Driving digital innovation in Latin America: The story up until now

Digital innovation around the world has revolutionised the way the average person makes payments. It’s not just about cash and cards anymore. Technological innovations and advancements over the course of the 21st century have unlocked new horizons of opportunity and choice for the average consumer. Yet, despite these momentous leaps in accessibility, security and convenience, certain countries - particularly in Latin America - have seemingly been slow on the uptake. This is not always through a lack of desire but a host of reasons, ranging from financial to political, each playing a part in restricting the drive and growth of digital innovation in the region.

For this two-part blog series on digital innovation in Latin America, we decided to interview two of our representatives from the region to explore these issues: the story up until now - what financial institutions (FIs) are currently doing to spur on digitalisation, and secondly, what the future holds for digital innovation in the region.

 

  • Carlos Seer, AVP & Business Development Director, LAC
  • Rafael Marinho, AVP & Sales Director, Brazil

 

As the region becomes more digitally savvy, how are things changing?

CS: The payments landscape in Latin America is at a real crossroads. Whilst almost 51% of Latin America’s population is still unbanked, regulators and FIs have now prioritised tackling it to make the region more financially inclusive.

According to the 2019 Global Financial Inclusion Microscope, Colombia, Peru, Uruguay and Mexico lead the rankings for providing effective environments for greater financial inclusion. However, while Mexico has a number of welfare programs using debit cards, these programs are somewhat still a work in progress as beneficiaries tend to use the cards to withdraw their funds all at once, rather than use them as a payment instrument as intended.

Peru has also seen several strides made, as retirees are now able to receive pensions directly via deposits placed on debit cards. In my opinion, this is a really important starting position in spearheading digitalisation and ensuring greater financial inclusion with these particular demographics. Services such as these reach those who were previously unbanked, receiving their wages in cash for many years.

While we can’t generalise here, from what I have seen, this is a trend that is emerging across the whole region rather than a select few countries – Latin America is catching up and fast.

RM: Customers are starting to look for the right tools to give them instant access to financial services. Alongside this comes a need for self-enrolment, real-time credit scoring with instant credit line offerings and availability, instant bank account creation and immediate usability.

Take Nubank for instance, currently one of the world’s top ranked fintechs and one of the top FIs in Brazil. Nubank requires no charge for account maintenance, deposits, transfers, debit card issuing and only requires a minimal charge for each cash withdrawal. This example of low cost, well-tailored financial products and services, using intuitive super app technology is attracting users from all kinds of demographics.

The unbanked population, informal workers and young people are all beginning to strive for a more modern and efficient way to bank. These groups are beginning to realise that the answer lies in digital transformation.  

 

How are banks and fintechs approaching the challenge?

CS: There is no doubt that fintechs are disrupting the region, as they are in other parts of the world. Local FIs have come a long way - from underestimating their input to now trying to compete with, and find ways to partner with, disruptive newcomers in order to improve user experience.

RM: Banks are beginning to invest in super apps, but they are still lagging behind when it comes to process automation in response to customer demand. Banks should strive to improve the way they get to know their customers and their needs, especially among non-traditional demographics where so many remain unbanked.

In general, banks have a much larger set of products and services to offer than fintechs (mortgages, remittances, trading). Turning all these product ranges into digital services is a mammoth task.  Becoming digital is a convenient tool for existing customers rather than a driving force to attract new ones. In that sense, becoming digital does not necessarily equate to lower costs for customers, however, some banks are starting to bring their own fintechs to market as a way to compete with other challenger banks.