FinTechs: A Flourishing Market in Costa Rica

Written by:  Johan Rodriguez Araya. Project Manager at Informatech

In March of this year, when the news of the Covid-19 pandemic began to spread around the  world, no one was certain what this small virus would bring with it. Two weeks of quarantine  that turned into months of restrictions and ideas, some correct, others not so much, on how to  combat the advancement of the virus. Closed businesses, economies in crisis but even so, there  are sectors that have managed to emerge and grow rapidly thanks to the need to avoid physical  contact between human beings. 

One of the biggest advances has been in the banking sector. Even before the pandemic, Costa  Rica had made significant progress in terms of financial inclusion. It is estimated that  approximately 68% of the country's adult population has access to a bank account, a figure that  exceeds the 54% observed in the Latin American and Caribbean region and that places Costa  Rica as the fourth Latin American nation with the highest percentage of financial inclusion, only  behind Chile, Brazil and Venezuela. (Global Findex, World Bank, 2017)  

Many people who were excluded from the financial system have found it necessary to join the  digital world in order to participate in measures to alleviate the effects of the pandemic.  Regardless of the reasons, the banking sector saw a jump in the number of users of its services.  This opens a very large window of opportunities for the development of the not so well known  FinTechs (financial technology companies). 

Now, if we ask ourselves how far we have advanced, we can say that we are just getting  started. It is still not possible to perform such simple actions (and so promised for years) such as  paying for the bus with your phone (or with a credit card) or using the electronic wallet to  recharge your phone. That without going as far as true financial transactions such as stock  factoring, p2p loans, trading crypto currencies, futures, crowdfunding, donations or using  different investment mechanisms, from ETFs to the stock exchange itself. 

Even so, we cannot deny that the baton in the FinTech market has been taken by banks,  however, these financial applications are, basically, a bank branch. Some more innovative than  others, but all strictly adhere to the services of the banking entity. In Costa Rica, in recent years  a variety of initiatives have been launched that seek to promote financial inclusion and achieve  an increase in the country's bankarization rates. Among these initiatives, one of the most  recently discussed is the "National Information System and Single Registry of State  Beneficiaries" (Sinirube - Sistema Nacional de Información y Registro Único de Beneficiarios del  Estado). The program collects information on the beneficiaries of the state's social assistance  systems and has made the percentiles with the poorest resources of the population, and those  who are usually excluded from the banking system, proceed to open formal accounts in a bank  in order to receive the expected government aid. This process has increased the number of  people affiliated with formal banking and opens up a range of possibilities for entrepreneurship  in the financial area.

In the last decade, the term FinTech has obtained the interest of a great diversity of economic  and productive actors, whether they are investors eager to obtain positive rates of return,  financial institutions looking to take their businesses to the digital world, universities and  institutes looking to expand their academic offerings by taking advantage of the FinTech  phenomenon and financial inclusion, entrepreneurs who identify the sector as a market niche  to develop their creativity, and government regulators who seek to provide security to the  users of these solutions. The use of digital technologies to innovate in the financial sector went  from being a competitive advantage to a demand from users. Most banks in the region are  immersed in digital transformation processes, at the same time that entrepreneurs take  advantage of digital tools to offer agile financial services and customer-centric experiences. 

In a country in need of economic reactivation, what do we need to become the spearhead of  the "FinTech" companies in the area? Education and initiative. The Costa Rican educational  system has to advocate for the inclusion of financial education in our educational curricula from  its first stages. Even having a highly inclusive and regionally recognized educational system, we  lack such important topics as financial education, which creates a limitation for the exploitation  of this niche. We have a large and well-known market of technology companies with highly  specialized and valued workforce, very capable of meeting the "Tech" needs for these  companies, but we also have a general population very little prepared for the "Fin" aspect of  them. We have the technological knowledge but we have some shortcomings in the financial  area, not at the institutional level, but at the population level in general. 

Nevertheless, the FinTech ecosystem in Costa Rica has been growing although it is in an initial  stage of development. There are a small number of startups dedicated to financial applications  and there are no considerably large success stories that can be used as an example, however,  the technological capabilities of Costa Ricans and the strategic geographic location that Costa  Rica occupies, as well as the need for financial industry to face its main challenges through  innovation, are serving to give importance to the FinTech sector and with it to a rapid evolution  of it. 

The conditions are in place to become regional leaders in financial applications. Once we  overcome, as a country, or personally, the limitations we have, we will see the flourishing of  ventures dedicated to financial transactions. We will turn Costa Rica into a nation of digitized  monetary transactions that will lead us to advance even more towards the development of  what we want to see in the bicentennial Costa Rica.