Latam Demonstrates What the Future of Payments Might Look LikeBy Cristian Huertas | Thu, 09/30/2021 - 12:43
Susana García-Robles, Capria's managing partner and former FOMIN CIO, wrote not so long ago that Latin America was not a region of copycats but a source of real innovation. This comes from someone who is considered the godmother of Venture Capital in Latin America, both because of the number of VC funds she invested in through the IMF but also because this was done in most of the countries in the region. Basically, she has seen most of the companies of most of the VCs in the region.
The innovation process has come from the urge to solve several unique problems, access to capital and the return or decision to stay of several highly educated individuals. The cocktail of socioeconomic challenges has challenged local entrepreneurs to search for innovative ways to digitize finance, payments, grocery shopping, e-commerce, etc.
Identification verification, which is key to broadening financial inclusion, has been highly tropicalized and is the reason why most banks and fintechs are choosing the local products instead of the highly renowned European or American options. For instance, the challenge to remotely verify a person's face and match it with their photo ID is higher in developing countries: It’s definitely not the same with a 6-year-old cracked phone as with a last-generation iPhone, or to do it at 4G speeds in comparison to EDGE connections (if lucky).
That is why companies like Incode are crushing it. With proprietary technology and collaboration with local authorities, Incode’s ID verification process can be done with low-end devices (and even using PCs, for those places with poor mobile internet connections) in a way that their fiercest foreign competitors can't match.
Its uniqueness has made the Latin American market a nest of innovation that, combined with an outstanding opportunity, demonstrates what the future of payments could be like.
Payments are going to be cardless. In a digital future, using a piece of plastic hardware will be like playing a cassette in a Tesla. Security-wise, you always try to combine three things: something you have, something you are and something you know. But that thing that you have right now (your debit/credit card) is becoming more analog. In a digital world we need something that is able to share more information.
Payments will use an alternative set of pipelines. The so-called interchange fee is going to disappear, fast. Most countries are building a proprietary set of pipelines and some of them are even adopting cryptography for their digital currency. Platforms like CODI in Mexico could soar if they have the right incentives or are properly enforced. But one thing is for sure, VISA and MasterCard are going to face fierce competition directly from central banks — the ones who set the rules on how they can operate in a country. Cryptography and cryptocurrencies are advancing and becoming more mainstream, not in the anarchist utopian way that some think but as a useful technology to improve domestic and foreign flows of money.
Payments will be safer. More technology allows the enforcement of more accurate measures to prevent fraud and will allow better tracking of the movements of fraudsters. Applying AI with more computational power is reducing fraud and with more data flowing in every transaction, it will be easier to detect attacks. Also, demonetization will deliver a strong hit to criminal organizations, making digital payments an enabler of a safer society.
Payments will be cheaper. The commissions paid by merchants and people will be lower mainly because of more efficient technologies and because the adoption/enforcement of government payment technologies will be subsidized.
Payments will be truly global. With lower prices and a fully digitized ecosystem, moving money from one continent to another will be easier, cheaper and mainstream. Even though today it is possible to make transnational payments, the process can take several days, it’s bureaucratic and expensive mainly because of outdated systems and the reliance on correspondent banks. With a process that takes out most of the intermediaries, it will be easier for a merchant to trade on a global scale.
With all of these changes, the notion of having "change" to be able to pay for parking or to buy from tacos from a corner shop will be as outdated as playing a Vitrola but, more importantly, these changes will help more people have fair access to financial products and ultimately elevate the life quality of those who need it the most