How Open Banking guides LATAM FinTech
Latin America is a quiet champion of FinTech innovation. While the region may not be at the forefront of concerns for global fintech leaders, startups from Mexico to Chile are driving the digitization of payments, automation of financial management, and the emergence of new paradigms. in the market, such as open banking.
Investors are also paying attention. As analysts assess 2020’s performance, the Latin America Private Equity and Venture Capital Association (LAVCA) has announced funding for FinTech startups in the region. more than doubled between 2018 and 2019, reaching $ 4.6 billion, with evidence that the 2020 numbers could appear just as strong.
Clara, a B2B FinTech that officially hit the market earlier this month with $ 3.5 million in pre-seed financing to fuel its small business expense management offering. Speak with PYMNTS, co-founder and CEO Gerry Giacomán Colyer describes how his own experience as an entrepreneur inspired him to help other small businesses better control capital outflows.
“We realized how difficult we were as a fast growing company managing our finances,” he said. “The problems we were trying to solve with Clara are the very problems that we ourselves have encountered as entrepreneurs.”
There are many sticking points in expense management. Organizations first need a mechanism by which employees can actually spend the company’s money, whether that is forcing workers to use their own funds and being reimbursed after the fact, or by arming these professionals. with other tools such as business credit cards.
But this is only the start of a strong expense management strategy. Businesses need tools that can empower their employees to make the purchases they need – and where and when they need them – without compromising the control and oversight managers need to ensure those purchases. are authorized and in accordance with company policy. Additionally, at the highest level, businesses need additional capacity to understand the broader trends in how money is spent.
Because of these complex needs, Colyer noted that expense management is a multi-layered challenge within a single company.
“It goes from the level of employees, having the means to spend on behalf of a company, to the middle layer, having managers who can easily understand how employees spend against budgets,” he explained. “And then finally move on to the C-suite and the accounting teams, being able to see in real time how the company’s capital is being spent and to make strategic decisions based on that data.”
The workflows at each layer of this process impact a company’s performance, he added, highlighting a delicate balance that FinTech solutions must achieve in order to provide the flexibility employees need to perform. necessary purchases, while re-establishing the control that top-level managers and C-suite managers must monitor – and ultimately analyze – this activity.
The impact of Open Banking
Access to data is essential for analyzing spending behavior, and the key to accessing this data is the digitization of payments. This is especially important in Latin America, where cash has always been king.
According to Colyer, even long before the pandemic hit, the journey of digitizing payments in Latin America had begun, with card payment adoption accelerating amid the COVID-19 crisis. Clara uses this growing use of cards as a springboard for her offering, connecting an expense management portal to a corporate card product that automatically integrates transaction data into the system.
Once again, Colyer highlighted his past entrepreneurial experiences in extracting value from the digitization of payments.
“It was a first experience for me, realizing how much more intelligence you could bring to the transactional layer,” he says.
As the volume of card spending grows in Clara’s home base in Mexico, as well as in LATAM, other market trends present new opportunities to leverage transaction data. For example, the region’s open banking efforts continue to gain momentum in markets such as Mexico, Brazil, Chile and Colombia, such as PYMNTS July 2020 A Merchant’s Guide to Navigating Global Payments Regulation report highlighted. The coronavirus crisis is intensifying efforts in the region to unlock banking data and stimulate competition by allowing FinTechs to use this information for innovative products and services with higher added value.
According to Colyer, open banking not only offers a way for FinTechs to expand their functionality (Clara is now exploring new ways to facilitate payments beyond card product, including bank transfers), but the concept behind it. Even surrounding data ownership can also be an important framework for how B2B FinTechs in Latin America – and around the world – approach the business client segment.
It is imperative for Clara’s customers, for example, to be able to easily download all of their data or to facilitate integrations with other platforms.
“It is surprising how little there is with traditional financial institutions,” he said. We believe that the data ultimately belongs to the business and we want to help them get the most out of it. “