Striving in the digital world: How innovative start-ups are changing the services landscape in Latin America
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Mr Lucas Ferraz (Secretary of Foreign Trade, Ministry of Economy of Brazil) moderated the session which focused on Latin American countries’ solutions to the challenges posed by the digital economy. Ferraz cited the experiences of Brazil, Mexico, and Colombia, where fintech organisations that deliver new services to segments of population with poor access to digital financial services are growing fast. In addition to trade, big data analytics and artificial intelligence (AI) are contributing to the significant growth of other sectors such as agriculture and manufacturing.
Mr Janos Ferencz (Trade Policy Analyst, Organisation for Economic Co-operation and Development (OECD)) focused his presentation on the policy implications of the digitisation of services. After explaining the impact of digitisation on the service economy (i.e. an increase of tradeable services and the creation of value from data flows), Ferencz considered the policy implications of a platform-based economy. By examining a ride-sharing platform and a social network, he explained that platforms have changed the place where the transaction happens. In the context of ride-sharing, the service is delivered across borders (drivers and customers are not in the same location as the platform) and the nature of the service between the driver and the platform and between the customer and the platform is not clear. Second, the delivery of these transactions rely heavily on data flows. In regard to cross-border data flows, Ferencz grouped current regulatory responses by countries into four categories: countries that have not yet adopted regulation, countries with an ex-post accountability safeguard (i.e. data flows are allowed but companies are consequently responsible for the data misuse), countries that impose ex-ante requirements (i.e. conditioning data flows on the fulfilment of specific safeguards such as pre-existing bilateral contracts with a geographical scope), and countries where data flows are permitted only on an ad-hoc basis. By referencing the OECD’s Services Trade Restrictiveness Index (STRI), he focused on the role of policy in creating a service-enabling environment. He recalled that policies can create barriers for services, particularly in four different areas: infrastructure and connectivity, electronic transactions, payment systems, and intellectual property (IP) rights.
He concluded by talking about how policy responses in regard to digitisation have a greater impact on small and medium-sized enterprises (SMEs), particularly as they often find it difficult to internalise potential costs deriving from the establishment of policy barriers. For example, in Latin America, there is regulatory heterogeneity considering the different approaches to cross-border data-flows, to electronic systems, and to payments which hinder the potential of digitally-enabled services.
Mr Gonzalo Navarro (CEO , Asociación Latinoamericana de Internet (ALAI)) focused on the regulatory landscape in Latin America. Navarro first considered that the region is characterised by a regulatory asymmetry among countries not only regarding the regulation of cross-border data flows but also regarding the regulation of the digital economy as a whole. This tendency has been curbed in the past few years by numerous local bilateral agreements specifically addressing the digital economy. Navarro then enumerated three main policy gaps in the region. First, there is an infrastructure gap since an estimated $USD 500 billion investment in the region is needed to implement technology related to the Internet of things (IoT) and 5G. Second, there are challenges surrounding fintech as only about 20% of the population has a credit card and/or a bank account in some Latin American countries. Lastly, there is an educational gap as the current education systems are not focusing on teaching the skills of the future that are demanded by the fourth industrial revolution.
Ms Camilla Junqueira (Managing Director, Endeavor Brazil) focused her presentation on the importance of supporting entrepreneurs, and particularly during economic crises. She described how entrepreneurs are highly innovative and can find business solutions to existing problems, even in a hostile environment. Junqueira shared some of the most impactful entrepreneurial stories from Brazil. To bridge difficulties in access to education, Quero Educação operates an online marketplace that connects students with schools in Brazil. Fort Brasil has made it possible to reach the unbanked population in the most remote areas of the country and provide them credit cards and bank accounts. Challenging one of the world’s most expensive interest rates market, Creditas has created a platform which processes loans more seamlessly and at a reduced cost. Dr. Consulta aims to provide high-quality healthcare to the poorest citizens at a reduced cost. Junqueira concluded her presentation by detailing how the success of many of these entrepreneurs has positively impacted the economy as a whole and attracted venture capitalists.
Mr Rafael Wowk (Public Policy Manager, Nubank) explained that Nubank targets Brazil’s unbanked population. He explained that Nubank has become Brazil’s sixth largest financial institution in terms of total customers. Three main products are offered by the fintech: a payment account, a credit card, and a rewards programme. He explained that 33% of Brazilian population is currently unbanked and thus has no access to credit possibilities, which negatively affects the country’s economy. In a recent survey conducted by Nubank, 20% of those interviewed declared that products offered by traditional banks are too expensive and 11% of those interviewed found themselves to be too distant from the nearest bank branch. Since its inception, Nubank has provided two million Brazilians with their first credit card. Wowk concluded his presentation by suggesting the reduction of bureaucracy, the improvement of digital penetration, and the support of new business models and open banking as some of the many ways forwards that will reduce Brazil’s unbanked population.