The Changing Face of Payments in Latin America

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The Changing Face of Payments in Latin America Mapping the Digital Revolution

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Contents

Introduction...... 3

Recommendations...... 6

Retail payments are a critical area for investment...... 7

Digital wallets are hot but competition is fierce...... 12

New technology can speed up innovation...... 17

Methodology...... 26

Appendix...... 27

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Introduction The Latin American retail payments market for products and technology. Respondents is diverse and complex. Individual markets included payment product specialists, heads 64% of payment providers vary greatly in terms of the level of financial of IT and digital transformation, as well as inclusion, the use of cash, and the devel- those in a more operational role. All had a anticipate payments opment of digital payment infrastructure. direct hand in influencing the retail payment investment is set to increase The COVID-19 pandemic brings added com- strategy for their organization. plexities to consider: institutions are grappling The findings that emerged from the survey with depressed profitability in light of the were broadly optimistic. 64% of those surveyed pandemic, while balancing the need to invest expected investment in payments to increase in digital payments to satisfy growing demand, over the next two years, with regulation and partly induced by the COVID-19 pandemic. security being two of the most pressing drivers To understand the latest developments in for investment. Product investment is focused the Latin American retail payments market on digitalizing payment card offerings, while and to gain insight into how organizations are developing or improving digital wallets is a high responding to the challenges presented by priority for a number of organizations. However, COVID-19, technology analyst house Omdia the market is highly competitive, with new partnered with OpenWay, a global vendor of payments products regularly being launched. digital payment software active in the region, The challenge for institutions is to establish a to conduct the Retail Payments in Latin profitable product strategy that is also fit for a America survey. post-COVID world. Technology plays an intrinsic role here and it is key that the players Targeting mid-to-large traditional retail banks, determine what technology is needed to keep neobanks, fintechs, and payment processors, pace with the speed of change, as well as the survey collected responses from 178 meeting the growing demand for fully digital individuals across six markets (Argentina, and instant payment services. Brazil, Chile, Colombia, Mexico, and Peru). The survey sought to capture respondents’ plans, perceptions, and expectations of their payment services and how these are shaping future investment and development activity

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What country are you based in? Which business function does your individual role primarily align to? Proportion of respondents Proportion of respondents

Brazil 21% 13%

30% Mexico 18% 15%

Argentina 16%

15%

28% Chile 16%

Payments Colombia 15% Operations

Digital transformation Peru 13% Technology

Digital channels

Figure 1 Survey respondents were drawn from six Latin American markets Figure 2 Survey respondents were drawn from five business functions

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Summary

The COVID-19 pandemic has presented There is significant activity in the digital wallet When it comes to payments technology, significant challenges for Latin America’s space. Regulation is driving development in institutions use a mix of in-house and external financial institutions. In spite of this, most some markets, while the COVID-19 pandemic is software. Most are looking to digitize the institutions are forecasting increases in the also an accelerant. However, institutions must customer experience and prefer to access budgets for retail payments investment over consider their propositions carefully payments technologies through the cloud. the next 18–24 months. to stand out from the crowd. • Basic customer servicing is typically • 64% of institutions predict investment in • 48% of respondents feel that the greatest managed by digital processes, while manual payments will increase over the next two opportunity in retail payments lies in processes prevail for new product delivery years, a slight increase on the pre-COVID supporting the growth of e-commerce and back-office processes. For example, figure of 60%. with digital wallets. 27% of new product delivery is mostly manual and in 9% of cases fully manual • 23% of institutions cited regulation as the • 77% of respondents agreed that cash processes are used. number one driver for investment, while 21% would see a sustained decline in favor of placed security and fraud first. contactless payments due to COVID-19. • When selecting new technology providers, the ability to add new services quickly is • Digital wallets and card propositions • Neobanks/fintechs are more active in the leading requirement from institutions, were most likely to drive investment from the digital wallet space than traditional with 46% stating this was their number a product perspective. 14% selected each retail banks. 55% of neobanks/fintechs one priority. category as the top key investment driver. offer digital wallets compared to 50% of traditional retail banks. • Cloud consumption is the preferred • For those players investing in cards, the consumption method for payment focus is on digitalization, with 45% stating applications. Currently, 39% of applications their top priority is to invest in mobile are consumed through public and private account management. cloud, with a preference for private cloud.

