EMIS Insights - Fintech in Colombia - The Golden Child

Fintech in Colombia:
The Golden Child
An EMIS Insights Thematic Report
Any redistribution of this information is strictly prohibited.

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2 RUSSIA-UKRAINE WAR IMPACT ON GLOBAL OIL AND GAS SECTOR
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Foreword
Laura Cardona
Latin America
Industry Researcher
EMIS Insights
Backed by a favourable regulatory environment, a widespread

adoption of digital financial services and a robust investment
activity, Colombia has become the third largest fintech hub in
Latin America. With over 75% of the population using fintech
services, Colombia has the highest fintech adoption rate in
Latin America and the fourth-highest one globally. The country’s
financial industry regulator recently approved a regulation to
enable open banking, laying down the rules for the transfer of
consumer data between financial entities. Colombia’s fintech
startup scene is also thriving. The local fintech sector, where the
number of players has exhibited an average annual growth of
19.7% since 2019, has become an attractive target for investors
due to its high returns and promising growth projections.
RUSSIA-UKRAINE WAR IMPACT ON GLOBAL OIL AND GAS SECTOR 3


Fintechs are revolutionising the financial landscape in Colombia. Their ability to transform the delivery and use of
financial services has enhanced financial inclusion and reduced costs. The presence of multiple verticals reflects
the variety of financial solutions that these companies can offer, which promotes competition in the sector.
Fintechs have significantly driven job creation in the country, contributing to the overall economic development.
Also, investment in technological capital has played a fundamental role in their success and sustainability and
the majority of them have used their resources to drive innovation and improve their financial services. There is a
positive outlook for the future of the fintech industry in Colombia, initiatives such as the adoption of Open Finance
and the construction of a digital payments system demonstrate the regulatory authorities’ commitment to adopt
the best international practices to promote the development of this sector.
Colombian Fintech Ecosystem

at a Glance
Colombia’s fintech ecosystem boasts a significant number of players, considering the size of the country’s GDP and
population. According to Finnovista, a venture capital firm committed to the development of the fintech sector,
the ecosystem has exhibited an average annual growth of 19.7% since 2019. The highest growth rate of 39.5%
was observed between 2020 and 2021, going from 200 to 279 startups as the pandemic favoured the arrival of
new technologies and the entry of new competitors in different fintech verticals. Since 2022 the growth began to
stabilise, with 62 new companies added to the ecosystem, reaching a total of 341 and as of April 2023 369 companies
were identified, according to data from Finnovista’s Fintech Radar Colombia.
As stated by the Colombia Fintech association, in July 2023, 346 fintechs were affiliated to this body. The majority of
them (35.8%) are engaged in providing credit services reaching the population underserved by traditional banks. The
second biggest group, making up 28.8% of the total, provide payment and remittance services, which demonstrates
the growing importance of digital payment methods driven by the increasing adoption of mobile devices. In the third
place, with a share of 7.6% each, are the companies that offer solutions for businesses and that have technologies
related to cryptocurrencies and blockchain. Digital banks and crowdfunding represent the smallest segments, each
with a 2.8% share. The sluggish growth of the former is attributed to regulatory hurdles.
4 FINTECH IN COLOMBIA: THE GOLDEN CHILD


Number of Fintechs
341 346
39.5%
279
200
180 22.2%
11.1%
2019 2020 2021 2022 Jan-Apr 2023
Number of Fintechs y/y change %
Share of Fintechs by Segment, July

