What can emerging Asia learn from Brazil's fintech? Quite a lot
Two VC funds are plotting a dotted line connecting LATAM and emerging Asia
Southeast Asia and Latin America (LATAM) aren’t exactly the closest of cultural kins, and you’re right, they aren’t. The last time both regions had any form of shared history was probably during Spanish colonial era in the 1500s, when naval explorers onboard the Magellan-Elcano expedition set sail for God, Glory and Gold, circumventing the globe by ship.
Even today, the flight journey from Singapore to Brazil is easily 25 hours long inclusive of layovers, and yet Saison Capital’s Looi Qin En and Valor Capital’s Bruno Batavia are still quietly plotting a dotted line connecting emerging Asia (Southeast Asia/India) with Latin America.
To begin with, the two startup ecosystems share plenty of unique parallels, said Looi and Batavia via video call from Singapore and Rio de Janeiro respectively.
The obvious ones are tied to socio-economic and demographic trends — a young, digital-savvy middle class, rising disposable incomes, urban consumer tastes, and rapid adoption of technology in their everyday lives.
Both VC/startup ecosystems also share a similar growth timeline, although LATAM’s fintech scene appears to have advanced much further than Southeast Asia’s, thanks to a highly enabling set of bank regulators and policies.
The immense success of Brazil’s Pix — an instant payment rail akin to India’s UPI, Singapore’s FAST and Thailand’s PromptPay — is testament to how regulators can either accelerate or stymie a nation’s ability to build innovative products in open banking and finance.
In just a short 5 years, Brazil’s Pix has scaled its transaction volume from zero to $5.3 trillion, making it the fastest growing instant payments system in the world. 45% of all transactions in the country today are made through Pix, with an impressive 70% adoption rate out of Brazil’s 220 million population.
Pix grew so quickly that it’s now threatening to eliminate credit cards entirely. Its runaway success has already caught the attention of US trade officials, who have handily launched an investigation into Brazil’s unfair trade practices for “discriminating” against American financial giants.
“I don’t think people understand just how massively successful Pix is…Within 5 years, they’ve hit a 70% adoption rate in Brazil…(in) a 200 million plus population with a land mass twice the size of India. For context, India’s UPI only has 30% penetration and has been around since 2016,” said Looi Qin En, general partner, Saison Capital.
“This is truly textbook startup growth (and) I think people are looking for signals of true competence…I think Brazil is almost like the light at the end of the tunnel in terms of what this region (emerging Asia) can become,” he added.
Brazil got a number of things right.
Unlike many central banks around the world, the Brazil’s central bank operates as an autonomous federal agency rather than a government body, which allows it to execute more innovation-friendly policies without getting too deeply entangled in politics.
It also appears to have given them lots of room to embark on a more ambitious mandate to enable building at the infrastructure level, shared Bruno Batavia, general partner, Valor Capital, a LATAM-focused venture capital fund based in the US.
“When people think about CBDCs as a central digital bank currency, they usually associate it with payments…But CBDC initiatives are sometimes related more with infrastructure,” said Batavia on The Upside Podcast.
“At the end of the day, the central banks that are pushing towards a more wholesale format of CBDCs are enabling a broader tokenisation of the economy and wider issuance of real world assets (RWA). That’s going to happen in Brazil shortly, and it intertwines domestic infrastructures like Drex as well as public blockchains,” he added.
All this has led to a number of emerging developments in LATAM’s fintech ecosystem, from conversational banking (B2C) to structured credit funds in the SME sector (B2B).
In Brazil, it is already possible to connect your personal banking account directly into your Whatsapp chat, allowing users to transfer money, make payments, and search for investment opportunities from your financial data. Add an AI reasoning/LLM layer to that, and the possibilities widen even further.
But one of the more novel inventions from Brazil’s fintech scene is FIDCs (Fundos de Investimento em Direitos Creditórios) or Receivables Investment Funds in English. These are structured credit funds where investors pool money to acquire the credit rights to receivables such is SME invoices, consumer loans, utility bills, student loans.
Can we expect such innovation in emerging Asia?
Possibly, but not without the help of supportive regulatory regimes.
Regulators across emerging Asia have struggled to strike a balance between innovation and risk, leading to rather patchy progress in fintech and crypto — much to the frustration of builders. At the same time, the many P2P (peer to peer) scandals and crypto blowups in recent years have further set the VC/startup ecosystem back, especially in Southeast Asia.
“Unfortunately, Southeast Asia is going through a deficit of trust. The rebuild of trust naturally takes time. (But) I personally think it isn’t going to be a quick fix. There are definitely things that can be done by the markets, regulators, and the government, to accelerate the rebuilding of trust. But this is the kind of thing where like a promise once broken, you need to take time to build that goodwill up again,” shared Looi.
“I think this is going to be the situation where it's going to be more of a medium term — and I mean something like 4 to 5 years — before we start to see a meaningful recovery from where things are,” he added.
This is one of the reasons why Saison Capital has accelerated its push into LATAM in the past year.
The Japanese corporate VC has set aside $200 million for the region — $100 million in Brazil and the other $100 million for Mexico, where it makes equity and debt investments in fintech, ecommerce, Web3, and SMEs.
Half of its portfolio is currently from Southeast Asia, but it aims to have its total portfolio represented equally across Southeast Asia, India and LATAM.
LATAM-focused Valor Capital is similarly aiming to do more cross-border investments as it develops its thesis on Latin companies going global.
Brazil has already demonstrated itself to be as an effective global launch pad in the fintech sector, said Batavia. Last December, LATAM’s largest digibank NuBank acquired a strategic stake in TymeGroup to enter Africa and Southeast Asia.
Brazil has around 25 unicorns, with numerous meaningful exits including Nasdaq-listed XP Inc and StoneCo, and more recently Pismo’s $1 billion exit to Visa last year.
“We see these connections evolving. We also have many portfolio companies starting to explore Hong Kong, Singapore, and different regions beyond LATAM…We want to understand the opportunities and invest in Southeast Asia-founded companies to help them expand. It’s the same playbook we did with the US into Latin America,” explained Batavia.
The US-based VC fund has set aside 10-20% of its latest fund to cross-border investments. One of its Southeast Asia portfolio companies is real-time clearing and settlement startup, Partior.