Download the latest Embedded Finance Tracker®, a Galileo and PYMNTS collaboration.
Those seeking to expand into the future of financial services and payments need look no further than Latin America. The region’s relatively young, digital-savvy populations and robust governmental support for financial digitization have combined to put LatAm at the forefront of the fintech revolution.
For payments and financial services providers, the Latam market represents a major opportunity, with surging demand for innovative, digital-first, real-time payments services unlikely to be satiated anytime soon.
But harnessing the full potential of the Latin America market requires a deep understanding of the region–insight that only can be gleaned via close monitoring of the unique market dynamics and developments of not only Latam as a whole, but also of each of its various constituent nations.
LatAm consumers demand digital payments–and more
While cash once dominated the payments scene in Latin America, its use is plummeting rapidly in favor of digital alternatives.
In a recent report, Argentina saw a 20 percent decrease in the number of consumers who used cash for more than half of their monthly expenses between 2020 and 2023. Over the same period, that figure decreased by 17 percent in Brazil and Mexico, and 5 percent in El Salvador, the study found.
This shift away from cash has been enabled by widespread acceptance of electronic payments by even small businesses–92 percent of which accept electronic payments, according to the same report. Mobile phones are a key driver of this shift, as 88 percent of consumers reported using their phones to make purchases. Notably, peer-to-peer and bank transfers comprise the vast majority (82 percent) of such payments, the study said
And it’s not just payments themselves that are going digital in LatAm. Smartphones and other digital tools are playing an increasingly central role in all aspects of the consumer shopping experience.
In a study of consumers in Mexico, the average shopper used 10 different digital shopping features per purchase, while 30 percent of female respondents said they wanted to integrate digital tools into all aspects of their shopping journey.
Meanwhile, a separate report found that half of brick-and-mortar shoppers in Brazil use their smartphones while shopping in-store, mainly to compare prices and check deals and discounts.
Governments, incumbents backing the boom
Alongside the demand from consumers, governmental support has been key to fueling the growth of digital payments in LatAm. Some countries in the region even have gotten into the game directly. Brazil’s Pix system, for example, is an instant payments platform managed by the country’s central bank. A recent survey found that 43 percent of consumers use Pix on a daily basis, as opposed to just 29 percent who rely on credit cards and 21 percent who use cash.
Established banks have moved to keep up with the pace as well. The region’s largest financial institution, Itaú, recently launched a digital-only neobank in Chile, Itu, which provides deposit accounts paired with a Mastercard debit card.
Other established LatAm players seeking to capitalize on the growing demand for nimble, digital payments include Argentine e-commerce giant Mercado Libre, whose Mercado Pago e-wallet had racked up 14 million users in the country as of 2022 and can be used to make payments, take out loans and even purchase life insurance.
As Latin America continues to serve as a hotbed of digital payments innovation, the region appears poised to remain on the cutting edge of the financial services landscape–and a market with immense potential for providers that can effectively capitalize on the opportunity.
Want to Learn More?
For more insights on how the future of financial services is taking shape in Latin America, download the latest Embedded Finance Tracker®, a Galileo and PYMNTS collaboration. Disclosure: Galileo Financial Technologies, LLC 2024
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