The Forces Behind LAC’s Emerging Online Payments Space

 July 19th, 2019

In Latin America and the Caribbean (LAC), where up to 70% of people do not have access to a bank account, there is an emerging space ready for online payments. optile explored the key changes such as digital banking, mobile payments and disrupting market trends which are creating this opportunity. 

A History with Low Levels of Financial Inclusion

To set up a bank account in several LAC countries, one needs to show proof of citizenship, a job, and financial paperwork. Further, banks have traditionally put the poor at a disadvantage by issuing cards with hidden fees. Although countries like Brazil and Chile have proportionally higher amounts of ATMs and bank branches, financial inclusion for the LAC region remains well below the OECD average.  

The Status Quo for Payment Methods in LAC 

The traditional payment methods, regulations, and customs of LAC have kept large swaths of its population segmented and away from online payments.  

Access to alternative payment methods such as Paypal can be quite limited in LAC. Thus, a majority of the population is still accustomed to using the cash voucher system, credit card installments, local credit cards and bank transfers.  

Even though online payment methods exist in LAC, there are several limiters on their access and usage across borders. Many countries charge high fees for cross-border online transactions. Moreover, international credit cards have been out of reach for much of LAC and are not universally accepted by merchants and stores. 

Most importantly, consumers in LAC still view cash as a sign of trust. Therefore, cash remains the most popular payment method in LAC and credit cards are often only used for emergencies or large purchases.  

Why LAC is Warming-Up to Online Payments 

Recently, several powerful developments have made LAC more suitable for global online payments. Financial inclusion in LAC has risen from less than 40% in 2011 to over 50% by the year 2017Ithis region where internet access has traditionally been quite lowabout 55% of adults in LAC now own a mobile phone and have access to the internet. 

Several indicators now point towards mobile payments in LAC increasing in both online and physical stores. In a recent survey from the region, 2/3 Internet users stated that they would use mobile wallets or similar payment methods during 2018-2019.

Taking note, several payment methods akin to PayPal and Venmo have popped up in the region. But, because of regulations, these alternative payment methods have generally been restricted to operating in single countries.  

 NeoBanks have also begun to spring up throughout the region to take advantage of the same opportunities. These institutions, consisting of fully mobile banks, offer a variety of services allowing people to access global markets without the hassle of being beholden to a physical location. Similarly, to compete, traditional banks have begun to offer mobile-friendly services of their own. 

Major Developments for Payments in LAC 

Changes in marketplace, trade and legislation will also carry far-reaching effects into the payments industry 

The LAC market is blooming with new startups. 1 in every 4 fintech firms in the region is providing payment-related services such as payment gateways or mobile money services. Notable examples of this are Brazil and Mexico who have a respective 33 and 20 percent of their startups in payments.  

Another prominent industry shift is PPRO’s acquisition of allpago. This move provides PPRO, a provider of cross-border digital payments, with increased access to LAC’s direct banking and establishes the company as market leader in local payments.  

From a regulatory standpoint, many countries in LAC are now adopting policy to boost financial inclusion. In addition, the recently approved international trade deal between the EU and the Mercosur bloc, solidifies strong economic ties between the two regions. Subsequently, a stronger bridge for communication and the exchange of intellectual property will be established between online payment institutions overseas. 

In short, all of this translates to LAC having more consumers who purchase online. 

The Implications for Payments 

Increasing levels of financial inclusion, internet penetration, mobile device usage, neobank-friendly regulation and forecasted growth in GDP per capita indicate that LAC is now an ideal market for payment companies and merchants who have historically had limited access to the region.  

Yet, before global payment players take the plunge into LAC, it is important to keep in mind that a large portion of payments from the region comes from specific countries. About 20% of LAC inhabitants making online purchases have made their transactions from Argentina, Brazil or Costa Rica. 

To learn more about connecting to regional payment methods and simplifying high levels of technical integration complexity, contact us here. 

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