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Recommendations Those active in the merchant-acquiring space market and product flexibility will be key must ensure they enable customers to keep to fending off the competition. pace with the latest payment options. There All financial institutions will have their own are already a number of payment options Payment institutions should assess whether strategic priorities, which will vary according to unique to Latin America that those operating efficiencies can be achieved through consoli- the needs of the specific markets in which they in the payment acceptance space must ac- dation of payment systems. Players typically operate, their organizational structure, and the commodate, notably PostPay products such use a combination of in-house and external technology infrastructure that they already as Boleto in Brazil. There is also an ever-in- payments software, along with some out- have in place. Yet there are also notable simi- creasing array of new payment options to sourcing to third-party processors. This larities between organizations. The results of consider, such as general-purpose digital multitude of approaches can lead to this study found many recurring themes in the wallets like Mercado Pago and, in some mar- inefficiencies, which can be addressed drivers and plans among institutions for retail kets, government-banked digital payment by rationalization. payments, thus providing a number of key initiatives on real-time infrastructure, such as recommendations that players active in the CoDI in Mexico. Educating merchants on these market should consider as they prepare their products and providing guidance on accep- strategies and plans. tance is essential.

Payment providers should review fraud detec- Providers targeting the digital wallet space tion processes, particularly for online should consider how their proposition can help transactions. Fraud rates, particularly online address unmet needs in the market. The digital fraud, are rising and in markets such as Brazil wallet space is wide ranging and comprises a and Mexico are considered to be among the number of sub-categories, from e-commerce highest in the world. High false positives are wallets to stored value solutions, to promote also a concern, leading to abandoned transac- financial inclusion. Competition is fierce across tions and inconveniencing users. Adopting the most of these types of digital wallet, with a latest security protocols (such as 3DS V2) will number of players seeking to establish their help to address these issues, as will introduc- offering. However, not all of these digital ing automated processes for fraud detection. wallets will survive independently. Those launching wallets need to ensure their offering truly addresses a market need, while time to

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Retail payments are a critical area for investment

Despite COVID-19, investment in retail thus providing a buffer in times of instability. Given this context, it is striking to see that the payments continues to increase Moreover, in most markets, government and proportion of Latin American banks and As has been the case for many aspects of life central bank support for financial institutions providers anticipating an increase in payments in 2020, the COVID-19 pandemic has brought is helping to mitigate the impact of the investment has risen slightly since the significant challenges to the Latin American pandemic. Nonetheless, there is no escaping COVID-19 pandemic (see Figure 3). 64% of banking sector. Institutions have been the fact that financial institutions’ profitability surveyed institutions currently believe that wrestling with rising delinquencies on business will be reduced in 2020 and going into 2021. spending in payments will increase, while 60% and consumer loans, while fee and interest Accordingly, technology spending will also be would have stated this was the case income has been severely depressed. impacted, as banks introduce cost-control pre-COVID-19. Brazilian institutions were Thankfully, banks in the region generally measures to conserve capital, manage most likely to predict increases, with 84% enjoy strong liquidity and healthy margins, liquidity, and limit damage to profitability. forecasting a rise, while Argentinian banks

