25 September 2019
Latin America, even though regions differ quite a bit none of them can escape the digital transformation
It is tempting to focus on the European payments market here in London, especially now that PSD2 and Open Banking are hot topics. However, it is also very interesting to see how other continents and regions are coping with today’s challenges. In the payments world, no region is the same. There are changes in payments history, market characteristics and payment behaviors and this also explains why regions move differently. Just look at Europe, where the Nordics and the Netherlands are quickly embracing new digital payment solutions, while Germany still relies heavily on cash payments. These differences are also visible on a global scale; Asia moves very differently from North America or Western Europe, to give just one example.
Younger generation ‘banks’ via mobile
Sibos is a great opportunity to look beyond what is happening in Europe and look at the developments and challenges in other regions and continents. Latin America, for example, is a market that remains underexposed in my opinion, because the focus is often more on Europe, North America or Asia. According to April Frazer, Managing Director at Wells Fargo, Latin America is actually facing a unique situation, as she said in the session 'The state of Latin America in the age of digital transformation - Disruption or coexistence?'
She means that Latin America has a low percentage of bank customers, while the vast majority do own a mobile phone. Cash is the dominant payment method for older generations, while the younger generation ‘banks’ via mobile or ecommerce solutions. A good example of an online solution is Mercado Pago in Argentina, the leading online payment system in Latin America. Mercado Pago is designed to facilitate transactions both on and off the Mercado Libre market (the largest online trading platform in the region) by providing a mechanism that allows users to send, receive and finance payments online.
Mercado Pago made a very important move that is transforming the way of paying in Latin America. Banks obviously took note of these new players and are fighting back in this new world of digital payments. Important to mention are the regulatory changes in this region. There is a strong push to increase competitiveness via de-regulation, which is opening up opportunities.
Meet the legal requirements
In Latin America, collaboration between fintechs and banks is less advanced than in other regions. Anthony Brady, Digital Officer and Head of Global Product Management at BNY Mellon, might know why. Brady: "The fintech market is showing great growth, but the banks are still hesitant to collaborate with new players. Not because they fear fierce competition, but because banks are still afraid that fintechs will not be able to meet the legal requirements. Banks often look at the internal organization first to see if technological changes can be implemented via their own people."
But what if a Latin American bank does want to work with fintechs, how should they select and approach them? Brady shares his experiences: "In the beginning we are often overwhelmed by technological possibilities. So, take a step back and start identifying the problems you want to solve. Where can we improve as a bank? The next challenge is: find the right fintech. There are far too many fintechs so you can't analyze them all. That is why we set our own criteria a few years ago. One of those criteria was regulatory engagement. If a fintech has not thought about standards, we tend to back away."
Eventually Latin America will catch up with other major regions when it comes to digitization. Brady: "Just think of the quote of Roy Amara, who once said: ‘We tend to overestimate the effect of a technology in the short run and underestimate the effect in the long run’." Carlos Trascasa, Senior Partner at McKinsey & Company, also thinks that things will go faster in Latin America than in recent years.
Differences between countries
Trascasa: "We see some great initiatives in Colombia, Argentina and Brazil, for example. But remember that Latin America is not the same as China with 1.3 billion potential customers." With this comment, he refers to the great differences in cultures between the different countries in Latin America. As a result, this region may eventually run into the same problems that we also see in Europe: fragmentation of the market.
It is fair to say that digitization in Latin America is not going as fast as we are used to in Europe, but if I can believe the panel, technological developments may very well accelerate in the coming years. Just like in other regions, the technological evolution is inevitable in Latin America. Finance companies have to undergo and adapt to these changes in order to continue to meet the needs of customers in a digital society that carries technology in its DNA.