The rise of neobanks and other fintech startups promises to have a transformative effect on the economies of Latin America, giving businesses and individuals the opportunity to avoid any further pain and suffering as their governments lurch from one fiscal crisis to another.
A sweeping change driven by the easy accessibility of so-called stablecoins and decentralized finance promises to transform the fortunes of Latin Americans, and nowhere is this more evident in Colombia, which many economists believe is teetering on the brink of a financial abyss.
An Economy Teetering On The Brink
Fears over the prospects for Colombia’s economy came to a head recently amid a war of words between its incumbent President Gustavo Petro and the new U.S. President Donald Trump. The two countries, which have long been allies in the war on narcotics and in other areas, recently clashed over the deportation of illegal Colombian migrants. Petro refused to allow two so-called “deportation flights” to land in the country, causing Trump to threaten the country with steep tariffs on imports and other sanctions if it didn’t back down.
The tariffs would have had a crippling effect on Colombia’s economy, as the U.S. is its biggest trade partner by far, with more $53.5 billion flowing between the two countries in 2022. Ultimately, the trade war was averted when Petro announced he would accept the deportation flights after all, but the episode once again shone the spotlight on Colombia’s economic fragility.
While the country has so far avoided the chronic hyperinflation that has eviscerated the economies of Argentina and Venezuela, there’s still lots of reasons to be alarmed. Economists note that the supply of Colombia’s national currency, the peso, has expanded by more than 25% in the last three years, eroding its value and reducing confidence in its banking system.
That’s why Colombians are increasingly looking for ways to move their savings into a more stable currency like the U.S. dollar or the euro, but doing so within the traditional banking system isn’t easy. But with the arrival of a wave of fresh fintech and stablecoin-based services now making their presence felt, Colombians finally have more accessible ways to protect their savings.
What’s Behind Colombia’s Economic Instability?
Colombia’s banking system has long been plagued by the dominance of an “oligopoly”, where the market is concentrated by just a handful of players who cooperate on pricing. That’s why Colombian banks, and indeed Latin American banks in general, are among the most profitable in the world, with customers typically charged exorbitant fees for even the most basic banking services.
In addition, a significant portion of Colombia’s population remains unbanked, meaning they’ve no other option but to stuff their savings under a mattress
Colombia’s archaic traditional banking system, combined with volatile politics, weak government institutions and ongoing insurgencies in large parts of the country has contributed to an endless cycle of “stagflation”, where the economy suffers from low growth, high inflation and unemployment, and the never-ending shocks affecting its key commodity markets.
The combination of all these factors explains why economists were so worried about the prospect of U.S. tariffs, with many believing their impact could well have been the straw that broke the camel’s back, pushing Colombia towards economic ruin.
Neobanks To The Rescue
Fortunately, the Colombian economy has found itself an unlikely ally in the shape of a new generation of fintechs and neobanks who are capitalizing on the rising demand for alternatives to the peso.
Examples include Brazil’s Nubank, which now banks more than half of the Brazilian population and has recently expanded into Colombia, where it’s seeing rampant growth. Others include Mercado Pago, whose point-of-sale terminals and QR payment codes are fast-becoming ubiquitous throughout Latin America in general, enabling both micropayments for consumers and easy, instantaneous settlements for small businesses.
To date, Mercado Pago has processed more than $120 billion worth of merchant payments, while expanding to add services such as vendor payments, DeFi investments and small business loans.
The growth of these fintechs has even pushed Colombia’s traditional banks to get their act together, and they’re racing to roll out mobile applications with instant payment solutions in an effort to remain relevant.
These developments have transformed Colombia’s financial ecosystem, uprooting its formerly cash-based economy. According to PMCI’s 2024 Global Payments Report, cash now accounts for just 34% of all in-person payments as consumers increasingly turn to credit cards, debit cards and digital wallets.
Other changes include the rise of e-commerce, with Colombian businesses increasingly leveraging embedded financing offers such as “buy now, pay later” to increase sales, the same report found. Moreover, remittances are rapidly becoming digitized, enabling migrants to send more of their hard-earned funds home by avoiding the fees prevalent with the traditional banking system.
The Unprecedented Opportunity Of Stablecoins
The rise of Colombian fintechs promises to act as a bulwark against the volatility of the Colombian peso and perhaps even help to prop up its economy by giving consumers and businesses an outlet to protect their savings.
For instance, Bogota-based neobank Littio is giving Colombians unprecedented access to USD and EUR savings accounts, leveraging stablecoins like USDC and EURC. Backed by investors including Circle, the creator of those tokens, its user-friendly mobile app caters to less tech-savvy consumers by making it simple for anyone to swap their pesos into dollars or euros with just a couple of clicks.
Once they’ve exchanged their pesos, they can access savings accounts to earn interest on those deposits, make cross-border transactions, or spend those funds in stores or online using the Littio debit card.
The twin advantages of Littio are accessibility and efficiency. Anyone can download its mobile app and sign up to create an account in seconds, and once they’re in they can take advantage of savings accounts powered by OpenTrade’s real-world asset backed stablecoin yield products, which can generate much higher interest than anything offered by traditional banks.
It’s a revolutionary transformation for Colombia. During previous economic crises, Colombians had little option but to watch the value of their peso savings collapse, but that’s no longer the case. Littio acts like a bridge to financial stability, where anyone can move their pesos into a USD or EUR denominated savings account.
The impact of this has not been lost on Colombians. During the 48-hour row between Petro and Trump, when tariffs were briefly introduced before being rescinded, Littio saw more than 100% growth in the number of new USDC yield accounts opened by Colombian users.
The largest growth rates were seen among “average consumers”. The surge in growth of new USDC yield accounts meant that OpenTrade rose to become the fastest-growing “real-world asset” protocol on the Avalanche blockchain.
Economic Stability Lies Within Reach
The opportunity for neobanks and stablecoin-based financial products in Colombia is immense. As these services become more widespread, they’re helping to accelerate the country’s integration into the global economy, acting like a fast-track towards financial modernization and inclusion.
More importantly, for businesses and consumers alike, these products make it possible to bypass the terrible inefficiencies of the traditional banking system, while eliminating the dangers of going all-in on the volatile peso.
They offer a path to financial stability and opportunity that simply didn’t exist for the vast majority of Colombians before, and it will have big implications for the nation’s economic stability as a whole.
As more Colombians save and its citizens become richer, the country’s economy itself will grow from strength to strength, ultimately reaching a point where its citizens no longer need to fear an imminent collapse.
