The Changing Landscape of Digital Payments in LATAM

In an increasingly digital world, the way that money is handled continues to shift. More and more, digital payments have become the go-to for companies and individuals - and this isn’t just the case for strictly online purchases, either. Physical services have also become reliant upon mobile technologies, and people expect to be able to handle anything financial through their phones if they wish to do so.

In Latin America, the situation is no different. Over the past decade, the fintech industry has continuously evolved, creating innovation and change in the financial sector, drastically reshaping the scenario around payments, lending, and services in the region.

In some places, neobanks (tech companies that provide online banking services without brick-and-mortar branches) have superseded traditional banks that have been around for centuries, account-to-account digital payment systems have surpassed cards and cash, and the list goes on. With each passing day, waiting in long lines at the bank to pay bills - a scene so familiar to generations of Latin Americans across multiple countries - is becoming less common and perhaps even less acceptable.

Institutions have now implemented strategies to allow for the rapid growth of technological services, getting people used to handling transactions within seconds and keeping everything that they need at the tip of their fingers. To stay up to date with this financial landscape in Latin America, brands and professionals must be familiar with these digital giants and be willing to incorporate them into their strategies when the situation calls for it.

Instant payments and e-wallets

With the advent of COVID-19, the financial sector had to adapt to a world in which in-person transactions were no longer an easy option in LATAM, even if only temporarily. Quick solutions were urgently needed, and that reality forced the development of the digital payments scenario at the time, making way for new and groundbreaking platforms. Below, we highlight a few of the most notable digital payment methods in Latin America that were either created during the pandemic or grew significantly over that period - and are now some of the main entities in the sector.

Brazil’s Pix

Pix is an account-to-account payment scheme launched in 2020 by Brazil’s central bank. As reported by the bank, it was created to be a more inclusive, faster, and safer transfer method. It also solved multiple issues Brazilians faced in the past when it came to paying account-to-account - from only being able to transfer money between 8 A.M. and 4 P.M. to needing to input the receiver’s full bank information.

Pix solved all of that: transactions could now be made instantly and at any time using a QR code or, most popularly, a Pix key: which can be the user’s phone number, email address, CPF (Natural Persons Register), or a personalized key.

Pix was an instant success, and its boom was unprecedented. According to reports from AMI (Americas Market Intelligence), the tool is now used by 73% of the country’s adult population (about 153 million users), making it the most widely used payment method in the country - surpassing credit and debit cards, cash, and boleto payments after less than 3 years of existence.

Just in 2021, over 9.5 billion transactions were processed - most of which were P2P (peer-to-peer). Still, in that year, peer-to-business transactions alone were responsible for moving the equivalent of 84 billion US dollars. By 2022, only two years after its debut, Pix had already moved a total of R$13 trillion reais (close to $3 trillion US dollars at the most current conversion rate).

To a consumer, using Pix is a no-brainer. There is no third-party app needed, meaning they can pay and receive money directly from their bank accounts. It’s highly trusted, easy to use, and available everywhere. The average cost to merchants is also cheaper (Pix’s fees are about 0.2 percent, versus 2.2% for credit cards), meaning consumers often get offered small discounts for using Pix as opposed to other payment methods. The majority of online stores in Brazil accept Pix, and the tool is projected to capture a significant share of e-commerce payments in the coming years.

Peru’s Yape:

While Brazil is the country with the highest banking penetration in Latin America, Peru is on the other end of the spectrum. That’s one of the reasons that makes Yape, the country’s most popular payment app, a notable mention. Yape was created in 2017 within BCP (Banco de Crédito del Perú), Peru’s largest banking entity, as a way to make P2P transactions easier - however, it has since become independent.

Unlike Pix, which is a tool built into banking platforms, Yape is a private initiative, an external application that allows for easy, instant financial transactions between users using their phone’s contact list or scanning a QR code.

One thing that sets Yape apart is that individuals don’t need a bank account to use the app and send and receive money through it, making it an important asset to the segment of people that don’t have access to a bank account - which is almost half of the country’s population.

With Yape, users can create an account using only an official ID, although linking the app to a card is still an option. With the pandemic, Yape’s adoption rate grew seven times, reaching over 6 million users.

Argentina’s MercadoPago:

MercadoPago is the largest network for online payments in LATAM, working as an e-wallet. It was created by MercadoLibre (a giant e-commerce marketplace) almost two decades ago as a payment platform, and it has since grown into a major piece in the fintech landscape.

Having been compared to the US’ Venmo, MercadoPago works on multiple platforms and makes it easy for individuals to complete transactions through options that vary from email to social networks. Nonetheless, it’s not only used for P2P and P2B transactions - the product’s capabilities range from digital transactions and e-wallet functionalities to investments and even cryptocurrency.

MercadoPago has dealt with its fair share of hurdles when it comes to dealing with regulatory challenges; however, the platform is still believed to be on track to becoming a fintech super app in LATAM. Just in the first quarter of 2022, the total payment volume of the wallet was around $25 billion USD.

Finally, the financial sector in LATAM - from large tech companies to small mom and pops - is rapidly changing around the adoption of local digital payment solutions. These innovations are shaping the way transactions are conducted and what consumers expect from them.

Businesses and professionals that wish to do business in LATAM must adapt to this evolving landscape as the transition towards instant payments goes forward, settling in as a convenient scenario for the future of the region.