasing financing possibilities for SMEs and, at the same time, diluting risks for digital lenders.
“Cumplo aims to inform small businesses about the advantages and possibilities of formalizing, improving their accounting processes, and establishing themselves as an SME with access to various sources of financing,” he tells iupana.
In Latin America, there were around 13 million formal MSMEs in 2021 and they accounted for just a quarter of this sector’s gross domestic product, according to estimates by the Latin American and Caribbean Economic System (SELA).
Victoria Treyger, a spokeswoman for Felicis, an investment firm that backs Shopify, sees a triple whammy for credit fintechs this year: Consumers are losing their jobs, benchmark interest rates are going up, and the cost of capital has risen, she said during an event hosted by TechCrunch in San Francisco last month.
From notebook to management software
Despite the more challenging environment, Kamay recently contributed capital to Altscore, an Ecuadorian company that performs alternative scoring so that, through APIs, credit companies can lend to firms excluded from the traditional banking system. The fintech said it received US$3.5 million from Kamay and other investors in fundraising.
In 2023 and 2024, the VC fund says it plans to invest in seed rounds with tickets of up to US$500,000, in addition to helping the startups grow.
In this vein, fintechs offering ERP solutions — software that allows the automation of business processes such as finance, sales, inventories or human resources — are also on the radar of investors.
Flexio, is a Mexican software-as-a-service (SaaS) platform that offers such tools to SMEs so that they can leave behind manual logs, standardize their book-keeping, and thereby facilitate their access to credit.
“This represents an opportunity for fintechs in the region to deliver a solution, a financial product, more efficiently: factoring, working capital, a line of credit,” says Nathan Schorr, a co-founder of Flexio.
Flexio says isn’t currently looking at getting into lending itself. The company counts as partners Covalto and Konfío — credit fintechs specialized in the SME sector, which represents 99% of the companies in LatAm and employs about 67% of all workers, according to a report by ECLAC.
Bimbo Venture and FEMSA Venture, the investment arms of other consumer good companies, are also looking to back startups that can be integrated into their value chains. The aim is to create digital bridges between large and small companies, something that Kamay is also striving for.
“Our strategy is to ask these startups, if they are relevant in fintech verticals, to do concept tests with one of the partners (Coca-Cola and Arcor) in any Latin American country,” says Peña.