2023
Crypto and Enterprise Financial

Blockchain Management 7.6%
7.6% Regtech 7.2%
Personal Financial
Payments and Management and
Remittances Wealthtech 6.0%
28.8%
Crowfunding
2.8%
Lending
Digital Banking
35.6%
Insurtech 1.6% 2.8%
Source: Finnovista
Most of the startups are located in Bogota (68.1% of the total), consolidating the position of the capital as the
biggest fintech hub in the country. There is also significant fintech activity in Antioquia, with a share of 19%,
highlighting its role as another development hub. Atlantico and Valle del Cauca contribute with 4.4% and 3.6%,
respectively, suggesting an emerging but promising fintech expansion in different regions.
The fintech sector has a significant impact on job creation. When examining the distribution of these companies by
the number of employees, Colombia Fintech’s Fintech Snapshot report found that around 21% have between two
and nine employees. As many as 17.8% of the surveyed companies have between 10 and 19 employees, while 22.9%
fall within the range of 20 to 49 employees. These figures reflect the gradual consolidation of the sector, with an
increase in its operational capacity and talent demand. Moreover, the majority of the fintechs are microenterprises
(63% of the total), while 16% are classified as small enterprises, indicating that there is a significant proportion of
companies that have managed to grow and consolidate within the sector. Large enterprises represent 13% of the
total, which could indicate the presence of strong and well-established players in the Colombian fintech market.
Additionally, 46.4% of fintechs invest more than 30% of their operational revenue in technological capital,
demonstrating a high level of commitment to innovation, allocating significant resources to develop and
enhance their digital platforms, mobile applications, cybersecurity, and other key aspects of their technological
infrastructure. This investment enables them to stay at the forefront of financial technology and improve the
quality of services.
FINTECH IN COLOMBIA: THE GOLDEN CHILD 5


Share of Fintechs by Size, April 2023 Number of Employees, April 2023
Small 15.9%
22.9%
22.9%
21.0%
17.8%
15.7%
Large 12.7%
Micro 63.2% Medium 8.2%
2 to 9 10 to 19 20 to 49 50 to 249 250 or more
Source: Colombia Fintech
Technology Adoption Crucial for

Accelerated Growth
According to Finnovista’s 2023 Colombia Fintech Radar, 41.8% of the surveyed fintechs considered that the main
advantage of the Colombian market compared to other economies in the region, is the rapid adoption of new
technologies by people. Even though most of the payments are still made in cash, following the pandemic, the
country experienced a rapid expansion in online transactions, along with a surge in the utilisation of electronic
and unconventional payment methods, propelled by the widespread use of smartphones and a higher internet
penetration. According to information gathered by the Colombia Fintech association, between 2020 and 2021 digital
wallets experienced a 99% y/y increase in the number of users, a 122% y/y rise in the number of transactions, and
a growth of 195% y/y in the traded volume. Additionally, the Digitalized Latin America report conducted by the
payment platform Kushki and the consulting firm Americas Market Intelligence, found that digital wallets reached a
penetration rate of 76% among the Colombian population during 2022.
Moreover, the use of technologies by fintechs such as artificial intelligence, blockchain, and advanced analytics has
enabled them to perform precise decision-making, make transactions safer, and create highly accessible financial
services for users.


