EBANX analyzes the future of payments in LATAM

Latin America has been facing a truly change in the payments scenario. Those who are already in the market need to be in constant development by keeping up with the changes and having the end user at the center of all strategies. There is also a lot of space for newcomers, but they need to be fast.

So, why Latin America (LATAM) and why now? To answer these questions and try to predict what is coming in the next few years we decided to provide our own vision, as one of the most successful local fintechs, about LATAM’s opportunities and of our own future. 

You will be getting insights from four top executives at EBANX: Wagner Ruiz (co-founder and CRO), Erika Daguani (Vice President of Products), Juliana Etcheverry (Director of Strategic Payments and Partnerships) and Rahm Rajaram (Vice President of Operations and Data).

Happy reading!

Why LATAM and why now? 

First of all, let’s have a look at the latest numbers of e-commerce in LATAM – which point to a hypergrowth market, expanding 31% per year until 2025, according to our 2021-2022 Beyond Borders Study. This means that, in three years, the Latin American digital commerce is expected to double in size, reaching millions of people who will have access to online shopping, digital products and travel. You don’t want to miss that, right?

Digital wallets, alternative payment methods (APMs), instant payments, and mobile penetration. These are all trendings that are currently happening in LATAM. Nowadays, digitalization has come to stay, and e-commerce, especially through mobile shopping (which surpassed desktop’s purchases) is the new reality.  

Our Beyond Borders study also reported that from 15 economies in the region, almost 60% of LATAM’s e-commerce total volume would be paid through cell phones in 2021 – a 46% increase compared to 2020, when the mobile share reached 55%. For further comparison, in 2019, the mobile share was 44%, and in 2018, only 39%. 

You might be guessing, how did LATAM reach this point, right? So, in order to understand these movements, we must look at the past. According to Wagner Ruiz, considering the EBANX experience as an example, by 2012 in Brazil, the goal was on how to enable international merchants and e-commerces to offer the Brazilian traditional alternative local payment method and very popular by that time: boleto bancário. 

Later on, new alternative payment methods started to emerge in the region (including e-wallets and BNPL (Buy Now, Pay Later, OXXO in Mexico, and PIX in Brazil) and EBANX had to follow the trends to offer the best alternatives to merchants according to each country’s payment culture and preferences. Thus, nowadays with PIX ( a very popular instant payment system in Brazil), for instance, the situation is very similar to what happened to the boleto in 2012. 

The PIX’s increasing popularity has been replacing TEF (Electronic Funds Transfer), and some experts predict that it will replace boleto in up to 1.5 years. This new payment method which was created by the Brazilian Central Bank (BACEN) in November of 2020 is already used by more than 60% of all Brazilians. 
When EBANX started to include PIX on its offers, there was a merchant that wanted to have it since the first day it started working. From Ruiz’s perspective, we will see more and more cases like that in the whole region. Just like it happened to PIX, regulators from other Latin American countries are moving into this instant payment and alternative payments reality, and their main shared goal is to provide more financial access, inclusion, and freedom to all Latin Americans. 

Super Apps

We know that instant payments, digital wallets and APM’s are already increasing in popularity among Latin Americans. However, our experts believe that super apps will join them in the near future. 

Rahm Rajaram’s opinion is that Asia is a place with very similar dynamics to LATAM and, therefore, we could predict that super apps would boom among Latin Americans just like it happened to Asians. Today, there are many Asian countries with dozens of super apps. For him, the high penetration of alternative payment methods and low penetration of cards in LATAM is similar to the Asian reality which makes it a perfect place for this new trend. 

In Asia, super apps compete fiercely against each other to keep the user inside of each of them. Rajaram believes that all super apps strategies focus on trying to keep the user in one place and provide the convenience of choosing the payment methods of his/her preference within the app. Hence, the same would happen in LATAM. 

Companies like the Asian Shopee, which is already in LATAM, have a super app in Asia. Therefore, for Rajaram, it is just a matter of time for companies like that to adapt a super app for Latin Americans. Meanwhile, local Latin American businesses such as Rappi and Nubank are currently developing their own super apps from scratch. 

There are, however, some differences from Asian super apps to potential Latin American ones. In Asia, it is known that super apps have a social media bias, as stated by Juliana Etcheverry. These apps allow the customer to engage with other users and bet on giving a lot of cashbacks to retain them. 

On the other hand, for Etcheverry, super apps will be more pragmatic in LATAM, by focusing on financial inclusion and the conveniences of shopping groceries and other daily stuff. Moreover, the region is very plural and diverse, with many countries having their own preferences in terms of payments and digital commerce, which means that all players will need to localize their service for each of them.

Open Banking

Open banking is another trend that has been emerging in Brazil and, from our experts perspective, has a lot of potential to spread all over LATAM. Ruiz states that regulators are now giving more access and fostering new business models and innovations in payments. This will give freedom to the user and more opportunities for potential super apps and multiple e-wallets. 

At the end of the day, open banking is another mechanism that gives freedom to the user, by breaking up with traditional banking and the hardships of opening an account due to the lack of creditworthiness (about half of Latin Americans are unbanked according to the World Bank). 

Erika Daguani’s opinion is that the collaboration of fintechs and non-financial institutions will drive the open banking in LATAM. This will make it easier to integrate cloud services and migrate to the tech infrastructure that has been built around this new trend in the region. 

What else can we expect?

According to Rahm, in Singapore, there is no POS (portable smart payments machine) anymore, so everyone needs to have a digital wallet and a smartphone to pay for anything. If someone wants to use a credit card, it must be used digitally through an e-wallet. 

As we said before, the dynamics of LATAM are very similar to Asia, so we can expect the same trends to appear in the future of Latin Americans’ way of paying for their stuff. Daguani adds that everything is about trust. We still have a lot of countries in LATAM with a high concentration of monopolies or duopolies in acquiring, payment methods and issuers and without the help of regulators, new entrants can’t get the necessary level of trust from users to operate successfully.

For her, it is the regulators job to control the financial system, and they are worried about how the industry goes and money flows. There are currently many initiatives to break this chain and foster more innovation aligned with security. Thus, when speaking about security, regulators are currently enabling fintechs and new entrants to be trusted by the end users and other players in the market. 

Daguani also believes that e-wallets will gain even more traction, but she doesn’t see a completely cashless society emerging in LATAM. That is because there is something cultural behind it, and especially for the elders, it is difficult for them to learn how to  se an e-wallet, for example, and adapt to the increasing cash digitization.  

Competition between all players will also increase and this will be positive for the end user, who will have the power to decide among an increasing number of options on how to move their money. So, finally, transparency, trust and experience will be key for any player to succeed in the e-commerce and payment’s scenario.

Conclusion

LATAM is one of the most promising spots for digital commerce worldwide. There is no coming back from the exponential growth of e-commerce in the region. The support from economic development, digitalization, changes in customer behavior are all very important. Yet, specifically, the backbone is payments. Innovation in payments is either supported by regulators and governments, or by fintechs, with all of them aiming to provide the ultimate goal: financial inclusion and access to Latin Americans. 

We can expect new regulatory frameworks emerging in the next couple of years. This is the reason why we will certainly see more successful initiatives in the region, such as open banking, PIX, digital wallets and other popular APMs. The Asian reality has also given us a taste of what Latin Americans will use in the future and that includes the super apps. 

Eager for more insights about Latin America’s payments and e-commerce scenario? Check out our annual study! Beyond Borders 2021 | 2022: ​​How digital payments and e-commerce are gaining traction in Latin America