Latin America's Digital Transformation: The Second Wave

Latin America’s Accelerating Digital Shift

Throughout the last year, Latin America has received considerable international attention as the COVID-19 pandemic prompted evaluation of the region’s resilience. However, substantial fundraising achievements and the emergence of new unicorns have instilled optimism regarding its developing technology landscape.

The Pandemic’s Catalytic Effect

Our previous report on Latin America’s digital transformation highlighted a peak in digital growth spurred by the pandemic. E-commerce penetration reached unprecedented levels, and the market capitalization of public technology firms grew at a rate exceeding the region’s GDP. The year 2021 brought secondary and tertiary effects of the crisis, further accelerating technological expansion across the continent at an unforeseen pace.

A Comprehensive Analysis

This year’s report presents 200 slides of data-driven analysis, primary research, private company data, and case studies to illustrate this “second wave” of change. We detail the surprising shifts in consumer preferences, workplace dynamics, business models, and geopolitical influences impacting the rapidly evolving tech sector, ranging from the increasing adoption of sustainable technologies to the rise of a new local creator economy.

Regional Tech Penetration

A top-down analysis reveals a region at a critical turning point. The Atlantico Digital Transformation Index, measuring tech penetration via the value of public technology companies as a percentage of GDP, increased from 2.3% in 2020 to 3.4% in 2021 (as of August).

Unicorn Growth

Our internal analysis of private company data estimates the value of regional unicorns reached $105 billion, more than double the previous year’s $46 billion. Eight new unicorns have emerged this year, approaching 2020’s full-year rate by mid-year.

Fintech and Beyond

Latin American fintech companies have garnered significant attention, attracting 40% of the region’s venture capital investment last year. The revolution of the past five years, exemplified by Nubank, was fueled by evolving consumer needs, a concentrated banking sector, and a supportive regulatory environment. We are now observing the ripple effects of this fintech boom in other sectors poised for disruption.

Innovation in Insurance

Similar changes are fostering innovative models in the insurance sector, such as 180o in Brazil and Betterfly in Chile. 180o, founded by former Nubank employees, pioneers an insurance-as-a-service model, enabling businesses to create and integrate customized insurance products. Betterfly offers a benefits platform providing life insurance that rewards healthy habits and charitable contributions.

E-commerce Expansion

Latin America’s foundational technology sector, e-commerce, is experiencing significant second-order effects from the pandemic. E-commerce penetration of retail is projected to surpass 11% by the end of 2021, more than double pre-pandemic levels, with Mercado Libre remaining the region’s most valuable technology company.

Shifting Consumer Behavior

Latin American consumers are increasingly turning to e-commerce for traditionally in-person purchases, including groceries, cars, and even real estate. Globally, social distancing prompted a 63% increase in online grocery ordering, a trend mirrored in Latin America.

Growth of Online Retailers

Mexican online grocer Jüsto has seen sales increase over eightfold since before the pandemic. Brazilian delivery unicorn iFood experienced a fourfold increase in grocery volumes. Mexico’s Kavak became the country’s first unicorn in the automotive sector, while Brazilian unicorns Loft and QuintoAndar are digitizing property sales and rentals.

Infrastructure Evolution

This expansion necessitated improvements in the quality and scale of logistics, payments, and e-commerce platform infrastructure. Brazilian logistics unicorn Loggi increased package handling by 115% in the four quarters following the pandemic’s start. VTEX, an e-commerce platform that went public on the NYSE, reported nearly doubled GMV transacted by its merchants.

The Rise of Digital Payments

Three-fourths of e-commerce transactions now utilize payment cards or digital wallets. Cross-border payments, crucial for international e-commerce and digital services, have seen the emergence of EBANX in Brazil and dLocal in Uruguay as major players, with dLocal’s Nasdaq IPO resulting in a market capitalization exceeding 35% of Uruguay’s GDP.

