After decades of being one of the least advanced regions in terms of economic development, innovation and access to new technologies, Latin America has been transforming itself into a territory that is rapidly advancing towards digitization. Today more than two thirds of the population makes purchases online and banks and digital wallets have increased their reach drastically from 30% since 2017 to more than 80%, according to a study carried out by Kushki in collaboration with Americas Market Intelligence.
(More than rates: what you need to know to apply for a credit card).
With the inclusion of neobanks and digital wallets, access to banking reaches almost 100% of adults in markets such as Colombia, Brazil and Argentina. As a result, the fintech industry in Latin America has exploded and today there are more than 2,600 companies in this sector operating in the region. Latin America continues to overcome the barriers of digitization and countries such as Colombia, Brazil, Argentina, Mexico and Chile are positioning themselves as leaders in the matter.
This panorama poses new challenges to traditional credit cards that, due to these new models, could begin to disappear or become less competitive. Currently, credit cards represent close to 50% of the volume of e-commerce operations and 20% in face-to-face payments in Latin America.
Although credit cards remain the main payment method, alternative payment methods have come to represent a total of 47% of e-commerce, situation that highlights the high acceptance rate of these payment tools in the preferences of local buyers.
(The banks that lower interest and the clients to whom it applies).
Faced with these new challenges, large entities such as Visa and Mastercard have been working to offer interoperability models that allow complementing other models to face the challenges.
And it is that a key aspect of this phenomenon is the Generation Z (Gen Z) of Latin America, which reaches approximately 160 million people, which represents 24.5% of the population of the region as a whole. Nearly a quarter of the population is under the age of 14, meaning there are a large number of digital natives, while less than 10% are over the age of 65 compared to 17% in the US. The younger generations are not only tech savvy, they are also highly connected through their smartphones.
For years, the youngest had been neglected by traditional banks that limited access to credit, but with the arrival of Fintech and Paytech, new ways of providing banking and financial services have opened up, with personalized and more flexible services. This has resulted in a high adoption of new trends and innovation by the younger generations.. Innovation in technology is and will be key to the economic development of Latin America, since it increases access to the financial system for more people; it complements the channels offered by traditional banking and allows companies to strengthen their e-commerce strategies and consolidate their card-present sales strategies.
The Paytechs, pillar of transformation
Paytechs play a fundamental role in boosting economies through three key points: they complement the channels that traditional banking has historically offered, generating a better experience for the consumer; They have increased access to the financial system for thousands of people who were previously excluded, through virtuality; and, lastly, they are a source of job creation and enablement of electronic commerce. From Kushki, a Latin American paytech company, they consider that there are many opportunities to create value in technology companies in Latin America, since the sector in which these companies are located is very relevant, attractive and does not stop growing in the region.
“In Latin America and Colombia, fintechs and paytechs have been characterized by their ability to operate in sectors with great challenges, which gives them great resilience and the ability to adapt to circumstances, a skill that will be key in a recession scenario and global economic uncertainty. At Kushki we are convinced that, for this reason, in 2023 the eyes of the world will turn to our region as a key scenario for growth”commented Sebastián Castro, Co-founder and President of Kushki.
The number of unicorn companies has also increased considerably in the last year in the region. Proof of this is that seven companies entered the unicorn category in Latin America, which has led to investors gradually becoming more and more involved in capital investments. For this reason, Colombia has become one of the key territories to expand this type of business in the region.
(Reduction of rates in banks aims to mitigate slowdown).
In this line, from Kushki, who in June 2022 reached the category of unicorn, he explains that there is a whole promising environment for the economy of the region. “There has never been a better time for payment technology companies to invest in Latin America and ride this wave of growth. Between e-commerce, digital payments in stores, open banking, banking as a service, digital lending, cryptocurrencies and other areas of the industry, fintech and paytech account for more than US$500MM in transaction volume.” concludes Castro.
Latin America has positioned itself as one of the regions with the highest projection of growth in investment and innovation in digital payments by 2023.
In additionthe challenge of continuing internally with the expansion of digitization to more marginalized places, such as rural areas, are an opportunity to continue strengthening progress for the benefit of thousands of people in the region. Latin America has fully entered the digital age thanks to the contribution of Fintechs and Paytechs. Now, it only remains to continue growing in the coming years.
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