Online payment platforms like Pix and Mercado Pago are establishing their presence across LatAm, and the public is warming up to their services. These platforms have been responsible for spearheading digital payment solutions in the region.
Digital transactions are soon forming the crux of modern economies. All countries are rapidly evolving to become cashless economies. While fintech innovation has made significant breakthroughs to ensure safety and security on digital payment platforms, the challenge countries face in the widespread adoption of these technologies is the slow integration of a major section of the population into the banking system.
This is particularly true for Latin American countries, where large sections of the population are unbanked or underbanked. Therefore, for digital transformation to translate into reality in this region, the first step would be for people to create bank accounts and, instead of relying on cash transactions, become familiar with card payment options, and then transition to online payments and net banking options.
To that end, online payment platforms like Pix and Mercado Pago are establishing their presence across LatAm, and the public is warming up to their services. These platforms have been responsible for spearheading digital payment solutions in the region. A 2024 Findex report revealed that 37% of Latin American adults own a mobile money account, a significant spike from the 22% in 2021. This brought the total account ownership in the region to a whopping 74%.
The report also highlighted that there was a 10% jump in adults saving money through these digital wallets, and as of 2024, 60% of adults across LatAm were making digital payments. Policy reforms and investments in Digital Public Infrastructure (DPI) have been responsible for this progress. Analysts have estimated that mobile-first solutions are likely to push LatAm payments to exceed $300 billion by 2027.
The growth of e-commerce and gig platforms, which rely on such instant and low-cost payments, is yet another reason for increasing cashless payment adoption. This has also transcended to cross-border payments. Merchants and payments platforms alike have understood the critical need to attract more customers and retain sellers.
The US-Mexico corridor alone accounted for more than $66 billion of the $156 billion in remittance flows into LatAm in 2023. By incorporating local rails or alternative payment systems into global networks, businesses can settle in local currency rather than using expensive correspondent banking.
Blockchain-based rails and stablecoins are being utilised to speed up settlement and lower FX risk. Digital wallets with many currencies that enable clients and independent contractors to send money abroad right away have also entered the LatAm market.
While much scepticism regarding the safety of such digital systems lingers, the payment service providers are ensuring all necessary precautions are being taken to protect customers’ financial assets. Fraud and regulatory complexity can be decreased by directly integrating compliance tools (KYC and AML screening) into cross-border transaction flows.
Financial literacy in the region is not just limited to online payment services, but has also extended to digital assets like cryptocurrencies, such as Bitcoin and stablecoins. It was reported last October that 57.7 million people in LatAm own some form of digital currency, and most of this crypto is linked to stablecoins.
Despite constituting a small percentage of the transactions, such digital currencies are gaining much popularity among unbanked and underbanked Latin Americans. This is because, in high-inflation economies, crypto can double as a store of value and can also be used for cross-border money transferring, thereby eliminating traditional banking systems.
Decentralised finance or DeFi is being taken seriously by Latin American countries, with governments working to bring in the necessary regulations to facilitate the increased adoption of these alternative financial systems, like blockchain and cryptocurrencies. Brazil, Venezuela, Argentina, Mexico and Colombia are among some of the highest crypto-friendly countries.
In Brazil, the Central Bank published three resolutions operationalising its regulatory powers over virtual assets service providers (VASPs) last November. In Brazil, in the past three years, crypto usage has climbed significantly, and 90% of that growth is linked to stablecoins. Brazil’s Central Bank had also made headlines when it spearheaded the Drex CBDC pilot, which integrates AI and blockchain technology to streamline cross-border trade.
Argentina, which has garnered the 18th spot in global crypto adoption, has introduced new regulations such as enhanced registration requirements for VASPs covering anti-money laundering (AML). Mexico also has new reforms to its AML laws, such as risk-based assessments, designated compliance officers, and periodic compliance audits for related organisations.
Digital transformation, particularly in the fintech sector, should also be coupled with open finance maturity. Open finance is a financial ecosystem which allows the safe access of the customers’ financial data bases so that it can be used for targeted financial products and services. This has gained much attention in LatAm, and since 2023, particularly, has contributed to significant market changes, with several countries working to introduce apt policy regulations for the same.
Brazil, a country with a fully operational regulatory framework, is leading the way, while Colombia and Chile are following closely, having nearly completed the framework definition. Guatemala, Perú and Mexico are still working on it.
It is important to note the distinction between open finance and open banking. While open banking has been key in revolutionising financial data sharing, it was largely limited to banking data like payments and accounts. Open finance, on the other hand, extends the data sharing concept to include various other financial products like pension funds, insurance, investments, etc.
As open banking adoption becomes more mainstream across LatAm, competition has increased, with newer players entering the market. This offers the customers a wider range of financial products and services. Through open banking, users can connect multiple bank accounts in a single app. Open finance integrates the users’ financial information from different products into one environment. This offers the customers personalised products and also helps simplify their financial decision-making by keeping them well-informed.
A strong, inclusive financial ecosystem has supplanted dependency on cash as a result of Latin America’s digital development. The region is effectively closing the gap for the unbanked because of the growth of traditional and non-traditional banking and financial services. Blockchain, stablecoins, and open finance are all integrated to further guarantee that financial services are not just available but also secure and customised to suit individual needs.
With their commitment to expanding their fintech capabilities, LatAm countries are also working to introduce the right policies and regulations to make these platforms safer and more customer-friendly. Millions of people throughout the continent benefit from a more robust, transparent, and competitive economy as a result of these advancements.
