Although it is one of the most important payment methods in Latin America, the use of cash is slowly decreasing worldwide, according to a recent report released by Business Insider. The survey, named The Payments Forecast Book 2019 by Business Insider Intelligence, predicts a (positive) swell in the digital payment ecosystem across the globe, with noncash transactions poised to top the trillion mark by 2023. What is not surprising are the factors behind this drive: the increased credit card penetration and the increased access to smartphones and the payment infrastructure.
One conclusion is that the overall expansion of the digital payments market is set to increase as people migrate from personal computers to connected mobile devices – an increase which represents the Latin American scenario well. Especially for Latin America, the report anticipates that card adoption will grow rapidly, as will the number of customers shopping online and offline every day. While much of the attention on e-commerce and banking has been focused on increasing cross-border and mobile payments in Asia and faster payments in Europe, a new picture is coming into focus in Latin America.
The biggest transformation is the emergence of new payment alternatives to meet the needs of consumers and businesses, such as digital banks, payment processing companies, mobile payment applications, and point of sale technologies that promise to accelerate commerce in the region. Despite huge growth potential, Latin America presents particular challenges compared to Asia or Europe when it comes to the digital payments market.
The (still) remarkable reliance on cash, compared to other regional markets, involves some factors, such as the large percentage of bankless consumers in the region. This, however, has been opening up new alternatives: for example, Banks and digital wallets to finally democratize access to financial services reliably and non-exploratively, 24/7 access to online payments, as well as new automated point-of-sale payment platforms, will help redesign the landscape in Latin America.
In particular, some local banks are already exploring blockchain solutions for international payments, including regulating the operation and improving infrastructure to realize this potential – something that comes even stronger after the announcement of Libra, the global cryptocurrency by Facebook. And it is in this context of disruption between payment methods that efforts such as Facebook’s (which is also starting to develop a new mobile payment feature of WhatsApp) and Google, which is studying expanding its payment methods in Play Store, are emerging, so as to launch a new transaction system via code.
With the whole world experiencing constant change, new financial solutions are emerging all the time. Fintechs, which are experiencing a unique moment in different markets in Latin America, especially Brazil, are especially interested in new payment methods. Digital innovation has brought about changes in the way Latin Americans live, consume, and pay. Therefore, companies need to adapt to offer solutions that make life easier for consumers – and investors are aware of this process.
Preferences, needs, and behaviors, are targeted by small and large players in emerging markets, making financial solutions and services an important part of their growth and adequacy. In a nutshell, it is important to know how to see business opportunities. For e-commerce, this is also a time for celebration. After all, the development of the banking system through the use of the internet and new technologies allows for the inclusion of more people as consumers, encouraging e-commerce by facilitating payment processes.
New options, more safety
More digital code transfers and payments, more interbank transfers via social networks and instant messengers, easier payment processes, more security and data protection, more focus on infrastructure and data engineering… This is all part of financial services entry into the digital age – and without having to wait in line at the bank. And a more modern and prudent market, in addition to increasing buying intentions, endorses investor opportunities and predicts Latin America’s unprecedented moment of prosperity.
In Brazil, the future
Even if it isn’t the reality of many neighboring countries, credit and debit cards have been well established for many years among Brazilians. Contrary to that which was previously mentioned for other countries, still weak in these alternatives, the tendency is that the use of cards is reduced here. “One of the biggest moves for the future in Brazil is instant payments, which contributes to the attempt to reduce the use of paper money, one of the Central Bank’s (CB)great struggles. This already happens by encouraging the use of credit and debit cards, but comes even more strongly for ‘digital money. This is one, if not the main, answer to this attempt to minimize the weight of cash: instant QR Code payments. The CB has even been forcing financial institutions to adapt to this new arrangement,” says EBANX product manager Daniel Pakuschewski.
The clearest objective for the institution’s agenda is this – to reduce paper money -, which is even included in the CB text released to the population. “A pilot is scheduled for the end of this year and it is already clear that the movement of financial institutions is going in that direction of instant payment. Typically, the strongest argument is that resources should be available within a few seconds for the recipient at any time of day, even on weekends and holidays. The CB speaks in something like 15 seconds, incomparably faster than the D + 3 demanded when the purchase happens in debt, for example,” says Daniel.
In fact, CB speaks of real-time electronic money transfers, a service available 24/7 to the user. In addition, the institution argues that instant payments would fill gaps that currently exist in the basket of payment instruments available to the population, such as high use of cash for services payments and transfers of resources between individuals, which justifies the policy of the Bank. CB encourages the digitalization of retail payment instruments, generating a significant reduction in spending on payments; high tariffs for operations such as TED and DOC, which are far from their potential utilization, not to mention the difficulties in addressing transfers and the lack of confirmation of transactions; and very high credit and debit card acceptance costs, as well as the delay in making resources available to the final payee.
Feeling the flag
“Instant payments can be the innovation that will help bridge these gaps. Brazil has always had very strong flags. This new proposal will probably move a lot in this market, because it comes to remove the flag from the flow. A new means of payment, with new players creating virtual wallets and in a more open environment, is a really disruptive proposition in the country, ” says Daniel, citing China and Germany as good examples of this approach.
And he explains how it should work: without the need to enter information such as bank, branch and account number, as well as the recipient’s social security number, all you need is a smartphone, an account with a payment service provider, consumer choice, and its app to read the QR Code at the merchant. The CB says that enhancing the experience, which includes ease and simplicity of initiating payments, is one of the key benefits of instant payments for paying users, which can be easily achieved through diversity and innovation in business models. associated with these payments, generating more efficiency in the Brazilian retail payment environment.
Lower cost and opportunity
Daniel explains that decreasing the number of intermediaries means a simplified process that tends to drive into lower costs. “The merchant will only need to have a unique identification code to allow their customers to read with their smartphones. This code will contain all the information necessary for resources to be transferred instantly,” he said. In conclusion, a full plate for fintechs, whether traditional or new entrants, which will experience a substantial competitive potential – and this tends to expand and improve the quality of services offered, lowering prices for end users.