This subgroup of fintech companies is consolidating at an accelerated pace in the region. It already represents 25% of the total industry in Latin America at present. Both traditional players such as Visa, as well as more modern ones --such as Mercado Pago, Ualá or Nubank-- demand their services and collaboration.
“Paytechs provide the pipes through which financial services travel.” This is how Edwin Zácipa, founder of Latam Fintech Hub, summarizes the fundamental role that this subgroup of fintechs plays today to make the digital payments industry in Latin America viable.
This is a new category of digital actors, focused on the electronic payments value chain. The field of action of paytech companies in this ecosystem is broad and many of them have specialized in specific links in the chain, such as payment facilitators (PayFacs), service providers or payment gateways (PSP), intermediaries between businesses and banks for payment processing (acquirers) or even credit card issuers.
Paytech companies have been developing solutions for both the B2C market and the B2B segment in the region. In the latter case, they focus mainly on the development of mobile payment applications and platforms for the end user, which may be another fintech, such as Mercado Pago, Ualá or Nubank. Others even get involved in the implementation of security technologies and the prevention of transaction fraud.
STATS OF AN IRRUPTION
The recent emergence of paytech caused a stir in the financial market, where today everything moves faster and where the search for improvement in the user experience is constant. These payment technology companies have shown thus far to be capable of developing solutions in record time, where banks and other traditional players could not previously respond or were slow to offer.
The preponderance of paytechs in the fintech industry is increasing nowadays. Above all, this is thanks to the boost from electronic commerce and the increased use of digital payments in the region in recent years. According to the report 'The Paytech Revolution', prepared by EY, these companies already represent 25% of all fintechs in Latin America. “In a region where more than 99% of companies are SMEs, the establishment of paytechs increased their competitiveness, offering them a wider range of options. And also with innovative, secure solutions tailored to your needs,” says Rodrigo Quijada, country manager for Chile of paytech unicorn Kushki. In the southern country, paytechs already represent 24% of the fintech universe, only below the share of wealthtech .
Kushki has witnessed first-hand the rise of payments technology and the demand for digitalization in the region. To date, the firm operates in Chile, Colombia, Ecuador, Mexico and Peru and serves not only the fintech or financial sector, but also other industries. The company, for example, created new collection channels to enable and extend new lines of business for Rappi. “We were pioneers in recharging RappiPay, its personalized wallet solution, which has become one of the most important in Colombia and Latin America,” the company states. For Claro, the fintech implemented the Smartlink subscription system (payment links), as well as credit and debit card payments.
However, its role as acquirer is where the company has made the most significant progress. “In cases like Chile, paytech companies managed to diversify a market that was 80% controlled by traditional acquirers until last year. Now, with an offer that includes non-banking players, like Kushki, development and competition in the local financial ecosystem has been favored,” says Quijada. The Ecuadorian firm also operates as a non-banking acquirer in Mexico, Peru and Colombia.
In Argentina, Pomelo is another paytech that has been gaining interesting traction. This provides technological infrastructure for issuing, processing and managing card payments in Latin America. “ Paytech is the basis on which several fintech businesses are built. Without digital payments, it is very difficult for us to develop credit through technology or to access greater investment or wealthtech possibilities,” says Santiago Witis, head of Business Development at Pomelo .
Witis comments that there are paytechs in charge of integrating omnichannel payment solutions. This, from cell phones or social networks and through various rails or digital infrastructure, which allows payments to occur and be processed quickly. “There are companies that are very focused only on the banking rails and, with the boom in digital payments, it is necessary to amplify or modernize access to these rails in a paytech or backend modality. Companies like Pomelo also facilitate access to card rails in order to access a global payment network. There is the possibility of accessing different rails and paytech plays a fundamental role in that integration or in making it more accessible to other companies and users,” adds the executive.
NEW HORIZONS
Under this scenario, collaborative work between paytechs and other actors in the ecosystem is key to continue expanding access to digital payments in the region. “Visa has collaborated closely with paytech companies, providing them with its infrastructure, experience and global network to enhance their value propositions. These companies are making a highly relevant contribution, by promoting innovative solutions that, at the same time, promote competitiveness within the ecosystem,” says Javier Vazquez, leader of Visa Consulting & Analytics for Latin America and the Caribbean, the division of Visa consulting.
In this context, paytech companies aim to consolidate themselves as a key piece in the region's digital payments system. “For example, when we are making a dispersion or an errand for a loan or for insurance, yes or yes the paytechs are going to provide this necessary infrastructure for the information and money to travel. Collaborative work is immense, because in the end any fintech or traditional player needs a paytech to be able to orchestrate their financial services,” says Zácipa from Latam Fintech Hub. An example of this growing collaboration is the alliance that Kushki entered into with the sportech Easycancha in Chile. This, through a payment integration system where users can reserve sports spaces without having to register their credit or debit card every time they enter to the application.
As part of this diversification process, paytech companies will seek to add more and more items to their portfolio. Pomelo, for example, works with retailers, oil companies, gas stations, mass consumption companies, transportation companies, among others, whose sales chains or ecosystems are in the process of digitalization. “And there are direct sales companies and agricultural companies, that are carrying out many transformations, because there is a high payment flow with clients and suppliers,” Witis anticipates about other high-potential sectors.
But the greater reach of paytech will not be limited to Latin America or the financial sector. Proof of this is that two years ago, Kushki created the Kushki Mundial business division, which allows global clients to access its payment technology from anywhere in the world, connecting with local alternative payment companies and platforms.
INVESTMENTS AND FINANCES
In parallel, this accelerated growth of paytech has increased its attractiveness to investors. Today, the bulk of paytech companies are based on venture capital models, which until recently demanded a lot of user growth. Now, they will demand more and more profitability. “On this path to profitability, several paytechs have opted for differentiation. Many that were typically focused on the B2C segment are beginning to migrate to B2B or to have an infrastructure or platform perspective, instead of developing specific services for the end user. In the last two years, the access to financing industry has been a bit dry. Venture capital began to ask for something else and I think that was read,” says Witis, who highlights the US$40 million series B round that Pomelo raised at the end of 2023, led by Kaszeck.
The scope and size of paytechs are varied, however. They range from global players, such as PayPal, PayU and Evertec, to regional players such as dLocal and Ebanx (which already export their solutions to Asia and Africa), Global Processing and Kushki and Pomelo themselves. “There are other players within the paytech segment who in the end are the enablers and are part of the digital payments chain,” adds Zácipa.
Like most startups, paytechs also do not make billing disclosures and are very suspicious of their financial information at a public level. Therefore, the metrics are still oriented towards business growth and not so much towards profitability. “In the region, during 2023 we managed to have a growth of 98% compared to the previous year, consolidating regional non-bank acquisition. This significant growth translates into more than 600 million transactions processed in 2023. This year, we continue working to bring more innovations to the payments ecosystem and we hope to have higher growth,” concludes Quijada, from Kushki.
