Qredo COO Josh Goodbody looks at fintech development in Latin America and asks the big question: Could the region become a global hub for crypto?
El Salvador has become the torchbearer of bitcoinization, and Qredo is proud to be powering the behind-the-scenes operations through our partnership with Banco Hipotecario, API3, the Open Bank Project, and Sovryn.
I’m hopeful that our collaboration will be a strong boost to bitcoin and the region’s broader digital asset space — kicking off with the Bitcoin Bankathon, running virtually from 19th November and ending on-site in El Salvador on December 5th.
Maybe it’s because I’m half-Mexican, but I’m especially excited about the opportunity for crypto in Latin America.
Its diverse populations possess huge resourcefulness, hustle and intellectual capital.
But it’s more concrete than that; growing crypto activity in the region follows a fintech boom that has been reverberating across Latin America for the last decade.
Real challenges exist -- just as they do with crypto adoption everywhere. But I believe LatAm offers an exciting combination of elements that will spur meaningful crypto innovation across the region’s public and private sectors.
Latin America's history has given it a head start in the hunt for better financial infrastructure.
The region has moved on from the debt crisis of the 1980s to become a hotbed of fintech investment: $300 million was poured into Latam financial services companies in 2016, rising to $1.5 billion in 2019, and $2 billion in 2020.
Fintech is a broad term — coming into use in the 90s as a new generation of startups started exploring how technology could be used to improve financial processes. Both consumer-facing ones (like banking services), through to tech infrastructure hidden in organizations (such as portfolio management systems used by hedge funds and asset managers).
The spirit of this innovation has rattled things up in LatAm, and the steady flow of fintech funding has led to multiple unicorns that have found success by boosting financial inclusion. For example, Brazilian fintech company Nubank has become the largest neobank in the world by offering simple credit card and bank account services, followed closely by the Argentine equivalent Ualá.
Yet according to a 2020 report from the Center for Global Development, financial inclusion still sits as low as 36.9% in countries such as Mexico, suggesting there is room for improvement.
At the same time, fintech funding is taking a quantum leap, with a mega $6.5 billion in venture investments registered across LatAm in the first six months of 2021. Much of this is being directed into crypto infrastructure, including unicorns like the biggest LatAm exchange Bitcoin Mercado (backed by SoftBank), and Mexican exchange Bitso.
One particularly ripe area of opportunity is around payments: Remittances represent a huge chunk of local economies at 21% of GDP in El Salvador, and up to 31% elsewhere in LatAm.
Bitso, which is valued at $2.2 billion, is capitalizing on this opportunity by putting money back into the pockets of locals, offering a cheaper and faster alternative to Western Union transfers which take three days at a cost of 12.5%.
Elsewhere, cryptoassets are acting as a store of value with Argentines buying Dai each month to bypass local currency, and as a tool for enriching local communities, as with the Neripeso in Uruguay. Eventually, DeFi could provide ways for citizens across LatAm to earn, save, and get access to difficult-to-obtain credit through a whole new breed of financial services.
This is supported by grassroots educational efforts Such as MyFirstBitcoin that are sparking change at the individual level.
All of this activity is making the cryptoasset ecosystem impossible for regulators and bankers to ignore.
Some are even beginning to view it as a shortcut to prosperity, realizing that, as McKinsey noted in 2017, they are "better served by getting ahead of and defining the trend rather than waging a futile battle to repel it."
From Paraguay to Panama, policymakers across LatAm are following a decade-long push for open fintech regulation with proposals for crypto. They are recognizing the opportunity that crypto-powered financial rails can bring — whether via bitcoinization as in El Salvador, or the rollout of central bank digital currencies (CBDCs).
Although the Mexican President has ruled out legalizing bitcoin, Brazil, Latam’s largest fintech ecosystem, is weighing the possibility alongside CBDCs. Venezuela has passed its "Law of the Integral System of Cryptoassets", and Panama has introduced a bill proposing that taxes, fees and other official obligations may be paid using crypto.
On the ground, the biggest hurdle to achieving mainstream regional adoption is a reflection of the obstacle that hindered operations during my time at Binance and Huobi: the lack of sophisticated infrastructure.
Though Latin America has one of the highest adoption rates of smartphones, only three in 10 people have access to the internet. Brazil and Argentina are among the LatAm nations that have recognized this issue, and are now moving towards making the internet a legal "public service" in the wake of the pandemic.
Other obstacles to adoption reflect the same challenges that institutions face when speculating on digital assets, but in a different arena. These include speed, scalability and transaction costs, plus compliance needs, security, and the ability to integrate with local financial services.
What this means is that there will be a growing need for institutional and country-grade infrastructure that is secure, blockchain-agnostic, scalable, and can be tailored to different circumstances. In this respect, Qredo is hoping to play its part.
To sum up, whilst my Mexican heritage may make me a little biased, I’m optimistic that these converging trends — combined with the region’s innate talents — have the potential to make Latin America an important centre for crypto innovation and adoption.
As they say in Mexico, a darle que es mole de olla — let's keep building because now is the perfect time!