Expanding Financial Inclusion in LatAm: Extending Credit and Revitalizing Dormant Accounts

With Latin America having achieved great strides in financial inclusion over the past ten years, Galileo is now asking what the next decade will look like for LatAm. We believe it will be defined by complementing quantitative success—getting more accounts to more people—with qualitative achievements—ensuring this expanded account access translates into genuine financial empowerment.

In this article, we’ll examine two key areas that could drive this next stage of financial inclusion in Latin America: extending access to credit and activating dormant accounts.

Closing the credit gap

While Latin America has seen a faster than global average rise in bank accounts, access to credit cards and loans has grown more slowly than the global average, giving rise to what’s been termed a “credit gap.” That’s because, despite being able to help more people open bank accounts, traditional banks have faced challenges in assessing the creditworthiness of individuals and small businesses, especially those lacking formal credit histories or consistent income.

However, AI-powered credit checks and the increasing adoption of open banking frameworks are revolutionizing how credit decisions are made in Latin America, especially for less wealthy and younger applicants. These innovations are enabling financial institutions to leverage a wider range of data points beyond traditional credit scores to build a more comprehensive risk profile.

These advances are already resulting in more credit becoming available: a study by PwC Brazil and the Brazilian Association of Digital Credit revealed that the volume of credit offered by fintechs in Brazil grew by 52 percent in 2023, reaching R$21 billion. The report also cited more efficient risk management that is enabling fintechs to offer more attractive interest rates than their traditional counterparts.

And in Colombia, Nubank’s credit approval algorithm approves 40 percent of customers who weren’t able to attain credit from traditional sources.

If more financial providers can offer customers secure and cost-effective credit, then financial inclusion in Latin America could not just reach the unbanked, but the underbanked as well, further closing the credit gap.  

Activating dormant accounts

Beyond extending credit, another crucial aspect of deepening financial inclusion is addressing the issue of dormant accounts. A study by the Development Bank of Latin America and the Caribbean found that account inactivity (accounts left dormant for over twelve months) increased by 10 percent from 2014 to 2021. The study found that distance to financial institutions, lack of trust in the system, and a perceived lack of need were the main reasons for account inactivity. 

The volume of funds left in these dormant accounts is substantial. Exame reported that Brazilians have over R$9 billion forgotten in banks, with the majority belonging to individuals.

But what if, instead of closing dormant accounts, banks saw them as a significant opportunity to proactively engage with customers? 

If we follow our Gustanomics model of financial inclusion, and think about the four key pillars (need, incentive, status, engagement) of quality banking experiences in Latin America’s app-first economy, how could we reengage customers with dormant accounts? It might involve:

Need – Educational campaigns clarifying the essential financial benefits and practical applications of an active account.

Incentive – Targeted incentives like small bonuses or fee waivers for reactivating accounts or initial transactions.

Status – Proactive communications alerting customers to inactivity, presented as an invitation to rejoin the active customer fold and maintain their valued standing.

Engagement – Simplified, app-first reactivation processes through digital channels, ensuring effortless re-connection and renewed interaction.

These suggestions are just a starting point, but what’s clear is that to effectively power the next decade of financial inclusion in Latin America – beyond merely bringing more people into the formal financial system – banks must address the credit gap and re-engage dormant accounts. 

By leveraging technology to expand access to credit and proactively revitalizing existing accounts through tailored Gustanomics strategies, payment providers can move from quantitative success to genuinely empowering individuals and building better customer relationships and more robust, inclusive economies.

Contact us to learn how technology can accelerate financial inclusion across Latin America.