Brasil Sao Paolo skyline
#Tech Innovation

The new world: payments in Latin America

Insights
7 Mins.

Our Spotlight series on regional payment preferences has already featured stories on the payments landscape in India and the United States. Our latest installment focuses on some countries in the Latin American region. Here, cash remains important, while card and digital payments are growing across the whole area, with digital wallets showing a dynamic trajectory. 

Latin America is gigantic in every sense, with a total population approaching 600 million, spread across as many as 33 countries. 1 It stretches from Mexico on the southern border of the United States down to the southern tip of South America, where boats leave for expeditions to the South Pole. It encompasses Caribbean beaches, Andean peaks, the Amazon rainforest, and some of the most populous cities in the Western Hemisphere. Its residents speak Spanish and Portuguese, Quechua and Guarani; indeed, everything from English to Caribbean Hindustani. It is staggeringly diverse, and it expresses its diversity in everything, including how its residents pay for goods and services.
 
“ Latin America takes time to understand,” laughed Jordi Mier, Commercial Vice President Latin America for G+D. “I’m based in Mexico City. A non-stop flight to São Paulo in Brazil takes over nine hours! A lot changes on the ground while you’re in the air.”

Also, central banks across the region follow different policies and regulations, and people’s attitudes toward payment methods such as card and digital payments can differ markedly as you cross borders. However – with the caveat that these are very broad categorizations – we can pick out certain trends that define its evolving payments landscape.

Cash has enduring value

According to a recent report by an international consultancy, based upon two surveys it conducted in 2021 and 2023, cash still dominates the Latin American, or LATAM, payments landscape. (Note: these surveys did not include Brazil or Mexico.) For the 2023 survey, 70% of respondents had used cash within the last month.2 The report states that this will remain the case in the medium term, attributing two factors as reasons:

  1. Many merchants across the region accept only cash
  2. More than 50% of Latin Americans work in the informal sector and are paid in cash

“Cash is still very strong in the region ,” noted Wilmer Hernán Gutiérrez Ramos, Solution Sales Manager in the Financial Platforms segment at G+D . “I am based in Bogotá (in Colombia). Even with the growth of wallets like Nequi and DaviPlata that have been adopted by a majority of users, cash still has a huge role to play.”

Recent events worldwide and in the region have motivated Latin American central banks to keep cash at the center of their plans. The physical nature of cash and its historical strength as a store of value give it a high trust factor. It is resilient in times of stress, such as inflation. In 2023, cash led other point-of-sale (POS) payment methods in Argentina, Colombia, Mexico, and Peru.3 As digital ecosystems grow and more people enter the formal banking sector, payment habits will likely further diversify.

US Dollar cash

Credit cards show strength

Cash and credit cards were neck and neck at POS across the region as a whole in 2023, at 29% each.4 According to this report, credit cards are forecast to take the top spot in 2024. Credit and debit cards together account for more than half of in-person spend by value. Preferences between payment methods differ between countries, the report states: Brazilians use their credit cards for 36% of their POS spend, while Chileans utilize their debit cards for a total of 37% of POS value.   As we can see, payment cards use across the region is trending up, though preferences of what sort of card to use vary by country. Regulatory issues and current affairs play a role.

While he remained upbeat about the growth of payment cards in the area’s economies, Luis Cirerol, Commercial Director North LATAM at G+D,   pointed to regional differences and current events as potential challenges. “In Mexico, where I live, there is already good uptake of credit and debit cards. The baseline is already high. It is also important to remember that inflation continues to be high in many parts of the region. In times of high inflation, consumers are perhaps reluctant to take on too much credit, while banks are a bit more cautious about issuing it.”

Stimulated by the example of tech-savvy and agile neobanks and other fintechs, large commercial banks in the area have chosen a digital-first strategy. This includes providing digital payment cards that can be used in digital wallets such as those you may find in your phone. In this scenario, physical cards are only provided if:

  1. the central bank requires it, or
  2. if the customer specifically requests it.

“The card will still be used, just in a different format,” noted Luis pertinently. “Instead of plastic, it’ll be digital.”

A digital wallet in every pocket?

The outstanding success story in terms of digital payments in the region is Pix in Brazil – a “local hero” in digital payment, and one of a few worldwide. Created by that country’s central bank, Banco Central do Brasil (BCB), Pix is an instant payment ecosystem that “enables its users – people, companies and governmental entities – to send or receive payment transfers at any time, including non-business days.”5 Usage across the platform grew 74% in 2023 alone, to 42 billion payments.6 It functions between government, companies, and individuals.

The government’s backing has pushed adoption for business, which in turn feeds the ecosystem through adding users. Indeed, its success mirrors that of the UPI ecosystem in India, with tech-savvy first adopters being joined by ever-increasing numbers that span demographics, including those who were previously unbanked.

"Pix’s evolution and growth in the instant payment ecosystem is the biggest trend we see in the market right now,” said Jordi emphatically. “It’s creating a lot of disruption in the existing landscape, and this is being followed in other countries. We see Colombia following this trend, Peru with Yape, Mexico with CoDi and DiMo."

“Pix’s evolution and growth in the instant payment ecosystem is the biggest trend we see in the market right now.“
Jordi Mier
Commercial Vice President Latin America for G+D

Among other reasons, other central bankers in the region admire Pix because of two related factors.