Fintech Sector Drives Financial Inclusion
The market size is another opportunity for fintechs, as stated by 38.5% of them in Finnovista’s 2023 Colombian
Fintech Radar. Colombia is one of the largest markets in Latin America, trailing only behind Brazil and Mexico.
According to the Financial Inclusion Report published in June 2023 by Banca de las Oportunidades, a Colombian
government entity, in 2022 a total of 92.3% of the population was using at least one financial product, compared
to the share of 90.5% registered in 2021, meaning that 1.2mn adults accessed a financial product for the first time
during 2022.
The barriers to access to credit in Colombia have diminished after the entrance of fintechs which cater to the needs
of the underserved population. According to Gabriel Santos, CEO of Colombia Fintech, 6 out of every 10 people who
apply for credit in a fintech were rejected by traditional banks. Furthermore, a report of credit activity published by
DataCredito Experian, the largest credit bureau in Colombia, showed that there was an increase of 63.9% in small
loans between 2021 and 2022, in which the maximum amount lent is two minimum wages (the minimum wage in
Colombia in 2023 was COP 1,160,000). In fact, the share of this type of loans reached 30.9% of the total in 2022 and
what is noteworthy is that fintechs provided around 70% of them. The profiles of individuals accessing these loans
are mainly women, young people between 18 and 21 years old, and individuals from lower socio-economic strata.
Challenges
According to Finnovista’s 2023 Colombian Fintech Radar the primary obstacle faced by fintech companies is scaling
up and internationalising their operations. The difficulty arises from the necessity to overcome barriers related to
adapting to different regulatory frameworks, establishing strategic alliances, and developing a deep understanding
of target markets. In fact, based on the responses of the participants in the Fintech Radar survey, less than half of
the fintech companies operating in Colombia have managed to operate in other countries. An illustrative example
of this situation is Addi, a fintech company operating under the “buy now, pay later” business model, which in June
2023 decided to suspend its operations in Brazil, where the company had attempted to scale since the second half
of 2021. As stated by its CEO, Santiago Suarez, the company wants to focus investment on Colombia to reach break-
even point in 2024.
Another challenge identified in the Radar is the difficulty that companies encounter in securing funding for their
operations which is more pronounced for credit-focused fintechs, as they often lack sufficient funding access to
cover the subscribed loans. According to the Latin American Private Equity and Venture Capital Association (LAVCA),
in 2022 Colombian startups secured the third-highest venture capital investment value in Latin America and the
Caribbean, reaching USD 1.19bn, behind Brazil with USD 3.1bn and Mexico with USD 1.8bn. As investors have favoured
Brazilian and Mexican fintechs, companies in Colombia have faced challenges in progressing at a comparable pace
to their regional counterparts. Moreover, Andres Fontao, cofounder and managing partner of Finnovista, said in an
interview for the Forbes magazine, that in 2022 and 2023 tightened monetary conditions have reduced the capital
raised by fintechs. This was reflected in the decrease of the value of venture capital investments in Colombian tech
sector from USD 1.6bn in 2021 to USD 1.2bn in 2022.


Number and Value of Venture Capital
Deals in Tech Sector
1.6
126
1.1 1.2
81
0.5
38 41
2019 2020 2021 2022
Value, USD bn Number of Deals
Source: LAVCA
Leading Companies
Addi
Addi is a “buy now, pay later” fintech that started operations in Colombia in March 2019. Addi allows users to pay in
three instalments with 0% interest and the maximum amount financed is COP 1.5mn. It is already present in more
than 5,000 businesses and over 15,000 points of sale throughout the country. Addi is also starting a process with
the Financial Superintendence of Colombia (SFC) to obtain a licence to become a financing company. The accelerated
growth of the company is reflected in the increase of its assets passing from COP 38.1bn in 2020 to COP 364bn in
2022. In 2022, Addi registered a net loss of COP 167.2bn, mainly explained by an increase of its costs.
Bold
Bold is a fintech focused on MSMEs, offering them low-cost point-of-sale terminals so that they can accept card
payments without contracts or monthly fees. These devices have allowed more than 350,000 already affiliated
businesses to reach more customers and connect with the financial system without having to form alliances
with various franchises. In February 2022, the company received an investment of USD 55mn in a Series B round
led by Tiger Global Management, a globally recognized technology investment firm, which allowed it to scale its
operations. As of December 2022, Bold’s assets rose 133.9% y/y to COP 139.3bn, mainly explained by an increase in
cash. In August 2023, Bold acquired a licence to begin operations as a financing company, and therefore will be able
to offer deposits and loans.


