Embedded Finance Tracker® Series Report

Promising Payments: Digital Payments Gain Ground in Latin America

December 2023

Few regions of the world have a more promising financial future than Latin America. With customers anticipating access to personalized financial services 24/7, banks and businesses are rolling out new technologies to meet this demand at a lightning pace.

PYMNTS
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The digital payments ecosystem in Latin American is evolving rapidly. While cash once dominated the payments scene, consumers are quickly moving to digital alternatives, many of which operate in real time.

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Payments are just one part of the digital banking revolution underway in Latin America. Consumers are also changing the way they shop, leveraging the constant internet connection provided by their smartphones to check for deals, make payments and interact with digital tools offered by the stores themselves, both online and offline.

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Keeping pace with the rapidly evolving paradigm of Latin American consumer payments can be challenging, but companies that meet customers where they are will be richly rewarded.

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    Latin America represents one of the most dynamic financial marketplaces in the world, with 600 million consumers generating almost $6 trillion in gross domestic value. The region has taken a leading role in revolutionizing digital payments, pulling ahead of even the United States in real-time payments and other critical areas.

    These developments are in response to surging demand for digital-first and instant payment systems, with firms and governments alike champing at the bit to provide these technologies to Latin American consumers. Indeed, meeting these expectations will be a tall order in the coming years.

    Consumers Lead the Way in Digital Payments in Latin America

    The digital payments ecosystem in Latin American is evolving rapidly. While cash once dominated the payments scene, consumers are quickly moving to digital alternatives, many of which operate in real time.

    43%

    of Brazilian consumers use the central bank-backed Pix scheme on a daily basis.

    Government-backed instant payment systems are on the rise.

    Brazil’s Pix system, for example, is an instant payments platform managed by the country’s central bank. A recent survey found that 43% of consumers use Pix on a daily basis, as opposed to the 29% who rely on credit cards and the 21% who use cash. In addition, 82% of respondents said Pix makes a positive or very positive impact on their lives. This enthusiasm also carries over to digital banking, with digital channels comprising 95% of all consumer interactions with their banks.

    Elsewhere, Argentina’s Mercado Pago eWallet counted more than 14 million users as of last year, with consumers leveraging the system for various payments and banking functions, including taking out loans and purchasing life insurance. Chile’s digital payments penetration has been much lower, however, as its citizens largely still prefer cash and cards. This trend is quickly changing: In 2022, the use of cash declined to 23% in point-of-sale (POS) value, down from 27% in 2021.

    Cash use is on the downturn across Latin America.

    According to a recent report, Argentina witnessed a 20% reduction in cash use over the past year, while Brazil and Mexico saw 17% drops and El Salvador a 5% decrease. Businesses have shifted strategies to accommodate this pervasive trend, with 92% of small firms saying they accept electronic payments. Peer-to-peer (P2P) and bank transfers comprise 82% of these digital transactions, followed by online marketplaces at 33% and QR codes at 32%. Mobile phones are a key driver of this shift, as 88% of consumers reported using their phones to make transactions or open new bank accounts.

    Latin American Shoppers Think Differently

    Payments are just one part of the digital banking revolution underway in Latin America. Consumers are also changing the way they shop, leveraging the constant internet connection provided by their smartphones to check for deals, make payments and interact with digital tools offered by the stores themselves, both online and offline.

    24%

    OF MEXICAN WOMAN PAID FOR THEIR MOST RECENT eCOMMERCE PURCHASES USING A DIGITAL WALLET.

    Mexican shoppers’ habits have undergone huge digital changes.

    A recent consumer shopping study showed that the share of in-store shoppers paying via contactless debit cards increased 137% from 3.6% in 2021 to 8.6% in 2022, while the share of in-store shoppers paying with contactless credit cards grew 418% in the same time frame. Digital wallets are another popular tool, especially among women: 24% of women paid for their most recent eCommerce purchases using a digital wallet, and 4% used one to pay for their most recent in-store purchases. The average shopper uses no fewer than 10 different digital shopping features per purchase, and 30% of Mexican women surveyed in the report say they want to integrate digital into all aspects of their shopping journeys.