  1. Interoperability Pix provides the platform on which commercial banks build out their offerings. The platform is bank-agnostic, and is usable in a variety of ways, including through an individual’s phone or e-mail, and via QR codes. Companies can have multiple “keys,” or identifiers. It has A2A capability, while instant settlement with little or no downtime is attractive to everyone, including small businesses.
  2. Financial inclusivity Because it is intuitive for new users to navigate, and the ecosystem is everywhere, more and more people are joining it, bringing previously underbanked populations to the financial system. This is a core part of a central bank’s mission.
A woman making a payment at a cafe

Beyond closed-loop wallets

Closed-loop wallets are a feature of the payments landscape in some LATAM countries. These are wallets sponsored by important banks in countries like Colombia and Peru, and are used by small and medium merchants and individuals through QR codes or an identifier like a phone number. Crucially, a merchant’s QR code is platform-specific. Hence, in Colombia, a user would have to register for another bank’s ecosystem (including downloading the app and potentially opening an account there) before accessing its users. 

Bankers in the region are pushing to bridge this interoperability gap. The Central Reserve Bank of Peru has in fact mandated interoperability between the popular wallets available there (Yape and Plin).7 It is expected that offerings from other financial entities will have to work with each other as well. 

Another solution is to develop an entirely new platform under the aegis of a central bank or similar regulatory authority. CoDi in Mexico is an example, as Jordi mentioned. While it is gaining users, CoDi’s growth hasn’t been as vertical as Pix in Brazil.

Cross-border remittances

Remittances from expatriate workers in the region to their homes in LATAM play an important part in cross-border transactions. As an example, remittances from the US to its immediate neighbor, Mexico, topped $63 billion in 2022.8 

Costs of remittances from the US average just under 6%, but have remained static between 2015 and 2023. Meanwhile, remittance costs in smaller corridors, for example from Costa Rica to Nicaragua, doubled over the same period (from 3% to 6%).9 The US is the largest source of remittances, but it isn’t the only one. Expatriates seek opportunities in other places in the region as well. There is a clear opportunity here for quicker, easier, and more cost-effective ways for emigrants to send money to their places of origin.

Retail central bank digital currencies (CBDCs) have been spoken of in the context of facilitating cross-border remittances. The need exists: the ongoing digitalization of banks and the entry of agile neobanks and fintechs means cheaper, quicker means of cross-border remittance may soon be in the marketplace, given the requisite regulatory support.

E-commerce fraud remains a threat

While there are opportunities aplenty in the payments landscape here, there are issues that must be addressed as well. As in other parts of the world, fraud, especially online, is growing.

“Latin America experiences 20% revenue loss to fraud, with 3.7% of e-commerce orders being fraudulent,” states a report.10 The situation is fluid and evolving, as bad actors utilize new technologies to compromise payment and other digital systems. The challenge is to provide secure transactions while maintaining harmonious user experiences.

This is particularly relevant for banks because e-commerce transactions play a major part in their revenue now, especially given the events of the last few years. “One way to minimize sharing your physical card’s details is to use a digital card that is only created and used for online purchases, and is protected with a dynamic CVV,” said Jordi. “It lives only in its application.”

Wilmer pointed to other local initiatives in the region: “Peru now requires second-factor authorization. This is an indication of how seriously the authorities in the region are taking fraud, and strategies to tackle it.”

What is apparent is that there needs to be a concerted approach to this issue, one that brings all stakeholders to the table so they can share their relevant expertise. This sort of approach pays dividends across the board.

Complexity requires insight

Navigating a market as large and diverse as Latin America requires a deep understanding of ground realities. The list of differentiating factors includes language and culture and the sheer number of nations involved. With offices that span across the region, from Mexico to Colombia to Brazil, G+D has a deep understanding of local nuances. Along with its global reach and portfolio of services across payments and SecurityTech, G+D is well-placed to be the partner you need in Latin America.

Key takeaways

  1. Cash remains important, but digital payments are here to stay
  2. The success of Pix in Brazil shows the way for other digital payment ecosystems
  3. Bridging the interoperability gap between closed-loop wallets/ecosystems in other countries is a challenge central banks and stakeholders are moving to meet
  4. E-commerce fraud remains a significant threat
  1. Our work in Latin America and the Caribbean, UN Environment Programme (UNEP)

  2. The rapid evolution of payments in Latin America, McKinsey, 2024

  3. The Global Payments Report 2024 (9th edition), Worldpay, 2024

  4. Ibid.

  5. What is Pix?, Banco Central do Brasil

  6. Brazil’s Pix payments are killing cash. Are credit cards next?, Marcela Ayres for Reuters, April 2024

  7. These are Latin America’s instant payment systems, Antony Pinedo for Iupana, February 2023

  8. Mexico: Remittances accumulate 10 years of increase and break record: 63.3bn in 2023, BBVA research, February 2024

  9. Remittances to Latin America still growing, Sonia Plaza for People Move/World Bank, July 2023

  10. Ecommerce fraud trends and statistics merchants need to know in 2024, Mastercard, 2024

Published: 04/10/2024

Share this article

Subscribe to our newsletter

Don’t miss out on the latest articles in G+D SPOTLIGHT: by subscribing to our newsletter, you’ll be kept up to date on latest trends, ideas, and technical innovations – straight to your inbox every month.

Please supply your details: