I’m here in Colombia for 3 weeks, currently in the beautiful city of Cali, where you can’t throw a rock without hitting a park or other green space. It’s amazing how many trees are here. The main river, Rio Cali, that runs through the city has no commercial development next to it on either side. It’s all parks or riverfront walkways and scenic right in the middle of the city.
But this post isn’t about my travels, it’s about the financial and fintech opportunity in Colombia. While most of us in the States may not notice or realize it, one of the big goals of fintech around the world is financial inclusion, meaning getting more and more people into the financial system through bank or non-bank programs.
Before I go on and on about how awesome Colombia is, and you really should go visit, let’s see where their economy is right now.
State of Colombia Economy
Colombia’s economy was strong enough to escape unscathed and even grow during the Great Recession. While the economy is growing in nearly all sectors, it is still a commodity-based economy driven by oil and coffee. Oil alone is 45% of its exports.
Here are some more numbers on the economic trends
Everything here from 2013 through 2016 shows slow steady growth in the Colombian economy and the smaller GDP numbers in USD are explained by a decline (improvement for us Americans) in the exchange rate from 1800 COP to USD down to 3000 COP to USD to its current level of 2850 COP to USD. When I was in Cartagena in 2014, the exchange rate was close to 2000 COP to USD, meaning I paid 40% less for items in USD terms now than I did back in 2014 while the economy is growing. A great combo for US travelers.
When it comes to housing in Colombia, mortgages are a relatively recent development. Most homes from previous generations had to be bought with cash, or more likely, the land bought with cash and the home built slowly over time. As the cities of Bogota, Medellin, Cartagena, and Cali grow into major cities on the world stage, there is more high-density housing meaning apartment buildings going up so the way homes are purchased is changing.
Check out these 2016 numbers of home ownership along with recognized lienable property (an important feature to ensure other people know it's your property) and how many homes have mortgages:
At the end of 2016, only 4.2% of homes have mortgages. This is an incredibly small number and means there are 2 financial opportunities out there: the new mortgage market for new buyers and developing a refinance market. Mortgages are tough to get and banks are difficult to deal with. Is it possible that a fintech could come in here and make that process smoother for buyers?
And that’s not the only opportunity here.
Colombia is a young country. According to the UN, 53% of the population is under 30 years old and they are tech-savvy, especially in the cities like where I am in Cali. I see as many phones on the street here as I do in Atlanta. Mobile services penetration here is more than 100%, more than 1 phone per person.
Not only are these kids tech savvy, they are learning English earlier and at far greater rates than their parents did. Colombia has a National Foreign Language Competency Development program that mandates a standard B1 level of English fluency for ALL secondary school graduates by 2019. B1 is an intermediate level of conversational knowledge like knowing basic tenses and words but having more difficulty with more complex words and grammatical structures. In other words, at least as good or better than the Spanish I speak…...Chances are they won’t achieve this in 2019, but by 2022 or 2025 I bet they do. What’s important is the trend. Young people in Colombia are learning English in record numbers.
Colombians learning English means there are opportunities in fintech for local/native apps as well as apps developed in the only 2 countries with larger Spanish speaking populations (that also happen to have English speakers): Mexico and the US.
The Fintech Opportunity
It’s natural to think of Latin America and finance together and the first thought that comes up is the remittance market. Many people from LatAm go to Mexico, US, and Canada for work and send money home to their families. It’s no surprise then Remittances and Payments are the biggest part of Fintech in Latin America.
TechCrunch has an excellent piece going over the landscape. They show the top 3 areas of focus are
- Remittances and Payments
- Enterprise Technologies for Financial Institutions and
Payments and Lending are particularly important given how many Colombians are not engaged in the banking system ‘unbanked’ and how few homeowners have mortgages (see above).
Mobile services penetration (more than 100%) far exceeds those that have bank accounts. 22% of Colombians still remain unbanked as of 2016 with a staggering 1 million Colombians entering the banking system for the very first time in 2016. This is a huge number for a country of 48 million. These newcomers still don’t use checking accounts and debit cards as their first entry into banking are to open a savings account. And this is a huge improvement. As recently as 2014, only 33% of Colombians had a bank account.
The same SuperFinanciera study shows that of Colombia’s 32 million adults, 25 million have at least one financial product while 49% have some (meaning any) consumer credit. No big surprise why Payments and Lending are two of the huge trends for fintech here with these numbers. The opportunity is enormous.
Banks in Colombia are a challenge to deal with just like banks here with one interesting twist. Colombia has capital controls. This means you and your banker have to know exactly how to document funds accurately should you want to bring money in so you can buy an apartment in Cali or Bogota. These controls also mean wires are more labor-intensive, time-consuming and expensive than elsewhere. Some banks are trying to embrace technology and offer more and better for their customers.
This Bogota Post piece outlines some very good smartphone apps for banking in-country. The apps they highlight are
- Nequi, setup by Bancolombia but designed under the new UK Open Bank protocol making it more like an online/digital wallet. You don’t even have to be a Bancolombia customer or even have a bank account. You can do it all through a local phone and residency card with number called a cedula. Paying bills, wiring money, nearly all essential banking services are available on this app. This is the first I’ve heard of an app like this in South America. Africa has the very similar M-Pesa, which is a fantastic app and financial inclusion tool.
- Davivienda, a big bank in Colombia, has its own mobile banking app for its customers similar to most US banking mobile apps.
- Group Aval, a multi-bank group, has a payment app using NFC technology to make it the first I’ve heard of in South America trying to emulate the Apple Pay, Google Pay, Samsung Pay with wireless technology based payments.
Enabling wireless pay options, more mobile banking, smartphone banking or even non-bank banking through your phone is just getting started in Colombia and opportunities are many and varied.
So if you are keeping track at home, this is what we have so far in Colombia:
- Growing economy
- Many young people who are tech savvy
- More than 1 cell phone per person in the country
- A challenging banking system to deal with
- Many Unbanked
- Young people learning English as part of a national mandate
- Growing number of actual and potential homeowners with low % of mortgages
These ingredients make the financial and fintech opportunities here hard to ignore. Colombia is a country on the rise.
Reach out by email or phone (on my Contact Me) if you want to discuss these opportunities further. I'm bullish on Colombia and you should be too.