Surging Debit Use Leads ‘Eighty-Fold’ Acceleration in LatAm Digital Payments

In just two years, Latin American debit and credit card use rates have essentially swapped their market share positions.  In 2019, roughly 60% of the total purchases in the region were made through credit, whereas today, 65% of total sales from both physical and eCommerce stores are being done with debit cards, Gabriel Mejia, general manager of LATAM at EVO Payments, said in a recent conversation with PYMNTS.

“The combination of adoption of digital technology and ease of digital payments in our region is what has accelerated the growth,” Mejia said, noting that greater security and less friction have also played a role in the reversal.

Payment innovations and new purchasing platforms are also contributing to the growth in the region, he said, predicting that the transaction value of digital commerce is expected to increase by 73% by 2025 for the region, with higher growth rates in select economies: 200% in Brazil, 250% in Mexico, and Colombia, Chile, and Argentina projected to at least duplicate those eCommerce volumes in the same period.

A Post-Pandemic Push

Mejia says the pandemic has accelerated digitization in LatAm by 80-fold, as traditional face-to-face payments were forced to instantly move to the eCommerce world. Businesses also realized that the only way to maintain their sales was by enabling eCommerce payment capabilities like pay links, mobile apps, social media transfers and others in their operations. Alternate payment methods like digital wallets and QR codes have also gained popularity.

“It is clear that the new digital world is enabling and adopting technology real fast, and it will be the name of the game,” said Mejia.

Generally it was a very tough year, but the eCommerce channel grew 15% in LatAm while the rest of the economy contracted. It was also a good year for eCommerce-based companies, says Mejia.

He points out that not just international but local FinTech based in Latin America also presented high growth values as they gained trust and confidence from established merchants such as Amazon, Google, Facebook and independent lending companies and credit enablers. Due to the reduced face-to-face transnationality, eCommerce tech companies have bagged good sales overall.

However, Mejia believes that financial institutions and FinTech should be prepared as a result of the lessons learned in 2020. Institutions lagging in debit or credit contactless issuing are more likely to lose their credibility in such risky times.

“If FinTech is going to become the established payment industry in Latin America, they need to be open and not try to enable only closed-loop payment methods like some of them are trying to. It is also important that well-established organizations such as banks and financial institutions think about increasing the rewards program and credit card program for their customer base, so we can really be on top of the new digital needs of the market,” said Mejia.

See also: Clocktower Technology Ventures: Understanding Latin America’s Fragmented Payments Landscape

State of Digital Payments in LatAm

Latin America is hosting state-of-the-art level eCommerce gateways and technology-enabled alternate payments methods. Mejia believes that LatAm is not far behind the availabilities in Europe or the United States.

The new reality is that the population does not want to use the physical card anymore but instead relies on their smartphone. “This kind of transnationality is something that we enable and are moving towards adopting in the region,” said Mejia.

He points out that contactless payments are on the rise in the region. Chile has introduced Google Pay compatibility even through wearable technology. Businesses have prepared themselves to receive transactions through a wearable smartwatch that uses Google Pay or other mobile wallet technology. Mexico has a platform that uses QR codes for financial transactions. Forty percent of debit accounts and 29% of credit accounts in the region are enabled with contactless payments. FinTech and independent software vendors are partnering to develop vertical acceptance for the different ways of payments in the Latin American region.

“But the most important thing is that as we have less penetration for banks in the region, … merchants [will] need to accept more payments. The fight that we have against …cash is really attractive, not only for our participation locally in the region, but also for international players,” said Mejia.

See also: The Benefits Of Payments Change Will Pay Off Post-Pandemic

Digital Payment Regulation in LatAm

“The participation of government entities and all the regulators we are interacting with in the region is really crucial to move from traditional cash usage to digital or electronic payments,” said Mejia. The traditional banks and new FinTech are fighting against the bulk users of cash in the region. Financial institutions and FinTech are supporting the government’s initiatives by enabling the digital shift.

Acknowledging the efforts, Mejia notes that Chile is undergoing a new initiative from regulators and authorities on opening its market to new players and FinTech. The regulations for processing payments and domestic rules are still being worked on to adjust and standardize with the international ways.

“The intention is there, but it is not a hundred percent updated. Furthermore, if you think about forceful actions from the government to motivate the transition from traditional payments to electronic media, then those are still to be done,” said Mejia.