Argentina’s financial system is broken, and the nation’s Fintech startups are building technology solutions to challenge the status quo. These companies, many of which focus their efforts on devising solutions for the 50% of the population lacking a bank account, are accomplishing what the government and traditional banks have failed to achieve: offering real and impactful solutions to put Argentina's 45 million people in control of their finances. The dilemma among the startups is how best to enact change and address the dysfunction--fixing the cracks and working from within or dismantling the system and starting over. This article elaborates on Argentina’s financial access issues, and highlights 3 distinct approaches companies are taking to facilitate greater inclusion and control: creating a new financial system, re-designing the existing system, and working within the existing system. Each approach is represented by a leading local Fintech startup.
The Access Issue
I arrived in Argentina in June 2018, in the midst of the national economic crisis. In the month I spent in the country, inflation rose to 30% and the Argentine peso fell 20% relative to the U.S. dollar. This dire situation has continued over the past several months, with Argentine President Mauricio Macri controversially seeking and receiving a US$57 billion bailout courtesy of the IMF .
Economic instability in Argentina is nothing new; a history of economic crises has made the population highly suspicious of traditional banking. Suspicion is one of the many factors leading to low financial inclusion and access to financial services in the country--people simply don’t trust banks. Along with distrust, a desire to avoid taxation, a lack of funds or documentation, and the high cost of services all contribute to the low level of access to financial services, according to Global Findex data. Many Argentines work in the informal sector, and receive their wages in cash. They don’t meet the requirements issued by traditional banks.
The lack of access to financial services makes it virtually impossible for Argentina’s unbanked to secure a loan, and hinders their ability to save for the future and grow their funds. It also means they must rely on creative, yet time consuming solutions to shop online or pay bills and rent. As Martin Frankel, Founder of AreaTres , the preeminent co-working space and entrepreneurial hub in Buenos Aires, noted: “everything in Argentina is a workaround because bureaucratic systems from banking to the electrical grid can’t be relied on.” These workarounds are effective stopgaps, but they also perpetuate non-transparency and inefficiency.
The issue of access extends even to those with bank accounts and participants in the formal economy. In this case, the issue is not as much access to services, but access to capital. Given the extreme economic volatility and inflation, banked individuals and businesses are not able to consistently, transparently, and promptly control their finances. A common sight in Buenos Aires is passing by a bank with long lines of people waiting to withdraw their funds shortly after they are deposited.
Customers wait on line outside a bank in Buenos Aires to withdraw funds Jonathan Moed
What’s needed now more than ever in Argentina are bold technology solutions that promote financial accessibility and control, rather than merely making inaccessibility bearable. Apart from Argentina’s notoriety owing to its financial woes, the country is also known as the home of four of the seven largest technology unicorns in Latin America during the 2000s, including regional powers Mercado Libre (an e-commerce marketplace), OLX (a regional take on Craigslist), Despegar (an online travel booking site), and Globant (a software development company). In a country characterized by booms and busts, technology companies have become adept at anticipating and addressing instability. Here are three approaches Fintech startups are taking to drive greater financial access and control, whether by bypassing or mending the traditional system in place.
Creating A New System With Blockchain Technology: Ripio
Ripio logo Ripio
Ripio is a digital payments startup aiming to strengthen financial access in Argentina and the rest of Latin America through blockchain technology. Originally launched as the first bitcoin payment processor in Latin America in 2013, the company subsequently pivoted to a B2C model that now includes a digital wallet, exchange, and credit services. Today, its average annual revenue tops US$15 million.
Ripio’s decentralized services in many ways replace the consumer need for the centralized banks of today. Its digital wallet trades between bitcoin and pesos as well as between ethereum and pesos, and also allows users to send and receive money. Ripio has made the fiat-cryptocurrency transfer process as easy as possible for its 220,000 cash-heavy users, even partnering with Mercado Libre to allow users to transfer mone...