A digital economy accelerates in Venezuela

It is quite a paradox. One of the least performing economies in the world for eight years is accelerating the digital transition and accelerating with the covid-19 pandemic.

Tech startups that offer online banking and financial services, transportation and delivery services, as well as digital payment alternatives, e-commerce, cryptocurrencies and fintech (term used to designate companies that sell new financial technologies), are multiplying in the de facto dollarization and relaxation of controls.

One way or another, the market gained ground and breathed new life into the Venezuelan economy.

Among this group of entrepreneurs, there are thousands who focus on technological innovation. So, we’re not just talking about companies that offer online services for education, transportation, or design and marketing; real estate, music and movies, or have burgers, pizzas, cakes, drinks, clothing, car parts, perfumes and toys delivered via e-commerce; but also start-ups that impose themselves and challenge the traditional way of managing an economy and finances.

An unexpected leap

Electronics engineer Carlos Morillo, visiting professor at the Instituto de Estudios Superiores de Administración (IESA), mentor for startups on the Programa Emprende and digital business expert, describes the context that drove the arrival and growth of fintech startups in Venezuela. ATMs and point-of-sale devices have gone from being a solution to a hurdle, with hyperinflation, lack of liquidity and a lack of currencies to maintain them. A newcomer started to change everything, explains Morillo: peer-to-peer (P2P) transactions between natural persons, through an app and simply by asking for basic information, such as the recipient’s bank, their ID number and his cell phone number. In addition, “SUDEBAN has made it possible for private companies and legal persons to import and maintain outlets, so that a new economic activity has been born with newly authorized agents who deal with these devices taking a commission on all transactions carried out by payment networks, managed by Credicard and the national banks.

With these companies offering other means of payment, banks are recovering their income for their brokerage services, thanks to these new options. This is why, according to the expert, the banks “have allowed fintech businesses to access national payment networks and credit card franchises. Authorized agents in the point of sale market begin to negotiate financial transactions, offering new opportunities to their clients with a portfolio of services based on knowledge of the data generated by the financial transaction. These agents now dream of becoming the new fully digital banks in the country. ”

The Venezuelan market has grown in 2020 and 2021. There are new services, such as P2P, C2P, digital wallets and payment gateways that can handle customer transactions directly with national banks and franchises, establishing an alliance between the banks and the new fintech companies.

“For some countries, getting rid of cash is a national strategy that must be finalized in the coming decades, but in Venezuela it has been encouraged due to hyperinflation, appalling public financial policies and the adoption of foreign currencies. Venezuelan resilience has succeeded, despite technological obsolescence, the lack of investments and the shortage of qualified human resources resulting from migration, to generate exchange proposals on existing technological platforms and payment networks to adapt to an economy without bolivars in cash.

The expert predicts that by 2022 some banks would take control of their point of sale and financial transactions not originating from physical devices would increase, portfolios of digital payment products would increase and more banks would align with the open bank trend, which gives the customer many more options through technology; and the expansion of API, the technology that connects applications to the financial system; offer more and better financial services to the growing list of digital customers: those who no longer need to go to a bank branch.

No store and no bolivars

“People love startups out of need, basically. The money they earn with their work and their profession is not enough to cover their basic needs, ”says Aramis Rodríguez, professor at the Centro de Innovación y Emprendimiento from Instituto de Estudios Superiores de Administración (IESA) and doctorate in business sciences.

At the same time, according to the World Bank’s most recent (now defunct) global Doing Business ranking, Venezuela is one of the worst countries in the world to do business. It takes 230 days to start a business, compared to six days in Colombia, for example. This may be one of the reasons that many internet startups don’t turn into formal businesses, which is something to consider when it comes to interacting with them in order to avoid scams: you need to look for serious companies that you know will respond to you. Other Venezuelans have created startups in Colombia, Mexico, the United States, Spain and other European countries.

According to this startup ranking in Venezuela, the top ten include SocialGest, ConLaLlave, Mi Apartaco, Akademia, Cusica, Guuao, Tigrenator, Gov3DStudio, PagoFlash and Tikket. In other words, companies dealing with social media management, real estate, payment methods, academic management services, design, customer service, and e-commerce.

Not so long ago, Front Consulting Group published a study in which they found that in Venezuela, during the pandemic, at least three thousand new startups were born, most of them in the sale and distribution of food products. , health, electronics, clothing, footwear and entertainment. – of which sixty percent have no physical location and very rarely operate in more than one city.

An important feature of this phenomenon is related to the growth of cryptocurrencies in Venezuela. The main way for Venezuelans to acquire them is through exchange; platforms with blockchain technology that function as a virtual house of exchange, where the value of currency is defined by supply and demand, and allow Fiat money to be exchanged for crypto-currencies. Among the most frequently used exchanges in Venezuela we can mention Localbitcoins, Binance, AirTM, Cryptobuyer and SatoshiTango.

There are also bitcoin ATMs that allow you to buy cryptocurrency in exchange for US dollars in cash. Cryptocurrencies are not only an accepted payment method in fast food chains like McDonald’s or Burger King, but also in supermarkets, restaurants, hotels, travel agencies and entertainment centers, academic institutions, auto and real estate companies and even street vendors.

Incubate for the future

Meanwhile, the Founder Institute, the world’s largest business incubator and startup launch program, announced its arrival in Venezuela this year. It offers programs for beginning entrepreneurs, to develop their business ideas and build their businesses. This organization has endeavored to set up a thousand companies per year and, with them, to generate ten thousand jobs.

The deadline to apply to attend the first Founder Institute Caracas recently ended and this first course will focus on developing technology companies. You can access this business incubator and follow their events on this link. The Impact Hub in Caracas is still active, another relevant entrepreneurial community that helps attract seed capital to develop high potential projects, it also transmits knowledge to associates to seize market opportunities and improve business results. teams, as well as providing space in their facilities for entrepreneurs for their networking and co-working needs.

We will have to see how many other opportunities may present themselves and analyze their lifespan in the future, how much they can grow, how their business models behave in Venezuelan reality. But what we do know today is that there is legitimate new tech entrepreneurship out there. Will they be allowed to evolve?

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