In a riveting conversation with Tyler Cowen, Pierpaolo Barbieri, the founder of Ualá, a FinTech startup, discusses the potential of FinTech in Latin America, the impact of digital currencies, and the economic history of Argentina.
He also shares his insights on the challenges and opportunities for startups in Latin America and the future of the global tech sector.
Startups in Latin America: Challenges and Opportunities
The startup market in Latin America is underdeveloped compared to countries like India due to cultural differences, lack of capital, and the tendency for Latin American entrepreneurs to stay abroad after studying or working there.
However, with the right reforms, increased capital investment, and a shift in cultural attitudes towards risk and entrepreneurship, Latin America can become a major player in the global tech sector.
The tech center of Latin America is currently Sao Paulo, Brazil. However, Argentina has the potential to regain lost ground in the tech sector, given its rich talent pool and the emergence of successful companies like Mercado Libre. – Pierpaolo Barbieri
Building Credit Histories
Ualá is building credit histories for its users, which was previously impossible for those who transacted only in cash.
By tracking how users pay their bills and spend their money, Ualá can create a digital credit history that is more transparent and easier to manage than traditional methods.
Ualá’s Future
Ualá operates like a narrow bank, maintaining 100% reserves and not lending out deposits.
This allows it to operate without being regulated like a traditional bank.
However, Ualá does lend money, but it does so with investors’ money, not deposits.
The company derives most of its income from low fees on asset management, interchange, and merchant acquiring.
Brazil’s Political Crisis
The political crisis in Brazil is due to a loss of representation on the center-right.
This crisis has negatively affected the entire region, particularly in terms of free trade.
The failure of Mercosur, a regional trade bloc, to embrace free markets in the same way as the European Union has also been a setback.
Digital Currencies and Global Finance
Digital currencies could significantly alter the global financial landscape.
The emergence of the Chinese digital currency, for instance, could potentially challenge the dominance of the dollar and impact the United States’ ability to impose sanctions beyond its borders.
Digital currencies could introduce competition into the system, reducing transaction costs and facilitating international transfers.
Digital Wallets: A Financial Revolution
Digital wallets are transforming the financial landscape in countries like Mexico, where a large portion of the population is unbanked and heavily reliant on cash transactions.
Ualá aims to introduce these individuals to non-cash means of payment, eliminating the need for physical cash withdrawals.
Argentina’s Economic Downfall
Argentina’s economic downfall can be attributed to the country’s failure to implement deep reforms and its tendency to seek easy solutions.
Argentina needs to emulate countries like Israel, Peru, and Mexico, which have successfully curbed inflation through years of consistent effort and broad consensus.
The world needs a new way to send money across borders and I think that over the medium run, what the Chinese are trying to do with their own digital currency threatens the overall supremacy of the dollar and the ability of the United States to impose sanctions beyond its borders. – Pierpaolo Barbieri
Uruguay’s Promising Economic Future
Uruguay has a promising economic future as it is successfully exporting digital services to the world.
Argentina should follow a similar path, leveraging its efficient educational system and talent pool to export services.
Latin America’s Tech Center
The tech center of Latin America is currently Sao Paulo, Brazil, due to the advanced state of Brazilian companies, the availability of capital, and the large domestic market.
However, Argentina has the potential to regain lost ground in the tech sector, given its rich talent pool and the emergence of successful companies like Mercado Libre.
Cultural Aversion to Risk in Latin America
There is a cultural aversion to the risk inherent in entrepreneurship, particularly in the tech sector, in Latin America.
This aversion, coupled with the lack of capital and the power of incumbents in sectors like banking, makes it difficult for entrepreneurs to establish startups in the region.
Cryptocurrencies’ Future
Cryptocurrencies are not seen as a direct competitor to Ualá.
Transitioning from cash directly to 100% crypto is difficult, and many platforms that people want to use when they first digitize their money, such as Netflix or Amazon, do not accept crypto.
However, crypto could become part of the ecosystem in the future.
FinTech’s Potential in Latin America
Ualá is striving to bring universal banking to Latin America, a region where a significant portion of the population still relies on cash transactions.
By eliminating the ‘digitization tax’ often charged when converting cash into digital money, Ualá is making digital money as affordable as physical cash, a revolutionary concept in emerging markets.
