The Covid-19 crisis impacted and changed every sector throughout the economy, but investors in certain segments such as fintech, remained confident about the role that this startup would play during and after the pandemic in Brazil.
Manuel Silva Martinez, partner and investment director at PT Santander InnoVentures, are among the optimists. InnoVentures is a $ 200 million venture fund company that invests in fintech and owns Brazilian companies such as Creditas and the US platform Blockchain Ripple among portfolio companies.
According to Martinez, Latin America is a strange market, where the pace of change that drives fintech in other markets, such as smartphone penetration, has exceeded the ability of the financial services sector to meet the needs of new consumers. The result is a scenario where the population, hitherto ignored by traditional companies, is better served by startups.
“Investing in Latin America is attractive to us, because it allows us to support the financial success of emerging players, while gaining a better and deeper understanding of the competitive landscape of the future and how it will be formed outside, or in partnership with, incumbent financial sector “, he pointed out.
Regarding Brazil in particular, investors note that institutional factors support the performance of fintech startups, such as interest rates, which in turn facilitates the creation of startup credit. Another advantage is the advancement in the payment segment, which supports businesses that are active in the transactional side of financial services. Martinez also highlighted the increasing number of foreign entrepreneurs operating in Brazil, which helped accelerate the maturity of the ecosystem.
When this pandemic is revealed and companies start thinking about scenarios in the short and medium term, Martinez believes that Brazilian fintech has a great opportunity to focus on offers aimed at consumers and small and medium businesses – according to him, the current scenario is not ideal for B2B Propositions.
“It’s hard to see the extent of the consequences on the global economy and deeper social changes around the world. Despite the confusion, fintech business has an important role to play”, Martinez stressed, adding that this will occur in two dimensions: in the short term, this crisis shift global supply chains and related payments, and transfer risk between productive agents.
“Fintechs can be a good way to bridge some of these gaps,” Martinez said. According to specialists, these companies can work to ensure faster payments, greater transparency of information, delivery of more financial information in real time, in addition to better and more direct communication with customers, alternative ways to evaluate their creditworthiness, as well as different ways to access the capital market.
The crisis will present other opportunities for fintechs: according to Martinez, this pandemic is likely to change which population segments become bank-less or underserved by rebalancing economic flows and profit collections. In addition, capital market disruptions and massive government intervention in the global economy can create new asset classes that can also bring business opportunities.
There are some opportunities but turbulence is also expected. However, the flexibility and response capacity that is often seen among startups will be an “antidote” to the negative impact of the crisis, according to Martinez.
Investors anticipate a scenario where these companies will adapt quickly to respond to new market requirements. This includes an emphasis on remote, flexible and direct financial services, but involves a greater amount of risk.
“But it is likely that some finteches will face short-term challenges that will put them under pressure in the coming weeks or months,” he predicted. However, fintechs are also part of the financial system which is under great pressure due to the public health crisis.
“[Fintechs] those that depend on access to the capital market may suffer from various challenges: lower capital supply, or price increases, or changes in contract conditions, or changing circumstances that limit the security of long-term sources, “he warned.
Regarding the possibility of increasing startup mortality as a result of the coronavirus crisis, Martinez believes that failure is a natural component of the innovation cycle, but argues that the current situation will affect some companies more than others.
“Business must be alone: how will my request, directly or indirectly, be affected? What is my dependence on other external elements, such as access to capital markets, the health of certain regulatory assets or distribution channels, and how will these elements be affected? “, Investor’s advice.
“The ability to understand the answers to these questions, make the right business decisions quickly and decisively and adjust priorities, costs and perspectives will be key,” Martinez said. “Resilience and adaptability will be more important than business models for dealing with this situation.”