Javier Martínez
Chief Product Officer
Startup Contributor

Using Technology to Bridge Latam’s Financial Inclusion Gap

By Javier Martínez | Thu, 08/05/2021 - 09:06

The world has seen a dramatic change in financial services in the past decade. Big data analytics, decentralized payments, peer-to-peer platforms, electronic transfers and mobile access to financial services have changed the way we save, spend, and transact. And yet, while some of us have been able to enjoy a myriad of financial services at our disposal, others still lack access to basic financial services.

In the case of Latin America, the region has historically depended on the use of cash for payments and transactions, and still has much to overcome in terms of bank penetration and financial services reach. According to figures from the Mexican National Institute of Statistics and Geography (INEGI), only 47 percent of Mexicans have a bank account. The bulk of the population that does have access to these services lives in urban areas that have a medium to high level of income the population residing in urban areas is 9.3 percent more likely to perform banking operations than those in rural locales. These data points are comparable to other countries in Latin America, where in aggregate, 85 percent of transactions are carried out in cash. This is compounded by further deficiencies in financial education, which inhibit people from tracking expenditures, increasing their savings, and ultimately, accumulating wealth.

In the big-picture view of things, moving individuals into the financial mainstream is undoubtedly a precondition for a country’s economic and social advancement. And even more so, if we zoom into the smaller-picture, financial inclusion and the financial freedom that comes with it is a basic tool through which we can improve people’s daily lives. Facilitating access to financial services fosters financial resilience and security, empowers people and firms, increases opportunities for savings and investment and improves people’s overall livelihood.

The opportunities enabled by financial technologies to bridge gaps in financial inclusion is enormous, and this is where crypto-backed solutions come in. Beyond speculative purposes, specific use cases for cryptocurrencies in Latin America can address many of the rigidities and weaknesses found in the region’s traditional banking system.

Thus, crypto-powered solutions can enable efficient, faster, and cheaper cross-border payments than traditional processes. These solutions can increase response time by up to 3x and decrease commissions by more than 50 percent. According to data collected by Banco de México, remittances from the US to Mexico grew by 21.75 percent between January and May 2021, introducing US$19 billion into the Mexican economy. If we consider that the estimated average commission fee for sending remittances through traditional methods is 10 percent, this translates into Mexicans having paid more than US$1.9 billion in commissions during the period under review.

Cryptocurrencies can also play an important role in countries that have been troubled by the regressive effects of inflation and capital controls, such as Venezuela and Argentina. In these countries, using cryptocurrencies as a store of value can help to bypass the erosion of purchasing power. This can be accomplished not only via commonly known crypto assets such as bitcoin, but also through stablecoins, which are less volatile and enable exposure to traditional fiat currencies. Furthermore, as a borderless means of exchange, cryptocurrencies also offer an alternative to interact with the global economy.

There is still much to be done in terms of perfecting products and services that are simple and intuitive enough to be used by everyone, and this is a mission that, at Bitso, we have taken on with great responsibility. This is heightened by the fact that opportunities for financial technology services in the region continue to grow. Digitization in Latin America is increasing, while a study from Mastercard and America Market Intelligence covering 13 countries in Latin America and the Caribbean from October 2020 pointed to only 45 percent of Latin Americans having conducted an online transaction before the pandemic, that figure has since risen to 83 percent.

Added to these factors is Mexico’s smartphone penetration and the steady increase in its use. According to We Are Social and Hootsuite’s "Digital 2021 Global Overview Report," there are 88.24 million mobile phone internet users in Mexico, and 95.9 percent of the active Mexican population on the internet accesses this service through their mobile phones. Of this total, 91.5 percent access the internet through smartphones (low or high end) and 6.9 percent from regular phones. This goes to show that the smartphone lies at the center of the digital connectivity ecosystem. As such, users expect online services, including financial, to quickly adapt to these devices, and to do so with responsive and seamless designs. A main challenge, therefore, is to create products that leverage this increase in digitization and internet access. Doing so accurately may open the door of basic financial products and services to tens of millions of previously unbanked Latin Americans, and hence bode well for the region’s financial inclusion and development.

While there is still much ground to cover, it is an exciting moment to be at the intersection of finance and technology, where products and services that will undoubtedly improve the lives of millions of people are coming into being. To help ensure permanent change, and drive the new generation of financial services, we must continue to create and promote digital tools that are easy to access and simple to use. To foster trust in financial technologies, these tools should also be as secure and transparent as possible. Above all, the world needs crypto to be useful and that’s precisely what we’re on to.

Photo by:   Javier Martínez