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were least likely to, with only 41% predicting security. 23% of banks and fintechs stated banks to refund victims of fraud within increases. that regulation and compliance was the five business days of a claim. number one driver for increased spending, In part, this finding is a reflection of the existing However, across the region in general, while 21% stated this was the case for security importance of retail payments within insti- payment fraud is a significant challenge, and fraud, as shown in Figure 4. tutions’ strategic priorities; indeed, since the with rates in markets such as Brazil and global financial crisis of 2008, most institutions The regulatory impetus is particularly strong Mexico considered to be among the highest have been seeking to contain their cost base among Argentinian providers, where 29% in the world. Mirroring an international trend, but payments have typically been protected. ranked regulation as the top driver for there has been substantial growth in online Yet the rise in spending also reflects that the spending. Since the new federal administration fraud, which now outpaces offline fraud. Data pandemic itself is acting as a driver for elec- was sworn in in December 2019, there has from Mexican financial watchdog, Condusef, tronic payments, both in person and online, been a change in regulatory stance from the shows that complaints about online payments and this is prompting providers to invest. Argentine Central Bank, particularly in the fraud have risen from 790,936 in 2015 to 5.9 fintech space. Most notably, the central bank million in 2019 and proportionally now account That is not to say that the pandemic has not issued Communiqué A 6859 in January 2020, for 65% of total complaints compared to just changed investment patterns at all. Notably, which introduced regulation of payment 20% in 2015. A high rate of false positives is large increases (6%+) in budget have been service providers (PSPs) for the first time and also an issue in places, resulting in abandoned scaled back since the pandemic, with only has brought a number of compliance obli- transactions and frustrated cardholders. 20% of respondents anticipating rises of this gations to that sector of the payments market. level, compared to 27% pre-pandemic. Sim- The implementation of security protocol 3DS As an example, customer funds credited to ilarly, just 3% of respondents anticipated large V2 is likely to play a key role in reducing online PSPs must at all times be available upon decreases (-6% or more) in responses pre- fraud, as well as reducing the rate of false demand from the customer, meaning that the pandemic, but this has since risen to 6% of positives. The liability shift for Latin America systems used by PSPs must be able to identify respondents since the COVID-19 pandemic. took place in 2019 for both Visa and Mas- and extract customer funds. tercard but Brazil is the only market in the Regulation and security Turning to security and fraud, Chilean pro- region where adoption has been mandated, are key drivers for investment viders were most likely to cite this as a driver with 3DS V2 required for debit cards from of spending. A new card fraud bill was mid-2019. When examining the drivers behind the introduced in the country in June 2020, which increases in investment, the two clear There are also local initiatives to encourage increases the accountability of banks relating immediate priorities are regulation and secure e-commerce, such as the online to card fraud claims; for instance, by obliging

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authentication portal WebPay in Chile, developed by local, monopoly processor, Transbank. While in Colombia, the banking sector and ACH Colombia have created digital payments platform PSE, commonly referred to as “el botón PSE,” which allows businesses and consumers to pay for goods online by authorizing payments direct from their bank account.

Digital wallets are driving product spending, but cards remain critical

While regulation and security are the immediate drivers for increases in payments investment, Figure 4 also shows that product developments are the next priorities for banks. Digital wallets feature particularly highly, with 14% of respondents ranking wallets as the number one driver for spending and 22% placing them as the second ranked driver. As will be explored in the following chapter, there is significant activity in the digital wallet space, with a number of propositions already in the market and many more emerging.

Improving core card propositions is also a key area for development, particularly among traditional banks. Indeed, while much airtime is given to new payment methods, traditional card products form the bedrock of traditional

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players’ payment portfolios. For those providers looking to invest in their card propositions, the focus is overwhelmingly on digitizing product management, with 45% ranking mobile account management as their number one investment area (as their number one investment area (see Figure 5).

The acceptance of new payment products is also key from a merchant perspective

Turning to the merchant-acquiring side of the business, there are three standout areas that are in demand among merchants, namely accepting new payment products, point- of-sale (POS) acquiring services, and payment gateways (see Figure 6). Core services such as POS acquiring and payment gateways typically attract the most demand as increasing numbers of merchants seek to accept elec- installment products, such as Boleto in Brazil opments taking advantage of real-time tronic payments and/or move online. This and PagoEfectivo in Peru, which enable users payments infrastructure to create new digital demand is likely to be even more heightened to order items online but pay offline in cash payment options. These include Mexico’s CoDI given the push toward electronic payments installments. Accommodating these payment initiative, which was launched in 2019 and since the COVID-19 crisis. options is essential. offers QR-code-enabled payments between Merchants also want to keep pace with the individuals and to businesses in real-time. And as the next chapter explores, there is an various payment methods coming into the Brazil is also planning to launch its real-time ever-increasing array of digital wallets coming market. Besides payment cards, there are a payments offering, PIX, by the end of 2020; all onto the market from both banks and fintechs. number of payment options unique to Latin banks with more than 500,000 active user There are also national government-led devel- American markets, notably the PostPay accounts are required to join.

