Latin America’s Tech Revolution: From Fintech to AI Integration
Latin America is experiencing a technological transformation fueled by the pandemic, fintech innovations, and government support. This shift offers promising opportunities but challenges establishing the region as a leader in cutting-edge technologies.
Historically, Latin America has been slower than other regions to embrace new technologies, but that could change. The recent pandemic triggered a boom in technology adoption, including digital payments and e-commerce. According to a recent McKinsey survey, technology adoption has also been supported by the rise of new and innovative fintech firms, with four-fifths of Latin America’s startup “unicorns” now focusing on finance and e-commerce.
This rapid rise in technology adoption is striking, and it demonstrates again that less developed regions can sometimes scale up emerging technologies more rapidly than areas with more established value chains. However, whether Latin America can establish itself as a leader in cutting-edge technologies needs to be clarified.
Regional investment in research and development is 0.6% of GDP, less than one-quarter the average in the OECD and China. Moreover, the region accounts for less than 2% of the world’s patent applications; of these, less than one-fifth are filed by Latin Americans.
AI poses challenges, too. As it takes off globally, the region risks lagging behind again. McKinsey suggests that AI’s impact on Latin America’s economy will be three to five times lower than that of North America and China.
The Impact of Fintech and Digital Payments
Fabro Steibel, Executive Director of the Institute of Technology and Society (ITS Rio), which studies the impact of technology upon Brazil and the world, finds reasons to be optimistic. “Over half the population joined the PIX digital payment system in less than a year. There is no other country with a similar system,” says Steibel, referencing Brazil’s real-time electronic payment system, launched by its central bank in 2020. “Also, we are leaders in blockchain in the public sector,” he adds.
Barriers, including logistics, patent systems, and a shortage of manufacturing facilities, could still delay further technological development. “There is minimal planning for it in Brazil or Latin America, and in this way, we will never be an AI leader in top technologies, but with better government policies, we can be leaders in AI implementations,” says Steibel.
One bright light in the region’s development has been its fintechs, like MercadoLibre, Latin America’s largest online commerce ecosystem based on unique visitors. With origins in Argentina, MercadoLibre today has a market capitalization of $62.3 billion and is sometimes called the “Amazon of Latin America.” It processes digital orders in 18 countries. But here, too, there are limits.
“The company is succeeding in Argentina and Latin America, but the region is still behind the developed countries,” explains Fausto Spotorno, director of UADE Business School in Buenos Aires. Latin America still needs the necessary infrastructure concerning the internet, connectivity, and energy, among other areas.
Argentina cannot compete with the world, continues Spotorno, but it can still develop technologies for domestic consumption in services, agribusiness, and smart cities. “The stimulation of technology studies should help both the country and the region, as only 15% of undergraduates are interested in science and technology.” He adds that the region needs to invest more in education and skills to prepare its workforce for emerging technologies like artificial intelligence, data science, and advanced manufacturing.
Government Support and Regional Integration
How can this be achieved? Sílvio Meira, founder and chief scientist at TDS Company, a strategic digital consulting firm, thinks back to the 1980s when Brazil invested in AI, including programs in higher education. But the government’s support was never really consistent. “Our financing programs in technology were firefly funding, so our talents were retained abroad, and those who returned were not aligned with Brazilian business,” he explains.
The same situation pertains in Latin America today. The region needs to think big, working to solve important global challenges, Meira says. Chile and Argentina are closer to his ideal, producing “unicorn” startups like MercadoLibre and Globant, an IT and software development company with headquarters in Argentina. Education in these countries is more effective, taking a more global view, he adds.
Governments in the region can play a vital role in fostering technology adoption by implementing policies that encourage innovation, protect intellectual property, and provide incentives for R&D investment. Clear regulatory frameworks and supportive policies can attract both domestic and foreign investors.
As for AI technologies, Meira thinks Brazil and Latin America are late to the game. What’s needed regionally is a technology policy more like Finland’s in the 1980s as that country started to move towards information technology. The government established the Science and Technology Policy Council of Finland and the National Technology Agent, Tekes, to coordinate policy planning on innovation and expertise and provide funding.
Ximena Aleman, co-CEO and co-founder of Prometeo, a Uruguayan-based open banking platform, highlights the importance of local regulators. “Regulation is key for innovation to happen—as long it is an enabler and not vice versa. We can build more lanes so that more vehicles can efficiently and swiftly navigate payment interoperability.”
The Role of Education and Private Sector Collaboration
Collaboration among universities, research institutions, and private sector companies can accelerate technological progress, too. Cross-border partnerships facilitate knowledge exchange and access to resources that help the region meet global technology trends. “We have been improving, but still 30% of the population is not [Internet] connected, and 40% is poor,” says Sebastián Rovira, Economic Affairs Officer at the United Nations Economic Commission for Latin America and the Caribbean.
Digital transformation can be accelerated through regional alliances, such as Mercosul (aka Southern Common Market) and the Pacific Alliance, a regional initiative created by Chile, Colombia, Mexico, and Peru. The 33 countries working together are likely more effective than those working alone. “We can go beyond only e-commerce and look at our complementary vocations to develop technologies,” says Rovira. “For example, Chile is focused on mining and services, Brazil and Mexico are strong in manufacturing,” and so on.
Itzel Alejandra Zarate Solis, program director in Business Intelligence at Tecnológico de Monterrey (ITESM) in Mexico, supports regional integration but says it may be difficult to achieve due to the countries’ different policies, economics, and social issues. She believes education has a fundamental role in accelerating technological competitiveness.
The university has implemented a business intelligence and innovation program that provides regular interactions between students and companies. These interactions are designed to surface real business problems in search of solutions. Oxxo, 7-Eleven, and Mars, among others, have participated. Of the 12,000 students who graduated from ITESM last July, 70% participated in this program in some form. “The results are amazing,” reports Solis. “They [i.e., the students] are more resilient, analytical, creative—and also comfortable working in groups.”
Also read: Latin America’s Cryptocurrency Boom Reflects Economic Pressures and Opportunities
While Latin America has historically lagged in R&D investment and technology adoption, recent developments suggest that the region may soon close the gap. Latin America can be a significant player in the global technology landscape by investing in education and R&D, fostering innovation, and creating an enabling environment for entrepreneurship.
