Fintech companies will be key in securitizations in Latin America, according to S&P

Lina Vargas Vega – [email protected]

The fintech boom continues to create opportunities in the financial world. The latest Standard & Poor’s (S&P) report highlighted the role of this segment of companies in financing through securitizations, an instrument that transforms assets into marketable securities, which base their profitability on their cash flows and are transferable to third parties.

“In the opinion of S&P Global Ratings, fintech companies will play a key role in the region’s local securitization markets in the future,” the firm highlighted.

Edwin Zácipa, founder of Latam Fintech Hub, stated that “this year there has been a record in investment in fintech in the region, especially in Brazil, where the most common instrument is credit rights funds, a securitization scheme where companies of payments, digital credits and neobanks have been financed. This is a good instrument for large fintech companies; for the smallest, the angel investors are more recommendable ”.

According to the S&P document, there are three stages for fintech companies: the initial phase, in which financial support comes mainly from family, friends and the shareholders themselves; some resort to crowdfunding.

In the next stage, as the project begins to consolidate and the company needs another round of financing to scale its operation, there are private investors or angel investors. They can contribute not only from an economic point of view, but with their experience and knowledge.

In the third stage, when these companies need a greater injection of capital to continue their expansion, the sources of financing usually take the form of debt or equity capital. The rating agency assured that those fintech companies that issue debt give priority to maintaining property rights, while those that opt ​​for financing through the issuance of shares tend to seek more capital.

Fintech companies are setting a milestone in terms of collection; In the three stages, these companies seek financing instruments that are closer to the capital market and move away from the traditional bank credit model.

In terms of fintech securitization, the most active markets have been Brazil, with a strong presence in digital banks, such as Nubank, which achieved the highest capitalization of a technology company in history; Argentina and, to a lesser extent, Mexico. Colombia is the next key player in this sector.

“As the fintech industry develops, it could pave the way for market growth by broadening the spectrum of securitized assets in each country and matching investors’ need to diversify their asset allocations and generate higher returns with the need for investors. originators to find sources of financing for the products offered by these entities ”, highlighted the rating agency.

From financing, fintech companies fulfill their purpose of financial inclusion, since they look to natural persons for potential investors.

Brazil leads the segment financing

“In our opinion, fintech companies in Brazil are taking the lead in terms of capital market financing,” Standard & Poor’s reported in its report. In addition, he highlighted two of the most famous examples of successful rounds: that of the Nubank neobank, which managed to raise more than US $ 1 billion from different US venture capital firms in the last three years, and Gerú, a Brazilian lending platform that issued up to $ 3 million in convertible notes in 2018 and another $ 43.83 million through various private securitizations that same year.

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