Caracas Chronicles

This is quite a paradox. One of the worst-performing economies in the world for the past eight years is gaining speed in the digital transition and it’s accelerated 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 refer to companies that sell new financial technologies), are multiplying in the de facto dollarization and relaxing of controls.

Somehow, the market has made its way and has given oxygen to the Venezuelan economy.

Among this group of entrepreneurs, there are thousands who are focusing on technological innovation. So, we’re not just talking about companies that offer online services for education, transport, or design and marketing; real estate, music and films, or having hamburgers, pizzas, cakes, drinks, clothing, car parts, perfumes, and toys delivered through e-commerce; but also startups that are making their mark and challenging the traditional way of running an economy and finances.

An Unexpected Leap

Electronic engineer Carlos Morillo, a guest 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 has pushed the arrival and growth of fintech startups in Venezuela. ATMs and point of sale devices went from being a solution to a hindrance, with hyperinflation, cash shortage, and lack of currency for their upkeep. A newcomer started changing everything, Morillo says: peer-to-peer (P2P) transactions between natural persons, through an app and just by asking for some basic information, such as the recipient’s bank, ID number and their cell phone number. Furthermore, “SUDEBAN allowed for private companies and legal persons to import and maintain POS, so a new economic activity was born with newly authorized agents who deal with those devices taking in a commission over all transactions carried out by payment networks, handled by Credicard company and national banks.” 

With these companies offering other payment methods, banks recover their income for their brokering services, by means of those new options. This is why banks, the expert says, “enabled up-and-coming fintech companies to access the national payment networks and credit card franchises. Authorized agents in the POS market begin to broker financial transactions, offering new opportunities for their clients with a service portfolio based on the knowledge of data generated by the financial operation. These agents now dream of turning into the new completely digital banks in the country.” 

The Venezuelan market developed in 2020 and 2021. There are new services, such as P2P, C2P, digital wallets and payment gateways which can handle transactions from clients directly with national banks and franchises, establishing an alliance between banks and the new fintech firms. 

“For some countries, getting rid of cash is a national strategy to be finalized in the next few decades, but in Venezuela, it was pushed for, as a result of hyperinflation, awful public financial policy, and adopting foreign currencies. Venezuelan resilience managed, in spite of technological obsoleteness, lack of investment, and qualified human resources shortage as the result of migration, to generate exchange proposals on technological platforms and existing payment networks to adapt to an economy with no bolivars in cash.” 

The expert predicts that for 2022 some banks would take control over their POS and that financial transactions not originated from physical devices will increase, portfolios for digital payment products will grow, and more banks will line up with the open banking trend, which gives the client many more options thanks to technology; and API broadening, the technology that connects apps with the financial system; to offer more and better financial services to the growing list of digital clients: those that don’t need to show up to a banking agency anymore.

No Store and No Bolivars

“People are into startups out of need, basically. The money they make with their jobs and trades isn’t enough to cover their basic needs,” says Aramis Rodríguez, professor at the Centro de Innovación y Emprendimiento of the Instituto de Estudios Superiores de Administración (IESA) and PhD in Business Sciences.

At the same time, according to the World Bank’s most recent (now defunct) Doing Business global ranking, Venezuela is one of the worst countries for doing business in the world. Creating a company takes 230 days, while it only takes six days in Colombia, for instance. This may be one of the reasons why many of the startups on the internet don’t turn into formal businesses, which is something to take into account when it comes to interacting with them in order to avoid scams: you have to look for serious companies that you know will answer to you. Other Venezuelans have set up 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 long ago, Front Consulting Group published a study where they found that, in Venezuela, during the pandemic, at least three thousand new startups were born—most of them in food sales and distribution, health, electronics, clothing, shoes, and entertainment—sixty percent of which don’t have a physical location and very rarely operate in more than one city.

An important feature of this phenomenon has to do with the growth of cryptocurrencies in Venezuela. Venezuelans’ main way to acquire them is through exchanges; platforms with blockchain technology that function as a virtual exchange house, where the currency’s value is set by supply and demand, and allow for fiat money to be traded for cryptocurrencies. Among the most frequently used exchanges in Venezuela, we can name Localbitcoins, Binance, AirTM, Cryptobuyer, and SatoshiTango.

There are also bitcoin ATMs that allow you to buy cryptocoins in exchange for U.S. dollars in cash. Not only are cryptocurrencies an accepted method of payment in fast food chains like McDonald’s or Burger King, but also in supermarkets, restaurants, hotels, travel agencies and entertainment centers, academic institutions, car and real estate businesses and even street vendors.

Incubating for the Future

Meanwhile, the Founder Institute, the largest enterprise incubator and launching program for startups in the world, announced its arrival to Venezuela this year. It offers programs for entry-level entrepreneurs, to develop their business ideas and build their companies. This organization has set out to put one thousand companies in motion per year and, with them, generate ten thousand jobs.

The deadline to request to participate in the first Founder Institute Caracas ended recently and this first class will be focused on developing technological companies. You can access this enterprise incubator and keep track of their events on this link. The Impact Hub in Caracas is still active, another relevant entrepreneur community that helps to attract seed money to develop projects with high potential, it also imparts knowledge to associates to seize market opportunities and improve teams, as well as providing space in their facilities for entrepreneurs for their networking and co-working needs.

We’ll have to see how many more opportunities can come up and analyze their lifespan in the future, how much they can grow, how their business models behave within the Venezuelan reality. But what we do know today is that there’s new, legitimate tech entrepreneurship happening. Will they be allowed to evolve?