PayU
PayU a digital platform that allows users to receive online payments through various means, including credit cards,
current accounts, savings accounts, cash, and others, and is present in seven Latin American countries. It was
founded in Colombia in 2022 under the name of Pagosonline and in 2013 changed its name to PayU Latam after an
investment of USD 9mn made by South African company Naspers, the owner of PayU Group. According to its CEO,
Federico Balige, in 2022 PayU had more than 350mn transactions in Latin America and this number is expected to
reach 400mn in 2023. Also, in 2022 the verticals with a higher penetration in transaction processing were fashion,
entertainment, and transportation sectors. In the same year, in Colombia PayU’s net profit rose by 44% y/y due
to higher operating revenue as the economy recovered after the pandemic which increased online purchasing. In
August 2023, PayU was acquired by Israeli Unicorn Rapyd for USD 610mn.
Movii
Movii was founded in 2018 and in 2020 it became the first Colombian fintech operating under a financial non-banking
licence for electronic deposits and payments (the so-called Sedpe licence). Its platform relies on an application
that offers a debit card enabling users to make online and in-store payments, perform free transfers, and pay bills,
among other features. Movii has also been selected by the government to make the payments of subsidies such as
Ingreso Minimo Garantizado and Familias en Accion. The company’s assets rose by 69.6% y/y to COP 275.7bn as of
December 2022.
Finaktiva
Finaktiva was founded in 2017 and is focused on providing digital financial solutions, such as credit and factoring,
to companies to obtain immediate liquidity and make payments to their suppliers. In 2022 it financed over 7,000
companies and disbursed around USD 800mn, doubling its growth compared to 2021. This was reflected in its asset
growth from COP 83bn in 2021 to COP 104bn in 2023. According to Ana Maria Portillo, one of its cofounders, nearly 36%
of the companies in their portfolio are led by women. Finaktiva expects to close 2023 with a growth of around 50%
y/y. In October 2023 the company launched international factoring to facilitate companies with their transactions
abroad.
Investment Stages of
Colombian Fintechs
According to Colombia Fintech, 28.6% of the B stage, while 6% are in the Series C+ stage. These
companies in the sector use their own resources to companies have demonstrated a solid performance,
fund their operations. On the other hand, 13.1% of the attracting investments from venture capital funds and
fintechs are in the Pre-Series A or Post-Seed stage, other strategic investors.
implying that they have secured funds from investors. In 2023, the main deal in the sector was an extension
These early-stage investment funds enable companies to a Series B round in which Clara, a leading payment
to accelerate their growth and develop their products platform for companies with presence in Colombia,
or services with additional financial backing. A total Mexico and Brazil, secured an investment of USD
of 10.7% of fintech companies are in the Series A 60mn and was led by US venture capital firm GGV
stage, indicating that they have successfully attracted Capital. This was followed by an investment of USD
more substantial and strategic investments. When 58mn in Colombian lender Credivalores-Crediservicios
analysing the more advanced investment stages, by American private equity fund GDA Luma.
it is observed that 7.1% of fintechs are in the Series


Share of Fintechs by Stages of
Investment
Series A 10.7%
Pre-Seed Angels
Pre-Series A or 7.1%
Post-Seed
13.1% Seed 7.1%
Series B 7.1%
Doesn't Apply
20.2%
Own Resources Series C +

28.6% Capital 6.0%
Source: Colombia Fintech
Favourable Regulatory Environment Boosts

Fintech Innovation
Colombia has witnessed active regulatory such as the commercialisation of financial consumer
developments focused on incorporating novel models data, payment initiators, and services offered in
and technologies into the financial system. This regulatory ecosystems are addressed. Additionally,
strategy has resulted in a rapid growth of the fintech the 2023 National Development Plan mandates access
sector. to open data. Moreover, in October 2023, the financial
superintendent, Cesar Ferrari, announced that the
External Circular on open finance is almost ready to
In an effort to introduce new players and products be published, through which entities must give access
to the market that will positively impact financial and provide information that can be used to facilitate
inclusion, the Financial Superintendency of Colombia access to products and services. This will not only
(SFC) implemented the Sandbox Challenge in 2022, drive competition but also catalyse innovation in the
an initiative in which 26 fintechs (regulated and financial sector.
unregulated), tested their technological initiatives
in a controlled environment. In June 2023, the SFC
selected the three most innovative initiatives: Also, during 2023 the Central Bank of Colombia has
Agrapp; Virtuoabastos and Inverti, which will receive been working on the establishment of its own digital
technical and legal guidance and will be able to test payment system which will allow interoperability in
their innovations for a period of two years, under the low-value instant payment systems. It will be a more
conditions and requirements of the SFC. efficient mechanism for different financial entities
to communicate by allowing transfers between
people and payments in commercial establishments
Colombia became the third country in Latin America to or service providers, among others, with any type of
implement Open Finance. In decree 1297 of 2022, topics bank account. The Central Bank aims to integrate this
instant payment tool into open finance.


