Latin America is at a crossroads. It has made great progress in recent decades, but it is now facing a challenge: the middle-income trap. This is a situation in which a country that has achieved middle-income status finds it difficult to transition to high-income status. This can happen for a number of reasons, including rising wages, which make it difficult to compete in labor-intensive industries, and a lack of innovation, which makes it difficult to compete in high-value-added industries.

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The middle-income trap is a serious challenge for many countries, as it can lead to stagnation and even decline. Factors that contribute to a country being stuck in the middle-income trap include:

I believe that Latin American fintechs like $PAGS $STNE and $MELI will provide meaningful progress in the region's attempts to escape the middle-income trap. By digitizing the financial sector, fintechs will promote productivity growth, reduce inequality, and promote innovation in the region.

One of the major benefits that fintechs provide to Latin America is by making it easier for people to access financial services wherever they are. Rather than having to make a long commute to the nearest bank branch, people are able to access their account balances and apply for loans through the Internet. The benefits are bigger for those living in remote areas. The ease of doing business with financial institutions increases immensely thanks to fintechs. By making access to capital more equal and easy, fintechs are able to promote investment in more parts of Latin America.

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As for corruption, one of the biggest contributors to the middle-income trap in Latin America, fintechs are helping reduce corruption that's present in the financial sector. Through the digitization of money, it's easier to detect suspicions transactions and stop fraud. Also, it will be difficult for bankers to tamper with or conceal financial transactions as all transactions are already recorded in the company's digital general ledger. Since blockchain technology is still in its infancy, there's a moderate risk (broadly speaking) for bankers to fiddle with or hide financial transactions.

Combining the ease in access to capital with technologies to fight corruption, the financial sector of Latin America as a whole becomes more efficient. The increased efficiency of the financial sector leads to productivity growth and helps in promoting innovation. Businesses in the region will be inspired to adopt technology after seeing the efficiencies that fintechs are able to provide for the financial sector. The improved efficiencies that fintechs have over their legacy peers make them well positioned to provide more capital to businesses looking to boost their capital expenditure spending. Cost reduction in overhead can be shared with businesses and consumers looking to take out debt, which then encourages more people to take on debt and either make investments or consume more goods. The economic growth rate of Latin America will start accelerating thanks to the vast improvements in the efficiency of the region's financial sector.

The benefits that comes with a highly efficient financial sector will help Latin America lay the foundation it needs to move up the value chain and achieve sustainable economic growth. As I've written in previous memos, the world runs on accounting and the digitization of business as a whole helps with improving accounting practices. Globalization brought economic opportunities to many parts of the world. Without an efficient and strong financial sector, it will be difficult for nations to expand their wealth beyond the GDP that globalization has brought them. Fintechs, to me, look to be Latin America's best solution for creating an efficient and strong financial sector necessary for the region to move up the value chain.

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