Héctor Cárdenas
CEO & Co-Founder
Expert Contributor

Why the Future of Payments Is Already Taking Place in Latam

By Héctor Cárdenas | Tue, 05/11/2021 - 13:09

Adjusting to life during the pandemic has required everyone to innovate in both their professional and personal lives. Whether you are a student, a business executive, or you run your own business, finding new ways to accomplish conventional ends has been absolutely necessary for us to move forward as a society. The financial technology sector, which was born out of creativity and disruptive innovation, has been no exception to this rule in having to find new ways to provide value for our customers. 

With social distancing restrictions put in place, the inability to continue with face-to-face business transactions as usual has launched a global trend focused on hybrid transactions via payment links and QR codes, among others. 

These options do more than just provide flexibility. Payment links do not require users to own a website, they offer the same payment options as a physical and online marketplace and help build a more personal relationship with customers by establishing a direct and personalized line of communication. Simultaneously, they allow business owners and customers to follow social distancing and hygiene guidelines, opening up the possibility for paying online even when physically present at a store, or paying in-person for online purchases.

While this is perhaps a new trend in some markets, Mexico and other Latin American countries have been innovating for years to ensure more businesses and customers can make their payments easily, regardless of their access to traditional financial services. In this sense, our markets have much to teach the world with respect to how to implement hybrid payments. What is now the “future of payments” has actually been taking place in Latin America for some time now.

Making the Fit

As the fintech industry seeks to innovate and to provide a suitable market-product fit, we need to keep in mind the importance of ensuring our solutions are in line with what our local customers need and demand. The reality in markets like Mexico is that if we want to expand access to the digital economy, we need to work around the obstacles posed by access to financial and digital infrastructure. Finding the right fit can be powerful because it ensures access to the many businesses and customers who were previously denied the benefits offered by a growing digital economy.

If there is one characteristic of the fintech sector’s success in Latam that needs to be heard by the rest of the world it is this: develop the products that people need. Adapting to the market precedes adoption, and we need adoption to foster the inclusion of more people to the digital economy, boosting growth for all actors in the system, from small businesses to the overall economy

A Link That Empowers

In Mexico, 37 percent of the population 18 years of age and above uses traditional banking services and only 20 percent has access to credit. That said, over 88 percent of Mexicans own a smartphone, opening the door for using link payments. 

Approximately 90 percent of transactions under MX$500 (around US$25) are made in cash and a vast majority of middle-class Mexicans still conduct their personal business in cash, which means most small and medium-sized (SMEs) businesses do so as well. The global trend in hybrid payments is exciting because it connects the majority of those who traditionally would not have access to financial or digital infrastructure with the digital economy.

For example, payment links can be used by SMEs to provide several payment options (including cash) to their customers via text message. Small-business owners don’t need to have a website or a marketplace, and as long as customers are able to pay in cash and receive a text message, they will be able to use this technology.

Using this option to empower small and medium-sized businesses is an important trend that has allowed many SMEs in Latin America to stay open during the pandemic and will continue to provide fuel for commercial transactions moving forward. For example, to cope with the effects of the pandemic, businesses in Mexico and Colombia increased their online presence by 800 percent, while those in Brazil and Chile did so by 360 percent, signifying the importance of adapting to our customers’ needs. Since the likes of Brazil, Mexico and Chile constitute about 89 percent of the fintech industry in the region, the impact of businesses toward stimulating the millions of daily online transactions is an important contribution to the region.  

As we look forward and beyond the current pandemic, there is little doubt that expanding the digital economy will be critical to business and economic growth. The fintech industry itself was created to meet the needs of those companies and customers that were not being well-served by the traditional financial sector. 

By crafting products that fit the needs of our local customers, we as an industry do our part to ensure that the future of Latin America will be both more prosperous and more inclusive. At the same time, the financial technology sector in Mexico and Latin America continues to set the pace for the industry in the rest of the world.

Photo by:   Hector Cárdenas