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Digital wallets are hot Market players consistently to the survey data, 48% of respondents ranked identify digital wallets as digital wallets as the number one opportunity, but competition the leading opportunity making it a clear front runner over the next highest-ranked market opportunity of using As the previous chapter established, is fierce payments to improve financial inclusion, which digital wallets are one of the key drivers for just 15% ranked first (see Figure 7). investment in retail payments in Latin America. The importance of digital wallets is further There are certainly a number of examples demonstrated by the fact that most institutions of e-commerce wallets active in the Latin consider that the greatest opportunities in American market. Besides global names such retail payments lie in supporting the growth as PayPal and Visa Checkout, there are also in e-commerce with digital wallets. According regional players such as the Argentinian

12 openwaygroup.com The Changing Face of Payments in Latin America success story Mercado Pago. Mercado remains high and is still considered COVID-19 is an accelerant Pago was originally designed to facilitate king in most markets when it comes for digital wallet usage transactions on MercadoLibre’s e-commerce to making purchases. The COVID-19 pandemic is also playing a platform, but it has since evolved to become In some markets, regulation has been significant part in encouraging the use of a widely accepted payment option across introduced to address financial inclusion digital wallets. The pandemic has seen a a number of markets, including Argentina, through mobile technology. For example, push toward electronic payments in general, Brazil, Chile, Colombia, Mexico, Peru, Colombia’s Financial Inclusion Law (Law 1735) as merchants and consumers seek to handle Uruguay, and Venezuela. from October 2014 created a new category cash less. Indeed, 77% of those surveyed of financial institution known as “Sociedades agreed that cash would see a sustained Regulation is a key driver Especializadas en Depositos y Pagos Elec- decline in favor of contactless payments. for the move to digital wallets tronicos” (SEDPEs). SEDPEs operate under Furthermore, 83% agree that mobile wallet However, digital wallets are not only limited a simplified licensing regime and can offer usage would increase at the expense of to e-commerce. Other key applications include electronic deposits and digital payment payment cards. contactless wallets linked to payment cards services. Accordingly, a raft of new players Digital wallets have also proven to be a useful for physical purchases, such as Apple Pay and has entered the market, one of the most tool for governments to dispense COVID-19 Samsung Pay, and stored value wallets, often successful being the very first SEDPE, Movii, welfare payments. For example, in Sao Paolo, used to encourage financial inclusion. which facilitates online payments and P2P Brazil, a food subsidy scheme, “Merenda em transfers, and now numbers 1.1 million users. Financial inclusion is a critical consideration Casa” was facilitated by digital wallet PicPay. when examining Latin American markets. In a similar vein, Peru’s mobile wallet system, Consequently, some wallets have reported In many countries a significant proportion BIM, was created to improve financial inclusion strong growth in user numbers. A case in of the population is often unbanked, though among the unbanked. It is operated by point is Colombia’s Movii, which has seen the percentages vary considerably by country. Peruvian Digital Payments (PDP), which users increase from 300,000 at the start According to the World Bank’s Findex Report was established in 2015 by the Peruvian of 2020 to 1.1 million; at least 200,000 users from 2017, of the markets examined here, Chile government, financial institutions, and telcos receive welfare payments through the app. has the highest banked population with 74% of and BIM forms part of the Peru Model for the those aged 15 and above having an account Unbanked initiative led by PDP. By early 2020, with a financial institution, while in Mexico this it counted 829,000 users and 100,000 outlets figure drops to 35%. Unsurprisingly, given the across the country, which accepted con- high level of unbanked persons, cash usage tactless payments using BIM.

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Traditional banks need fintechs. For example, 63% of traditional banks Stored value wallets or ones that are linked to determine their role stated that they were very or somewhat to a bank account would be more appropriate in the digital wallet landscape concerned about competition from fintech for this segment, but most stored value propo- companies, while 53% stated other traditional sitions are developed with the unbanked in There is undoubtedly considerable activity in banks were of equivalent concern. mind. Players such as Nequi in Colombia and the Latin American digital wallet space, with BillMo in Mexico are seeking to target this a number of providers targeting the different This is not to say there is no bank activity. segment but they are relative newcomers sub-sectors from e-commerce wallets to BBVA Wallet is a long-standing example of to the market. serving the unbanked, and those providing a traditional bank wallet offering, while in contactless wallets for physical payments. September 2020 Brazil’s Banco Bradesco In addition to the numerous general-purpose announced the launch of subsidiary BITZ to offerings, there are also a number of closed- provide the unbanked with digital payments. loop retailer digital wallets, such as Mexican Nonetheless, competition is fierce, which retailer OXXO with OXXO Pay wallet, further means that time to market is key. augmenting the array of payment options. Product flexibility and the ability to cater to The challenge for all providers therefore is how undeveloped market segments is also critical. to build and maintain market share, for in such Many of the digital wallets on the market are a fragmented market not all competitors will similar to other competitive offerings and be able to survive. The challenge will be felt by could do more to differentiate or target new all, but is particularly pressing for traditional segments. For example, many digital wallets banks, which are less active in digital wallets are tied to debit and credit cards, yet card- than neobanks and fintechs, with survey data holding levels are relatively low, even among showing that 55% of neobanks/fintechs have the banked population. The World Bank’s a digital wallet offering compared to 50% of Findex data shows, for instance, that 60% banks. Moreover, the more prominent names of those aged over 15 in Chile hold a debit card, active in the digital wallet space, such as although 74% of the same demographic have Mercado Pago and Movii, tend not to be banks. a bank account. In other markets, such as a Given this context, it is not surprising to learn Mexico, these numbers are much lower, with that traditional retail banks are most con- 25% of those aged over 15 in Mexico holding cerned about competition from neobanks/ a debit card, while 35% have a bank account.

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New technology can Institutions use a mix of use a combination of in-house and external systems to manage payments, software, with some outsourcing to third- speed up innovation indicating inefficiencies party processors. When looking at the technological approaches Outsourcing is most prevalent for card-issuing to managing payment operations, it is clear services, where 33% of providers stated that that a number of approaches are used. As they used a third-party processor, a per- Figure 10 shows, organizations predominantly centage that rose as high as 41% in Peru.

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Third-party processors were least likely to management and fraud prevention are most the greatest level of manual intervention, be used for customer servicing, whether for likely to be fully digital, with around 40% of with 36% stating that the process was mostly merchants or consumers, with institutions respondents stating this was the case, as or fully manual. As a result, it is no surprise preferring to keep this in-house. shown in Figure 11. There is also a high degree to see new product delivery is a key consid- of digitalization in customer processes such as eration for institutions when selecting new Comparing the use of software, external customer onboarding and basic customer technology providers. providers tend to be used more than in-house service. Notably, new product delivery had developed offerings. The clear exception to this general pattern is the servicing of merchant customers, which 57% of respondents stated was carried out using in-house products. Nonetheless, it is clear that institutions are using a variety of approaches, which can indicate operational inefficiencies, as users are forced to work across a number of systems. For example, merchant servicing is most likely to be carried out using internal software but any related back-office processes are more likely to be performed using an external software provider. Operational inefficiencies aside, it is also expensive for institutions to support multiple systems and the integrations between them; rationalization of systems and approaches would address these issues.

Institutions are seeking to digitalize customer experience and processes

Financial institutions are turning to technology to digitize the customer experience and back- office processes. By some margin, risk

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The ability to add new services of the selection process: the ability to add new American market and it is key that institutions quickly is a driver for investment services quickly. 46% of respondents stated can keep pace with the competition and in modern technology that this ability was their number one priority, ensure product flexibility. While 14% of tradi- as shown in Figure 12. tional banks and 15% of neobanks/fintechs When institutions are considering moving from state that they have the capability to launch legacy technology to a new system, there is As demonstrated earlier, a number of new new products in less than one month, the one standout criterion that is at the forefront payments products are coming onto the Latin

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reality for most of the market is that it takes Looking ahead two years, institutions anticipate a cloud-first strategy in place for new software between one and six months to launch new that, while local install will remain flat, the use procurement. Chilean providers, on the other products and in the case of 13% of neobanks/ of cloud installations will increase slightly to hand, were least likely to adopt this approach fintechs and 7% of traditional banks it can account for 42% of consumption. The pref- with only 64% of the respondents agreeing with take even longer. erence is for private cloud, which is currently the same statement. used in 21% of installations, a percentage that In addition to being able to add new services The majority of organizations also agreed that is expected to rise slightly at the expense of quickly, it is also key for payment providers to the COVID-19 pandemic is accelerating the shift managed services and SaaS consumption. be able to create new services that are dif- to the cloud, with 78% of providers across the ferent from competitors. 18% of respondents The importance of cloud offerings was partic- region stating this was the case, with that stated this was their number one selection ularly striking among Brazilian institutions, percentage rising as high as 92% for Brazilian criteria when selecting new software, while it where 87% of respondents stated they had respondents. also scored highly as a secondary and tertiary factor (see Figure 12). The relatively high level of outsourcing, particularly for card issuing services, means it can be difficult for banks to differentiate as legacy processors are not typically able to provide product flexibility.

Cloud consumption of technology is preferred, particularly private cloud

As Figure 13 demonstrates, the ability to install services in the cloud is a notable consideration when selecting a new technology system. Certainly, cloud is the preferred consumption method of software, with 39% of respondents stating consumption of payment applications is currently through private and public cloud. Local install is also important and used in 27% of cases.

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Country round-up

Summary tables

Table 1: Selected key data points by market, part one

Country Banked population % of providers Top driver % of providers investing aged 15+ increasing payments for investment in debit cards, currently/ investment planning to

Regulation, Argentina 48% 41% 65% / 35% security

Brazil 70% 84% Regulation 61% / 19%

Regulation, Chile 74% 57% 36% / 48% security

Colombia 45% 44% Regulation 52% / 35%

Mexico 35% 58% Digital wallets 68% / 20%

Peru 42% 78% Regulation 82% / 14%

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Table 2: Selected key data points by market, part two

Country % of providers investing Digital wallets – Percentage of providers stating % breakdown of in digital wallets, top area for future “ability to add new services payment application currently/planning to investment quickly” as top criteria for consumption – public new payments software and private

In-app purchase, Argentina 55% / 35% 48% 40% / 48% preload wallet

P2P payments and Brazil 55% / 39% 37% 39% / 43% international remittances

Chile 52% / 28% Bill pay 50% 38% / 44%

Colombia 39% / 34% International remittances 52% 41% / 49%

Mexico 48% / 48% Bill pay 36% 38% / 43%

Peru 64% / 36% International remittances 57% 38% / 44%

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Argentina are current investing in digital wallets, while fintech community, including Latin America’s 35% are planning to do so, with future devel- largest digital bank, Nubank. Along with Colombian respondents, financial opments focused on in-app purchases and institutions in Argentina were less likely to In the digital wallet space, 55% of providers are offering the ability to pre-load wallets. predict increases in payments investment, currently making investments in wallets, with a with only 41% predicting increases over the In terms of technology, 48% ranked their further 39% planning to do so. Those investing next two years. Pre-pandemic, the response number one criterion for new software in the space are focusing on domestic P2P would have been more optimistic with 70% selection as being the ability to add new payments and international remittances. stating they would have anticipated an services quickly. Cloud consumption is cur- From a technology standpoint, just 37% increase. Regulation is a particular concern in rently used in 40% of cases but is predicted stated that the ability to add new services was the market right now, with the new Argentine to rise to 48% over the next two years, which, their number one priority when selecting new administration introducing regulation of PSPs along with Colombia is the joint highest rise in payments software. With the exception of and looking to increase regulation of fintechs. cloud consumption in the markets surveyed. Mexico, this is lower than in the other markets. In October 2020, the central bank also The option to install services in the cloud is announced the launch of Transferencias 3.0, Brazil also placed highly, with 18% stating this was which, among other things, will see the creation Financial institutions in Latin America’s largest their top priority. of a standardized payments interface (IEP) to economy are optimistic regarding future promote interoperability between all types of investment in retail payments. 84% anticipate Chile accounts, whether bank or digital wallet, and spending will increase over the coming two will also see businesses receive payments in Of the six markets examined here, Chile has years, with regulation being the top driver for real time. Work on the rollout of the new the highest banked population, with 74% of investment. Recent regulatory and compliance system is set to begin in December 2020. those aged 15 or over holding a bank account. obligations include a phased rollout of open 57% of those surveyed anticipated that Relative to markets such as Brazil and Mexico, banking starting in 2020, the implementation investment in payments would increase over the fintech sector is small, but there are of data protection legislation, Lei Geral de the next two years. The joint drivers were certain standout players such as regional Protecão de Dados (LGDP), and a new QR- regulation and security, which relates to the e-commerce heavyweight Mercado Libre, code standard for payments. Other key devel- new card fraud bill that was introduced earlier which operates digital wallet Mercado Pago, opments include the launch of PIX in in 2020. Compared to markets such as Brazil, digital wallet Ualá, which has received backing November 2020, a QR-code-enabled digital Colombia, and Mexico, innovation in payments from Tencent and Softbank, and the ValePei payment system for real-time transfers and is muted, while the fintech sector is small. wallet of Red Link. 55% of payment providers payments. There is a strong neobank and

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Examples of local payment fintechs include increases in budget. Certainly, compared to Mexico digital wallet, Khipu, and merchant acceptance the other five markets examined, Colombia’s Latin America’s second largest economy specialist, Paygol. economy has a high dependency on oil and will is considered the regional leader in terms be feeling the ramifications of the COVID- From a product investment perspective, of the development of its fintech sector. related oil price shock. Chile is the only market of the six surveyed The country introduced its Fintech Law in countries where current investment in digital The country has used legislation to 2017, which provided a framework for the wallets outpaces that of debit cards. 36% are improve financial inclusion, notably through establishment of fintech providers. As a investing in debit cards compared to 58% of its Financial Inclusion Law, which saw a new result, Mexico has seen a number of new those investing in digital wallets. The top area category of financial institution created, payments fintechs emerge, such as merchant for development is bill pay services. SEDPE. The very first SEDPE, Movii, has acceptance specialist Clip, as well as foreign gone on to become a major digital wallet fintechs entering the market, such as Argen- In terms of technology, 50% state the provider. The country also has a burgeoning tinian digital wallet Ualá. The shake-up of the ability to add new services as the key driver fintech sector, including Latin America’s only market was designed to improve financial for software selections, while for 18% the fintech sandbox. Noted local payment fintechs inclusion, and Mexico is the lowest of the ability to differentiate offerings was the most include Nequi, DaviPlata, and RappiPay. markets examined here, with only 35% of important. At 38%, current consumption of However, of the providers surveyed, 39% those aged over 15 holding a bank account. payments technology through the cloud is are currently investing in wallets, which is comparable to markets such as Mexico and Looking to the future, 58% of Mexican insti- the lowest percentage of all the surveyed Peru. Cloud consumption is anticipated to tutions believe investment in payments will markets. Among those that are making increase to 44% over the next two years. increase. Notably, Mexican respondents were investments, the focus is on international most likely to state that digital wallets were remittances. Colombia driving investment, a finding that is most likely From a technology perspective, Colombian linked to the launch of the digital payment Only 44% of Colombian respondents anticipate providers are the most likely to consume systems CoDI, which offers QR-code-enabled that investment in retail payments will payments applications through the cloud, transfers and payments in real time. 48% of increase over the coming two years. Notably, with 41% of payments technology currently surveyed providers are currently making Colombian institutions are feeling the impact consumed this way and a predicted increase investments in digital wallets and a further of the COVID-19 pandemic more than other of 8% over the coming two years. 48% are planning to do so. markets surveyed, as 77% stated that pre-COVID they would have predicted

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Considering payments technology, just 38% Scotiabank, collaborated to launch PLIN of Mexican respondents cited the ability to earlier in 2020. It is therefore no surprise add new services as their top priority, which, to see that 64% of providers are currently with the exception of Brazil, is low compared investing in digital wallets – the highest per- to the rest of the surveyed markets. For a centage of all markets surveyed. notable 30% of providers, the ability to create With regard to payments technology, Peruvian differentiated services was most important. providers were the most likely to rate the As in all markets covered, cloud consumption ability to add new services quickly as their top of payments applications is anticipated to selection criterion, with 57% ranking this first. increase from the current levels of 38% Cloud consumption of payments applications of applications to 43%. currently stands at 38%, the same as Chile and Peru Mexico, and is predicted to rise to 44%.

The smallest of the six economies examined in this paper, Peru nonetheless has some interesting developments relating to digital payments. Only 42% of those aged 15 or over hold a bank account, which the country has sought to address through the Peru Model for the Unbanked initiative led by PDP. One of the major developments was the launch of digital wallet, BIM, in 2015.

Financial institutions in the market are optimistic about future investment in payments, with 78% anticipating increases. Local banks have focused most recently on the digital P2P payments market, with Banco del Crédito del Perú (BCP) launching its service, Yape, in 2017, while three banks, BBVA, Interbank, and

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Methodology

For the 2020 Retail Payments in Latin Fieldwork took place in July and August 2020, American Survey, Omdia and OpenWay with 178 respondents surveyed across six partnered to run a 30-question survey tar- markets, namely: Argentina, Brazil, Chile, geting traditional retail banks, neobanks, Colombia, Mexico, and Peru. Examples of job regulated payment fintechs, and payment titles targeted for the survey include: Heads processors. of Payments, Heads of IT, and Heads of Digital Transformation. All respondents had a direct The aim of the survey was to understand the influence in shaping the payments strategy current attitudes, business objectives, and or their business. challenges facing each respondent company, with a view to providing a picture on the role Respondents by country Respondents by type of institution that investments in payments technology can Number of Type of Number of play both now and in the future. The survey Country institution respondents focused on the following topics: respondents

• Historic and future investment plans Argentina 29 Traditional retail bank 108 for retail payments Neobank/ Brazil 38 55 • Core business objectives and priorities regulated fintech

• Product development Chile 28 Payment processor 15 • Consumer payment trends Colombia 27 • Merchant payment acceptance needs

• Digitalization and innovation Mexico 33 • Payment systems infrastructure and management. Peru 23

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Appendix

About OpenWay Group Omdia consulting We hope that this analysis will help you make informed and imaginative business OpenWay Group is a global developer and Omdia is a market-leading data, research, decisions. If you have further requirements, vendor of Way4, a digital payment software and consulting business focused on helping Omdia’s consulting team may be able to help platform covering issuing, acquiring, real-time digital service providers, technology com- your company identify future trends and payment hub, digital wallet, e-commerce panies, and enterprise decision-makers thrive opportunities. gateway, and fleet cards. OpenWay was the in the connected digital economy. Through our highest ranked “Market Leader” in Card and global base of analysts, we offer expert Get in touch: www.omdia.com Merchant Management by Gartner and Ovum, analysis and strategic insight across the IT, [email protected] and a “Market Leader” in Digital Wallets by telecoms, and media industries. Ovum. It was also ranked “Best Payment We create business advantage for our cus- Solution Provider in the Cloud” by Paytech. tomers by providing actionable insight to Way4, OpenWay’s digital payments software support business planning, product devel- platform, is the choice of companies aiming opment, and go-to-market initiatives. for real-time payment processing, card issuing, Our unique combination of authoritative data, merchant acquiring, and digital wallets. market analysis, and vertical industry expertise Our clients rely on our expertise to migrate is designed to empower decision-making, smoothly from rigid, expensive legacy systems helping our clients profit from new technologies to Way4, both on-premises and in the cloud. and capitalize on evolving business models. Among Way4 users are Banesco, Comdata, Omdia is part of Informa Tech, a B2B information Equity Bank Kenya, equensWorldline, Lukoil, services business serving the technology, Nets, Network International, Nexus, Sberbank, media, and telecoms sector. The Informa group and many others across the globe. is listed on the London Stock Exchange. Contact us: www.openwaygroup.com [email protected]

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