RIO DE JANEIRO, BRAZIL – Uruguay has for decades held the reputation of the Switzerland of Latin America, its relative stability and sound finances leading individuals from across the region to trust its banks for deposits and investments.
Now it is performing another feat with fintechs, exporting the services of a growing cluster of internationally-orientated companies, not just to Latin America but to the entire developing world.
“Our population is so small, we should be declared a protected species,” jokes Sebastián Olivera, founder and president of the Uruguayan Fintech Chamber and Findexable’s ambassador for Spain and Latin America. “But that means we have always been geared to exporting.”
“In the past it was milk and beef, now it is finance and technology.” Uruguay has shot up 46 places to 17th in the Global Fintech Rankings report this year, the largest single rise in the country Index.
Montevideo, the capital and home to much of the country’s 3.4 million population, rose 86 places to 44th in the city Index, easily the biggest move in the top 50.
A large factor is the growth of the country’s first unicorn, dLocal, a fintech which enables companies across the world to accept payments from customers. The company raised US$200 million at a valuation of US$1.2 billion in September 2020 and then quadrupled its valuation when raising another US$150 million barely 6 months later in April this year.
“The reason why we afford unicorns such weight in our Index is because they do not exist in a vacuum. dLocal has emerged from a thriving ecosystem of global financing startups in Montevideo, fostered by the city’s long association with banking and payments.”
Bantotal, for instance, provides core banking operations to banks across the region. Bankingly sells consumer-facing apps and online banking products, which financial institutions can brand and customize themselves.
Both companies are thriving in a continent with many thousands of small credit institutions and cooperatives unable to develop their own digital resources. dLocal focused on taking this model and go beyond Latin America to Africa and Asia, where it is now making inroads, and therefore multiplying its potential business size.
This is the path that many fintechs in Montevideo want to follow. “We have several success stories of companies developing multiple fintech solutions from Uruguay to the world,” notes Jamie Miller, executive director of Uruguay XXI, the government’s economic development agency.
In many ways Uruguay has little choice given the limited room to grow within the country.
Pagazna, a smartphone payments service that has transformed both money transfers and bill payments for Uruguayans, is extremely popular in the country but has not found significant traction elsewhere and was eventually purchased by Santander for no more than €3 (US$3.5) million last year.
Aware of the need for companies to think globally, the government has for decades played a key role in fostering technology and finance industries.
A key moment was the Financial Inclusion Act in 2014, which mandated companies to pay wages directly into bank accounts and ordered the state to pay out pensions the same way. The result was a surge in payment innovations that led to companies like Pagazna, and growth in bank account penetration.
As a report authored by Angela Lyons from the University of Illinois based on the Global Fintech Index shows, the development of a fintech industry plays a key role in amplifying financial inclusion.
But it does not automatically give individuals the resources to save money into their new digital wallets or bank accounts. That requires much more economic development and capacity building.
The Uruguayan government has also been active in this respect. The country was the first to adopt the one laptop per child program in 2007, for example. As a result, Olivera says: “We have generations of students accessing the labor market who were born digital and had training in technical skills since they were very young.”
More recently the government has sponsored the Montevideo Fintech Forum, the first of its kind in the region when it began in 2016. The ingredients are there, despite Uruguay’s small size, for innovation to keep growing in Montevideo, especially if an eventual exit by dLocal provides a funding boost into the hub.