Cash No Longer King in Latin America

Colombia’s digital banking space expanded by 59% between 2019 and 2020.

Other nations in Latin America are following that lead, Kushki Chief Revenue Officer Madeleine Clavijo said in an interview with PYMNTS.

At a high level during the pandemic, digital wallets and contactless payments became the only option many customers had for accessing products and services, she said.

As the pandemic hit hard and businesses shuttered their brick-and-mortar locations, gateways became highly relevant — and consumers’ embrace of digital payment methods began to grow in Colombia and the world, especially in Latin America.

“Therefore, cash lost its relevance,” noted Clavijo.

The data show just how rapid the decline of cash has become. Research conducted by PYMNTS in partnership with Kushki shows that cash transactions totaled 80% of payments in 2018; by 2020, in the throes of the pandemic, that figure was a mere 25% across Latin America.

As Clavijo told PYMNTS, ease of use has paved the way for digital-only activities to gain ground.

“It is very easy to open an account in a digital wallet or neobank, and you can also make online transactions,” she said. “It is more comfortable for the user, and it doesn’t have the usual risks of cash.”

A Digital Shift

Drilling down a bit into Colombia’s own pivot toward cashless interactions, Clavijo said digital payments in Colombia expanded by about 59% between 2019 and 2020.

As many as 1.6 million Colombians downloaded and activated digital wallets for the first time last year. Millennials, as tech-savvy consumers used to digital interactions, have been especially enthusiastic adopters.

That growth has come as tighter government regulations have helped block fraud and set operating criteria for firms across the payments spectrum. Each gateway operating in the market must be certified to meet payment card industry (PCI) compliance standards.

“Five years ago, there were 100 gateways; today, there are no more than 20,” Clavijo said. “Having an ecosystem that generates trust through regulation undoubtedly generates greater peace of mind for merchants and buyers.”

The digital initiatives don’t have to be the sole domain of FinTechs and neobanks, she noted. Traditional banks can and should examine how to transform their own digital and established brick-and-mortar approaches to better serve the needs of niche audiences.

At the moment, many banks “suffer from the disadvantage of being perceived as ‘outdated’ compared to that of new players,” yet she added “the important thing is that there is a market for everyone.”

For banks, FinTechs and even merchants, Clavijo said, “My advice would be to adopt a cross-border strategy. Look at what happened with the boom in logistics that allows people to buy from anywhere in the world. They are secure platforms with certificates. To embark on the road to economic recovery, my recommendation is that all merchants should step into the digital world now.”

Cash, she said, can be inefficient for governments and businesses alike.

“They don’t provide information on what people buy, how much, how often, where, when or by whom,” she said. “This prevents the merchant from generating robust databases to plan strategies or build loyalty programs, special offers or market research.”

By way of contrast, the digital world provides complete traceability of the IP, the place, the device (PC or mobile), the purchase, the currency and the platform.

Post-Pandemic

Looking beyond the pandemic, Clavijo predicted that digital habits will remain firmly entrenched.

“Cryptocurrencies are the future,” she said. “Digital currency is here to stay. You cannot go back because the process is very advanced.”

She said El Salvador has embraced bitcoin as a currency, for example, and that other countries are making strides in accepting crypto in commerce.

At a high level, she added, digital payments and wallets will win out over bills and coins.

“Cash increases insecurity, it can be stolen, or you can lose it,” she said. “Apple Pay and digital wallets allow you to pay with PIN or QR codes … going out does not have to mean a return of the old ways.”