Globalization and Asian Influence

While digitalization progressed, globalization experienced setbacks. Strained U.S.-China relations led to increased Chinese investment in emerging markets like Latin America. TikTok has reached one-third of Brazilians monthly, becoming the sixth most used app in the country.

Asian Tech Expansion

Kwai, a social video network, has gained prominence as a content creation platform since its launch in Brazil in 2019, and has expanded to Mexico and Colombia. Tencent continues to invest in Latin American unicorns like Nubank and Ualá, co-leading a $120 million round for Brazilian real estate unicorn Quinto Andar.

E-commerce Competition

Shopee, developed by Singaporean internet giant SEA Limited, has surpassed Brazilian e-commerce companies in metrics like monthly active users. Chinese online fast-fashion retailer Shein has also gained traction, mirroring the success of AliExpress in the region.

Inspired Business Models

Latin American companies are drawing inspiration from Chinese business models. Brazil’s Facily borrows from Pinduoduo, topping Android download charts. Peru’s Mercado Favo and Colombia’s Muni are expanding by adapting Shihuituan’s model of selling low-priced groceries through community leaders.

The Future of Work

The pandemic fundamentally altered workplace norms. A survey conducted with Runa, a Mexican payroll and HR software company, revealed that 66% of companies operated in-person before the pandemic. Currently, only 5% maintain primarily in-office employees, with most remote or hybrid models seeing only 38% of employees in the office weekly.

Benefits of Remote Work

Remote work has yielded unexpected benefits, including easier recruitment of diverse candidates (95% of respondents agreed). Interestingly, 8% suspect employees of holding multiple jobs simultaneously.

Media Consumption Trends

Latin Americans lead globally in media consumption, averaging 14.5 hours per day across all formats (compared to 13 hours in North America). 88% of internet users are on social networks (73% in North America). Brazil, Mexico, and Argentina account for over 250 million social media users.

The Creator Economy

The media landscape is shifting from traditional media companies to a new creator economy, where influencers and independent creators generate abundant content. Latin America’s consumer preferences position it at the forefront of this movement.

Influencer Marketing

39% of Brazilian internet users follow influencers (over 30% in Argentina, Colombia, and Mexico), compared to 21% globally and 17% in the United States. Latin American consumers are more influenced by creators, with 41% of Brazilians having purchased a product based on a creator’s recommendation – double the global average.

Monetization Challenges

A survey of over 5,100 Brazilian creators revealed that 23% do not monetize their influence, and another 25% earn less than $100 monthly. Sponsored content (55%) and in-platform advertising (20%) are the primary monetization methods.

Digitalizing Agriculture

To understand the full extent of digital transformation, we examined the agricultural sector, which contributes significantly to the region’s production and 21% of Brazil’s GDP. Despite farmers’ eagerness to adopt digital technologies, barriers exist, including limited internet access, high investment costs, and lack of information.

Sustainable Practices

Innovation is occurring in areas like fintech services and precision agriculture. Consumer preferences are driving demand for sustainable practices in food production and energy consumption.

Sustainability Sentiment

A survey conducted with Atlas Intel revealed that climate change is considered the top risk to the planet (38% of respondents), with over half believing environmental preservation should be prioritized over economic growth.

Carbon Offsetting and Plant-Based Alternatives

Latin America is well-positioned to benefit from the growing global demand for carbon offsetting, already being a top source for forest offsets. The region’s expertise in meat production could facilitate a transition to plant-based alternatives, with companies like NotCo and Fazenda Futuro making inroads into the U.S. market.

Renewable Energy

Latin America already boasts a cleaner electricity composition than many regions, thanks to its strong hydroelectric and renewable energy matrix. Growth in solar energy production, driven by startups like Solfácil, Lemon, and Clarke, is also notable.

A Positive Outlook

The digital transformation in Latin America has not only generated financial gains but also increased financial inclusion, created more flexible job opportunities, and promoted sustainable solutions. This year’s report fosters optimism for Latin America’s future, a future we believe will be amplified by every subsequent wave of digital penetration.