Latin America Has Become an Excellent Territory for the Fintech Industry

Digital payments are winning the war against cash in regions such as Latin America. It is a factor that opens opportunities and challenges for the payments ecosystem.

According to a study by Americas Market Intelligence and Kushki (Trends in digital payments in Latin America 2023), Latin America has become an excellent territory for the fintech industry, with more than 2,300 fintech companies in the region.

In addition, in the region, there are several challenges and opportunities to advance in the massification of the use of these technologies. One of the main challenges that the payment industry will face is the providers that depend on legacy systems.

For the region to reach the dynamism and market wealth present in developed economies, a leap in terms of innovation, quality, and speed of payments is necessary.

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A major challenge for Latin America

According to Aron Schwarzkop, CEO of Kushki, so far, the fact that traditional acquirers still dominate the market with 80% represents a major challenge for all members of the ecosystem.

According to the study, new players that have entered the acquiring market offer traditional and alternative payment solutions, adapting to the needs and demands of the increasingly tech-savvy Latino consumer.

Schwarzkop said, “The future of acquiring is not based on cards alone, but will represent a combination of payment methods and experiences. Those who do not embrace this future face possible attrition and loss of relevance, as merchants will be increasingly demanding when looking for business partners and will require paytechs to be a one-stop shop for payments.”

The fees charged to merchants in Latin America for digital payments are low

The expert said that among the most relevant opportunities is the downward pressure on the fees charged to merchants, since now, in many markets in the region, merchants can accept digital payments free of charge.

This is an opportunity for greater acceptance of digital payments at merchants who, historically, have had to pay fees between 3% and 5% to accept card payments, thus promoting the use of new payment trends.

Another opportunity is merchant services moving from transactional to packaged. According to the study, this means that these services “will increasingly evolve from a transactional model, where merchants are charged a fee for each transaction, to a packaged model, where merchants access a bundle of goods and services that add value to their operation.”

Some of the services currently being implemented, which are only available for cards, are enhanced fraud, smart acquiring, and tokenization.

An opportunity for Latin America

In addition, according to the expert, verticalization strategies in merchants are positioned as a great opportunity. The study explains that this brings with it that payment providers need to develop vertical strategies based on the types of merchants they seek to serve.

An example of this is restaurants, which now need a suite of services ranging from table and reservation management, and wireless POS devices, to a system to manage online ordering, payment collection, and delivery fulfillment.

Schwarzkop added that access to new digital payment methods has now become widespread, evidencing a paradigm shift in Latin America, where cash used to predominate. Today, alternative payment methods account for a total of 47% of e-commerce.

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(Featured image by Nathana Rebouças via Unsplash)

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First published in Semana, a third-party contributor translated and adapted the article from the original. In case of discrepancy, the original will prevail.

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