Digital Wallets Unite Banks and FinTechs in Latin America’s Inclusion Push

Watch more: Latin America’s Digital Wallet Surge Forces Banks to Expand Financial Inclusion

Latin America, long perceived as a region where cash was king and financial innovation moved at a deliberate and even slow pace, is now at the forefront of a profound digital transformation.

Joint research from Galileo Financial Technologies and PYMNTS reveals a striking shift, with digital payments now constituting roughly half of eCommerce transaction values and 30% of point-of-sale (POS) transaction values across Latin America.

Tory Jackson, head of business development and strategy for Latin America at Galileo, told payments that historically, a significant divide existed between those with and without bank accounts.

“It’s been traditionally extremely expensive for most people to go and get a bank account,” Jackson said. That’s especially been true for consumers living in rural areas. But the rise of digital wallets has provided a mechanism for a collaborative effort involving a diverse range of stakeholders, including traditional banks, agile FinTech companies and new technology providers.

“Financial inclusion and digital inclusion go hand in hand,” he said.

Traditional Banks Grapple With Change

The rise of FinTechs and digital solutions has reshaped the role and operations of traditional banks in Latin America, but market-by-market approaches have differed. A stark contrast can be drawn between the banking sectors of the United States and Mexico, for instance.

“If you want to compare banks in the U.S., where there’s thousands of banks … there’s just over 50 in Mexico,” Jackson said.

In Mexico, the term “FinTech” holds a specific legal meaning, referring to a regulated license under Mexican law, distinct from the broader concept of financial technology in the U.S. The emergence of these licensed FinTech entities, along with other innovative players, has compelled traditional banks to reevaluate their strategies.

As Jackson said, “Allowing for these different type of licenses to exist means different sorts of entities that can issue new products and services — and it really is pushing all of these traditional banks and institutions to look in the mirror and say, ‘Look, we need to be able to serve more of this population. We need to enhance our products, especially our digital products.’”

FinTechs, with their agile structures and modern technology, can rapidly implement solutions and connect to APIs, launching innovative services that were previously unavailable in Latin America.

This has made banks realize that their historical approach of doing “everything ourselves” as Jackson put it, is no longer viable in a rapidly accelerating digital landscape. The need for collaboration within the ecosystem to offer “best of breed” products has become clear, creating a substantial opportunity that Galileo and other companies support.

Jackson noted that the financial services ecosystem requires various components and providers across the issuing and acquiring sides, as well as merchant acceptance, all needing to be on the same page of innovation.

And what’s emerging, he said, “is the [bank] branch in your hand,” with the ability to connect and conduct activities like instant payments and peer-to-peer (P2P) transfers from a smartphone.

This shift underscores a desire for greater convenience and access to better products and services, with companies like Galileo playing a crucial role in offering and scaling these solutions.

Regional Challenges for Cryptocurrencies

The diverse economies and regulations across Latin American countries have fostered unique applications for new payment vehicles, particularly stablecoins and cryptocurrencies. Latin America sees “very real” and varied use cases already, said Jackson.

This ability to peg value back to the U.S. dollar offers a crucial benefit: stability for people’s lives and finances. Beyond acting as a primary currency or a hedge against volatility, stablecoins and cryptocurrencies are also significantly impacting remittances, offering more efficient and cost-effective ways for money to be sent across borders.

Latin America’s journey toward digital financial inclusion offers lessons for other nations seeking to broaden economic participation.

Mexico, in particular, has emerged as a trailblazer with its pioneering FinTech law. “Mexico was the first to come out with what’s called the FinTech law,” Jackson said, enabling nonbanks to apply for and receive licenses to take deposits like a bank and issue debit cards.

The legislative move was a “huge catalyst” for subsequent developments, opening the financial ecosystem beyond the limited number of traditional banks and fostering what Jackson termed “positive, good, healthy competition.” Colombia has followed suit by crafting its own FinTech law.

This trend reflects a broader understanding of the need to establish regulatory frameworks that encourage innovation and enable new players to serve previously unbanked or underserved populations. The ideal, Jackson said, mirrors the standards set by global networks like Mastercard or Visa, which aim to provide a universal framework.

Looking ahead, the focus for continued digital evolution in Latin America remains on track.

“As companies look to Latin America, there’s a lot of a lot of value in focusing on technology that is going to scale. And I think credit, lending, remittances and P2P are all different things that are going to be vast … because of the huge gaps,” Jackson said. “At Galileo we’re excited to help push all of that forward in the region.”