    Brazilians use their smartphones at every step of the retail journey.

    While smartphones are most commonly associated with eCommerce, they are valuable shopping assets in physical stores as well. Half of brick-and-mortar shoppers in Brazil use their smartphones while shopping in-store, with 57% saying they prefer this channel over online for the immediate availability of goods. A recent PYMNTS Intelligence survey found that Brazilian shoppers primarily use digital while shopping in-store to check prices, deals and discounts.

    When it comes to payments themselves, contactless is on the upswing. Forty-eight percent of all in-store shoppers in Brazil paid for their most recent purchases with a digital wallet or contactless card, up 216% year over year.

    Corporates Lean Into Consumer Payment Demands

    Keeping pace with the rapidly evolving paradigm of Latin American consumer payments can be challenging, but companies that meet customers where they are will be richly rewarded.

    Pay by bank

    is a key part of the Latin American payments boom.

    Belvo launched a new ‘pay by bank’ solution across Mexico and Colombia.

    The system allows corporates to conduct automatic withdrawals directly from consumers’ bank accounts, greatly streamlining the payment process. Users need only link their accounts and authorize recurring transactions, and then funds are withdrawn without further interaction. The system aims to reduce chargebacks and fraud, as well as take advantage of shifting consumer payment methods in Latin America. In fact, the implementation of bank payments could reduce transaction costs for Colombian businesses by more than 50%.

    Itaú’s neobank in Chile is primed to reshape the financial scene.

    Neobanks are popular with customers who do not need traditional services like loans or mortgages but instead rely on other services like debit cards or P2P payments. Latin America’s largest bank chain, Itaú, is catering to this demand by launching a new neobank in Chile called Itu, which will initially provide users solely with a virtual account paired with a Mastercard debit card. Chilean financial experts predict that the neobank sector will grow significantly in the short term, with annual investments hitting $400 million over the next two years.

    Harnessing the Latin American Digital Payments Boom

    Like their peers worldwide, Latin American consumers are increasingly embracing digital payment methods for their convenience, speed and enhanced security features. The desire for quick and secure transactions has fueled the adoption of digital payment platforms, offering users the ability to make purchases, transfer funds and pay bills seamlessly.

    For corporates seeking to capitalize on this shifting landscape, several strategic initiatives can be undertaken. First, investing in user-friendly and secure digital payment platforms that cater to the unique needs and preferences of Latin American consumers is crucial. Localization of services, such as offering payment options in local currencies, can enhance user experience and build trust. Collaborations with local financial institutions and FinTech companies can also help corporates tap into existing infrastructure and expand their reach. Finally, educating consumers about the benefits of digital payments, including discounts, loyalty programs and enhanced security features, can further drive adoption.

    Ultimately, a customer-centric approach and a commitment to technological innovation will position corporates to thrive in the flourishing digital payments landscape of Latin America.

    About

    Galileo is a leading financial technology company whose platform, open API technology and proven expertise enable FinTechs and emerging and established brands to create differentiated financial solutions that expand the financial frontier. Galileo removes the complexity from payments and financial services innovation by providing flexible, open API building blocks and a secure, scalable, future-proof platform. Trusted by digital banking heavyweights, early stage innovators and enterprise clients alike, Galileo supports issuing physical and virtual payment cards, mobile push provisioning and more, across industries and geographies. Headquartered in Salt Lake City, Galileo has offices in Mexico City, New York City, San Francisco and Seattle. Learn more at galileo-ft.com.

    PYMNTS INTELLIGENCE

    PYMNTS Intelligence is a leading global data and analytics platform that uses proprietary data and methods to provide actionable insights on what’s now and what’s next in payments, commerce and the digital economy. Its team of data scientists include leading economists, econometricians, survey experts, financial analysts and marketing scientists with deep experience in the application of data to the issues that define the future of the digital transformation of the global economy. This multilingual team has conducted original data collection and analysis in more than three dozen global markets for some of the world’s leading publicly traded and privately held firms.

    The PYMNTS Intelligence team that produced this Tracker:
    Managing Director: Aitor Ortiz
    Senior Writer: Andrew Rathkopf
    Content Editor: Joe Ehrbar


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