5G and fintech startups in Latin America: an opportunity for financial inclusion

Did I hear 5G? The successor to 4G is increasingly in vogue and this is only to be expected – with its improved internet connection, it will allow remote surgical interventions to take place, for example, as it is 10 times faster and has greater broadband and better connectivity, reducing network response times. It also supports a larger number of connected devices, which is extremely necessary given that, according to Statista, by 2025 there will be 75.44 billion connected devices worldwide. So it will maximise the mass use of augmented reality, virtual reality, artificial intelligence and the Internet of Things.

“With 5G we’re going to be hyperconnected and everything will be highly focused on data exploitation, making autonomous driving and smart cities possible”, explains BBVA’s I&C Manager, Francisco Manuel Oliveira. It’s a technology with multiple applications that by 2026 will have reached 60% of the world’s population, according to the latest Ericsson Mobility Report.

The massive take-off of 5G will be one of the keys to ensuring future economic prosperity 

But in this worldwide landscape, the outlook changes as we bring a magnifying glass closer to certain parts of the globe. In the case of Latin America, despite the fact that the mobile industry has sustained social and economic activity during the pandemic, there are still 300 million people in the region with no access to the Internet on their devices. In order to leave no one behind, more efforts are being made to reduce this digital divide. The massive take-off of 5G will be one of the keys to ensuring future economic prosperity as it allows for specific solutions to be brought to various sectors, such as telecommunications, industry, transport and banking. The GSMA’s 2020 report on the Mobile Economy in Latin America points out that there will be 15 million 5G connections in the region by 2022. This association represents the interests of all mobile operators.

A connection that will improve inclusion and accessibility

The 5G technology era began in Latin America in 2020 with the launch of services in Brazil and Uruguay. Better access to the Internet and, in particular, that of this fifth-generation network, is turning developing economies into a focal point for innovation in financial services and is opening the way to financial inclusion, especially in places that are a long way from major economic infrastructures.

In Latin America only 55% of the population uses banks, compared to 95% in Europe, according to data from the Alliance for Financial Inclusion. However, mobile services generate 7% of GDP there. “In those rural areas that fibre optic does not reach, it is easier or more likely to arrive over the radio signal,” says Oliveira. According to the World Bank’s definition, for both natural and legal persons, this inclusion means “having access to useful and affordable financial products that meet their needs – transactions, payments, savings, credit and insurance – and are provided in a responsible, sustainable way”. It has even been identified as a factor that promotes 7 of the 17 Sustainable Development Goals.

As a result of the lockdown, millions of Latin American users felt the need to access banking products digitally, so financial technology companies went to a lot of effort to offer the right savings and investment solutions. Not only is the use of banks advantageous for banking entities, in that they increase their business, but it also contributes to the economic development of the countries concerned, helping to redistribute wealth. In this sense, it provides opportunities for people, improves their quality of life and offers security, control and transparency in the management of their resources. 5G can give the definitive push to this advancement.

Fertile, connected terrain for fintechs

In addition, the low levels of bank use in Latin America and the adoption of smartphones, which according to the GSMA will reach 80% of the population by 2025, have led to the appearance of a large number of fintechs. These are creative, young companies that are committed to innovation in the financial sector, working openly with larger firms, and that have the potential to democratise access to banking, complementing traditional banking institutions.

In the ‘Innovations you didn’t know were from Latin America and the Caribbean’ report, the Inter-American Development Bank (IDB) explains that these financial services – sometimes also used to evaluate credit risk – contribute to reducing the financial divide that affects the productive sector and, specifically, digitisation and the maturity of SMEs. “By choosing to focus on specific segments, fintechs are looking to solve particular problems, putting consumers at the very centre of their activity”, indicates the IDB.

Meanwhile, mobile operators are not only providing the connectivity needed by many of these financial technology procedures, they are also exploring opportunities to add more value and even invest in companies in the industry.

Mobile operators are exploring opportunities to add more value and even invest in fintech companies

“In Latin America today, mobile telephony is faster than domestic connections”, explains the CEO of Argentine fintech Afluenta, Alejandro Cosentino. He firmly believes that the fifth-generation mobile network will allow new financial products to reach remote locations, at a lower cost and operating more smoothly. For instance, “the technology has already enabled us to offer crowdlending services to our customers, thanks to which people can finance others”, explains Cosentino, who is also of the opinion that 5G will allow for a “borderless” financial structure, in which, for example, Peruvian fintechs will be able to serve the entire Andean region.

However, he insists that for 5G to be able to add value and promote innovation, there will need to be investment in advance to be able to expand broadband networks, improve cables and, above all, attract human capital as “there are hardly any engineers in Latin America’s fintechs“.

Financial opportunities to drive Latin America

In this fertile territory for fintechs, it’s also the case that “banking will greatly benefit from 5G, since it will be able to exploit more functionalities, such as increased mobility among managers or even being able to have hologram managers”, explains BBVA’s Francisco Manuel Oliveira.

For such technological innovation to arrive, the GSMA notes that, to meet the challenge of extending connectivity in Latin America to the most excluded populations and building a sustainable network infrastructure, continued collaboration between public policy makers, regulatory agencies and mobile operators is needed.

When that happens, 5G will offer maximum speed, ultra-low latency and the expansion of the Internet of Things ecosystem, providing industry-specific solutions. This will particularly affect the financial sector, where fintechs and open innovation are already opening doors.