Descubre el futuro de las finanzas en América Latina y el Caribe

The future of finance in LatAm & the Caribbean

O futuro das finanças na América Latina e no Caribe



Where did the Latin American fintech boom go? Devaluations, retreats and layoffs

Aug 7, 2023

By Antony Pinedo

The industry is seeing first signs of recovering after mass layoffs and reversals in growth plans. But is there really light at the end of the tunnel, or is it just a mirage?


With additional reporting by Eyanir Chinea

At the end of May, Soy Moni, a Mexican digital financial advisory fintech for women, announced it was shuttering its business and joined the growing ranks of companies that succumbed to the harsh economic environment.

Founded by Marisol Pérez-Chow in 2020, the startup tried to stay afloat by exploring different business models but the search for capital became increasingly difficult for the entire ecosystem as the boom years for fintech fundraising came to a screeching halt.

“It’s extremely difficult to raise investment,” Pérez-Chow tells iupana. “We’re in a situation that’s difficult for everyone. Funds are being much more specific in their due diligence, making adjustments to their investment theses, looking for more growth results, more traction,” she says.

The case of Soy Moni underlines the current complexities of the digital finance market, especially for start-ups, which are under pressure to either achieve sustained monetization or aggressively cut costs. The scarcity of capital has led to mass layoffs, company devaluations and scaled-down expansion plans.

“The inflow of financing starting in 2019 was incredible,” recalls Héctor Cárdenas, co-founder and CEO of Conekta, a Mexican payment aggregator. “The funds began to take notice of Mexico, and we saw things that, as entrepreneurs, we couldn’t have imagined,” such as record investment rounds, he said.

Today, by contrast, while seed rounds continue, rounds beyond C series have ceased altogether. Cárdenas says it’s a time for fintechs such as Conekta, which counts Amazon and Samsung among its clients, to be very careful with resource planning.

“The buzz phrase right now is ´sustainable growth´, which is what we have to do,” he told a gathering of journalists, in response to a question from iupana.

Valuations slashed, IPOs shelved

Headlines about newly minted fintech unicorns have disappeared and what resonates are downrounds, or rounds where shares are sold at a lower price than in previous fundraisings. Plans for initial public offerings have been put on ice too.

After much speculation and hundreds of layoffs in Brazil and Mexico, Brazilian proptech Loft recently acknowledged that its valuation had fallen by nearly 50% since its last equity round in 2021. The firm is now worth US$1.45bn compared with US$2.9bn previously, CEO Mate Pencz said in an interview with Pipeline.

In Mexico, Loft, which also acts as an intermediary for real-estate financing, fired a significant part of its management team, according to chat conversations seen by iupana and involving one of the affected ex-employees. And, at its headquarters in Sao Paulo, the firm has made more than 1,000 workers redundant since April 2022, according to the portal Layoffs.

Meanwhile, Mexican fintechs Covalto and Clara, which had planned to list on Nasdaq in the first quarter of 2023, have had to delay their share offerings. In addition, Mercado Libre and Kaszek’s special acquisition company, or SPAC, was dissolved in June after failing to find an attractive technology company with which to merge.

Setback in internationalization

Regional expansion was a fintech trend carried by the wave of market liquidity. However, some companies have been forced to scale back growth plans in order to improve efficiencies; in some cases they have retreated from new markets entirely.

In July, the German digital bank N26 laid off 20 employees in Brazil, equivalent to 15% of its local workforce, and the CEO was forced to deny speculation the company was withdrawing from the country.

By contrast, Colombian buy now, pay later credit fintech Addi left the Brazilian market in order to focus efforts on its home country in an effort to break even next year.

Similarly, a person with direct knowledge told iupana that the giant has only continued with regional operations in Brazil, when a year ago it promoted an aggressive entry into LatAm and built a team for it. "[The company] stopped any expansion and laid off everyone else.", the person affected by the layoffs said.

According to one fintech adviser, companies have often changed tack after embarking on a disorderly expansion process. "The reversals we’ve seen are by companies in industries that weren’t regulated and that grew very quickly," said the specialist, who asked not to be identified due to confidentiality agreements with his clients.

"When companies go into other jurisdictions, it’s very important that they’re accompanied by someone who knows the local reality," the person said, adding that some fintechs made the mistake of transferring talent to other countries to start new operations and are now bringing them back home due to disappointing results.

Light at the end of the tunnel?

The industry players interviewed for this article largely agree that the era of hyper-growth is behind us, although some remain optimistic it could return.

The change over the last two years has been dramatic: 2021 was a year of unicorns and mega investment rounds, with a record US$12.9 billion poured into Latin American fintechs.

By contrast, just US$700 million has been raised in the first half of 2023, compared to US$3.3 billion in the same period last year, according to a report from CB Insights. Still, LatAm is the only region to have seen fundraising increase in the period, the report said.

Global fintechs lost more than half their market value on average last year, according to a survey by Boston Consulting Group (BCG) and QED Investors. Yet QED, which has LatAm fintechs in its portfolio, sees it as a "short-term correction, within a long-term positive trajectory."

Amid all the gloom, a rebound in market valuations for industry giants such as Mercado Libre (owner of Mercado Pago) and Nubank, could improve the prospects for future IPOs. The Brazilian neobank’s stock has recovered more than half its value in the past six months, buoyed by its first-ever positive earnings period this year. Indeed, even Loft has begun to float the idea of a share sale, its CEO said.

According to Myriam Cosío, a spokesperson for Mexican fintech Clip, projections for the digital financial sector are as valid today as they were a decade ago. She points to electronic payments —one of the fastest-growing fintech verticals— where even though volumes doubled between 2014 and 2022 in Mexico, 80% of transactions are still conducted in cash.

"Certainly, investment funds have been more cautious in recent years," says Cosío, who is also president of Asamep, an industry group representing Mexico’s payment aggregators, such as PayPal and Ualá Bis.

"Part of the growth of payment aggregators was precisely due to the arrival of these investment funds, because there was a lot to do in technological development, connections, and placement of terminals," she said at a press conference, noting that 70% of the country’s points of sales are operated by fintechs.

“The funds continue to look upon Mexico favorably because there’s still a lot to do, and a lot of investment is required. Financial inclusion costs money.”



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