The Latin American payment landscape has always been a dynamic one. Yet, the last few years have seen enhanced financial inclusion, explained by a blooming in innovative digital financial products.
Financial inclusion, referring to a state in which all adults have access to formal financial services, is a requirement for people to be economically empowered. In Latin America and the Caribbean, the COVID-19 pandemic has been a real push to financial inclusion, with account ownership growing from 55% in 2017 to 74% in 2021 (Source). Today, a large majority of Latin Americans own a debit card, but only a minority have access to loans or other financial products.
The fast evolution in access to financial services has been accompanied, and stimulated by the launch of a multitude of innovative financial products in the Latin American market. Fintechs are boosting digital, instant payments, and creating new competition in this previously conservative landscape. In 2021, there are an estimated 300 million users of digital payments, and more than 30 million users of digital banks, concentrated mainly in Brazil and Mexico (Source).
Figure: Number of digital banks
The number of digital banks has increased, leading the digital bank transaction value to increase to about USD120 billion in 2021, as opposed to USD20 billion just four years before. Today, Brazilian Nubank is the most valued independent digital bank in the world, and it keeps following a path to growth across Latin American borders.
According to a recent report by the IMF (Source), the Latin American fintech boom can be attributed to stronger competition, improvements in digital infrastructure, and enhanced access to venture capital in the region. These changes are fastly reshaping the payments market, creating not only new possibilities for financial inclusion but also simultaneously bringing new financial risks. Some question whether fintechs are able to handle market volatility, and the fight against fraud and money laundering.
In such a rapidly evolving market, regulators must work to set the framework in which the new digital players can evolve across the region. Approaches differ across countries: while some such as the Brazilian regulators take the initiative to lead the payments revolution, others wait to observe their peers before taking action. Regulation will be one of the central pillars in determining what the future of payments, financial inclusion and financial stability look like for Latin America and the Caribbean.
To discuss financial inclusion, payments digitalisation, and the associated regulation, meet us at EVOLVE on 22-23 August, 2023 in Sao Paulo, Brazil.