Yes, cash remains the undisputed king in Latin America, accounting for eight of every 10 payments made, according to the latest data from Americas Market Intelligence, but digital wallets are making significant inroads as an alternative.
The use of digital wallets surged 180% in the region in 2020, according to the Latin American Federation of Banks (Felaban), an industry group. Digital wallets, after all, have become the fourth-most relevant payment method in Latin America’s e-commerce according to Beyond Borders 2021-2022 -the annual study launched by Brazilian fintech EBANX – being used to pay for about 11% of all online transactions. They come behind domestic credit cards (33%), international credit cards (24%), and debit cards (13%).
So who are the main players in this nascent industry? The most widely used digital wallets in Latin America are Brazil’s PicPay with 65 million users, followed by Nubank (59.6 million), and Argentina’s Mercado Pago (36 million), according to iupana, a Latin American digital banking, payments and fintech news outlet.
Mobile payments gained widespread success around the world more than a decade ago, but the phenomenon bypassed Latin America until recently. Non-bank models that took off Europe, Africa, or Asia, were dead on arrival in Latin America mostly due to strong bank-centered regulations and low Internet penetration, among other reasons.
Over time, however, market reforms allowed new players to enter the scene, including fintechs, delivery platforms, e-commerce marketplaces, and digital-first banks, enabling diverse business models for digital payments beyond traditional bank-based accounts and debit cards.
But the defining event was the Covid-19 pandemic, when the fear of manipulating and exchanging cash and the boom in online shopping helped mobile wallets position themselves among users, merchants, and institutions. According to the EBANX study, the share of Latin American consumers using e-commerce jumped from a pre-pandemic 45% to 68% by 2021 and the region’s digital market is expected to grow 30% per year through 2025, an increase only comparable to Asia, the largest market when it comes to the use of digital wallets.
“The intrinsic mobile experience offered by e-wallets is gaining strength quickly alongside the high smartphone penetration in LatAm”, says Juliana Etcheverry, director of Strategic Payments Partnerships and Market Expansion in LatAm for EBANX. “In many countries in the region, there are more adults who have a smartphone than a bank account, converting these mobile gadgets into a fundamental instrument for digitization and financial inclusion”, she says.
Is not only about a QR Code: digital wallets are an agent for the digital inclusion of millions of underbanked or unbanked people, who have no credit cards or access to other financial services. According to World Bank figures, only 55% of Latin American adults have at least one bank account, and 2 of every 5 workers don’t yet have any.
Digital wallets open the door to business formality in a region where, according to the Organization for Economic Cooperation and Development (OECD), over 60% of workers are off the books, one of the highest rates of informality in the world. “Financial inclusion is the gateway to formality for businesses and that is a treasure for productivity, “said Hernando Rubio, CEO, and co-founder of MOVII Colombia, a fintech and e-wallet, during a recent industry event.
Even some traditional banks have created their own e-wallets, including of Brazilian bank Itau (Iti) Colombia’s Banco Davivienda (Daviplata) and Banco de Credito del Peru (BCP) (Yape).