Investment Potential
The fintech sector has become a very attractive segment for investors due to its high returns and promising growth
projections. According to Finnovista, as of December 2021, 63.6% of Colombian fintechs reported an annual revenue
of at least USD 500,000, and 27.3% of them between USD 500,000 and USD 5mn. Also in the same year, Colombia
Fintech was able to identify companies with a 200% growth in their sales, 300% growth in digital payments and
more than 500% growth in the use of QR codes. Additionally, the mortality rate of the companies in the sector has
been decreasing passing from 20% in 2021 to 17.9% in 2022. Fintechs have become crucial players in the financial
system disrupting traditional services by changing customer experience, listening to their needs and using
technology as means to innovate and design new products.
According to Erick Rincon, former CEO of Colombia Fintech, one of the main reasons to invest in Colombian fintechs
is the regulatory environment. The regulatory authorities have adopted a progressive approach to foster fintech
innovation and ensure consumer protection. This mindset has allowed the creation of a more friendly environment
for startups and has paved the way for the adoption of advanced financial technologies. Another reason is the
maturity and sustained growth of the sector. As stated by Colombia Fintech, 52% of the companies have a business
trajectory of 1 to 5 years, reflecting an innovative entrepreneurial environment with a considerable margin for
growth and a constant flow of new companies entering the market. Additionally, 42.4% of the companies have been
in existence for 6 to 20 years, meaning there is a significant segment of companies that have achieved a certain
level of stability and success in the sector, enabling them to stay in the market for the long term. Moreover, the
geographical location of Colombia favours the business environment and makes it competitive, a factor that also
benefits from the country’s solid and well-developed technological infrastructure.
Conclusion
Fintechs will continue to play a fundamental role in

transforming the financial landscape of the country
as they facilitate efficient, flexible, and easily
accessible financial services through digital platforms.
In Colombia, regulatory efforts have fostered a
conducive environment for fintech sector’s growth,
becoming the third largest hub in Latin America.
Furthermore, the diversity in funding sources and
investment rounds for Colombian fintechs reflects
their dynamic and evolving environment, as well as
the confidence of investors in their potential growth.


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Fintech in Colombia:

The Golden Child

An EMIS Insights Thematic Report

Any redistribution of this information is strictly prohibited.

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Backed by a favourable regulatory environment, a widespread

RUSSIA-UKRAINE WAR IMPACT ON GLOBAL OIL AND GAS SECTOR 3

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Colombian Fintech Ecosystem

4 FINTECH IN COLOMBIA: THE GOLDEN CHILD

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2019 2020 2021 2022 Jan-Apr 2023

Number of Fintechs y/y change %

Share of Fintechs by Segment, July

Crypto and Enterprise Financial

FINTECH IN COLOMBIA: THE GOLDEN CHILD 5

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Micro 63.2% Medium 8.2%

2 to 9 10 to 19 20 to 49 50 to 249 250 or more

Source: Colombia Fintech

Technology Adoption Crucial for

6 FINTECH IN COLOMBIA: THE GOLDEN CHILD

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FINTECH IN COLOMBIA: THE GOLDEN CHILD 7

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2019 2020 2021 2022

Value, USD bn Number of Deals

8 FINTECH IN COLOMBIA: THE GOLDEN CHILD

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Own Resources Series C +

Source: Colombia Fintech

Favourable Regulatory Environment Boosts

10 FINTECH IN COLOMBIA: THE GOLDEN CHILD

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Fintechs will continue to play a fundamental role in

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