How Open Banking Guides LATAM’s Spend Management FinTech

Latin America is a quiet champion in FinTech innovation. While the region may not be top of mind when it comes to world leaders in financial technology, startups from Mexico to Chile are driving payments digitization, financial management automation and the emergence of new paradigms in the market, like open banking.

Investors are paying attention, too. While analysts assess 2020’s performance, the Latin America Private Equity and Venture Capital Association (LAVCA) said funding for the region’s FinTech startups more than doubled between 2018 and 2019, reaching $4.6 billion, with evidence that 2020 figures may emerge similarly as strong.

Among the most recent investment targets in the region is Clara, a B2B FinTech that officially launched on the market earlier this month with $3.5 million in pre-seed funding to fuel its small business spend management offering. Speaking with PYMNTS, Co-Founder and CEO Gerry Giacomán Colyer described how his own experience as an entrepreneur fueled his focus on helping other small businesses gain greater control over capital outflows.

“We realized what a difficult time we had as a fast-growing company managing our finances,” he said. “The problems we were trying to solve with Clara are the very problems we experienced ourselves as entrepreneurs.”

Keeping Control

Expense management comes with plenty of friction points. Organizations first need a mechanism through which employees can actually spend company cash, whether it be requiring workers to use their own funds and be reimbursed after the fact, or through arming those professionals with other tools like company credit cards.

But that’s only the beginning to a robust spend management strategy. Businesses need tools that can empower their employees to make the purchases they need — and where and when they need to — without compromising the control and oversight managers need to ensure those purchases are authorized and within company policy.  Further, at the top level, businesses need the additional capability of understanding broader trends about how cash is being spent.

As a result of these complex needs, Colyer noted that expense management is a multi-layer challenge within a single firm.

“It goes from the employee level, having the means to spend on behalf of a company, to the middle layer, having managers who can easily understand how employees are spending against budgets,” he explained. “And then finally moving to the C-suite and the accounting teams, being able to realize in real-time how company capital is being spent, and make strategic decisions based on that data.”

Workflows at each layer of this process impact a company’s performance, he added, pointing to a delicate balance that FinTech solutions must achieve in order to provide the flexibility employees require to make required purchases, while reinstating the control that higher-level managers and C-suite officials need to keep track of — and ultimately analyze — that activity.

The Open Banking Impact

Critical to analyzing spend behavior is gaining access to data, and key to accessing that data is digitizing payments. It’s particularly important in Latin America, where cash has historically been king.

According to Colyer, even well before the pandemic hit, Latin America’s payments digitization journey had begun, with adoption of card payments accelerating amid the COVID-19 crisis. Clara is using that rising card use as a springboard for its offering, connecting a spend management portal with a corporate card product that automatically integrates transaction data into the system.

Again, Colyer pointed to his previous entrepreneurial experiences to derive value from payments digitization.

“That was an early experience for me, realizing how much more intelligence you could bring to the transactional layer,” he said.

As card spend volume grows in Clara’s home base of Mexico, as well across LATAM, there are other market trends introducing new opportunities to take advantage of transaction data. For instance, the region’s open banking efforts continue to accelerate in markets including Mexico, Brazil, Chile and Colombia, as PYMNTS’ July 2020 Merchants Guide To Navigating Global Payments Regulation report highlighted. The coronavirus crisis is intensifying efforts in the region to unlock bank data and drive competition by allowing FinTechs to use that information for more value-added innovative products and services.

According to Colyer, open banking offers not only a way for FinTechs to expand functionality (Clara is now exploring new ways to facilitate payments beyond the card product, including bank transfers), but the concept itself surrounding data ownership can also be an important framework for the way that B2B FinTechs in Latin America — and across the globe — approach the business customer segment.

It’s imperative for Clara customers, for example, to be able to easily download all of their data or facilitate integrations with other platforms.

“It’s surprising how little of that there is with traditional financial institutions,” he said. We think ultimately, data belongs to the company, and we want to help them make the best use of it.”