Versatile fintechs driving financial inclusion in LatAm

Guest editorial by Jeremy Baber, chief executive officer of Lanistar

A study by Americas Market Intelligence in 2020 found that within five months of the onset of the pandemic, over 40 million consumers based in Latin America (LatAm) became banked for the first time. Although financial inclusion has accelerated in recent years, it is yet to fully penetrate the LatAm banking sector with 21% of Latin Americans excluded from basic financial products and services.

Evidently, COVID-19 has hastened the shift towards digitisation, with digital payments acting as a gateway to other financial services including e-commerce, and more widespread connectivity to the global economy. In paving the way for the adoption of digital banking services and the facilitation of real-time-payments (RTP), fintechs are making meaningful progress disrupting the barriers to those who remain unbanked.

Financial inclusion, the multi-faced measurement

In recent years, financial inclusion has evolved to be more than a singular measurement but rather a multi-faced one, encapsulating a broader spectrum of factors, depending on access and usage. Because of high internet penetration, fintechs are able to cater to the region’s largely unbanked population who can still access mobile devices.

An appetite for seamless, accessible and transparent services in the LatAm market combined with rapid economic development has made it an ideal environment for fintechs to establish themselves as competitive players. With the added advantage of versatility, fintechs are able to undercut bigger players in the pursuit of understanding and disrupting the various barriers threatening complete financial inclusion.

In the face of rapid digital wallet adoption in LatAm, financial literacy is improving, sparking the demand for more advanced banking services that cater to and facilitate longer-term financial goals. Steep fees levied by banks in exchange for services combined with required minimum balances are a couple of the many factors excluding the underbanked from the security a bank account offers. In response to this, fintechs are becoming more expansive in their offerings, including budgeting tools that educate users, regardless of location or funds, on the importance of savings. Credit options and miniloans are also becoming more accessible to those who may not qualify for a traditional bank account.

LatAm as an emerging market

While traditional banking tends to cater primarily to the financially stable who have access to physical branches, fintechs are flocking to the opportunities presented within the LatAm region by simultaneously leveraging technologies and capturing market share whilst catalysing financial inclusion.

There remains a distinct gap between established and emerging markets in terms of financial landscapes. More commonly, established markets are dominated by traditional banking, restricting the opportunities and market space for smaller fintechs to succeed in delivering change. However, for emerging markets, new technology and an appetite for embracing change has provided an advantage for not just fintech growth, but also for LatAm governments, markets and economies. 

Currently, emerging markets find themselves at a sweet spot, where they are able to take advantage and tailor their offerings to the dominant demographic of under 30’s who favour online transactions and services. Overall, governments and regulators in the LatAm region have been forthcoming in their support for fintech technologies, crypto and new developments in the finance industry, exemplified in El Salvador’s formal acceptance and adoption of cryptocurrency as legal tender. In providing standardised practices in an otherwise neglected market, economic growth is stimulated, contributing to the success of small-scale consumer enterprises.

Versatility meets evolving demands

By catering to and acknowledging the financial needs of the unbanked, fintechs are poised to drive promising advancements in both financial literacy and digital adoption throughout LatAm regions. With the advantage of versatility, they are able to expand in their offerings to meet users’ evolving demands of online banking services whilst undercutting larger players, often with lengthy internal processes and budget allocation restrictions. With this in mind, digital banking within LatAm regions is expected to continue benefitting the wider economy, smaller enterprises and empower users to plan for their financial future.

Read Jeremy’s previous piece of financial inclusion here.

Image: Lanistar

Guest Editorial This article was produced specially for Fintech Intel by an expert guest contributor.