Consumers in Latin America have embraced online banking tools in increasing numbers in recent years, and the pandemic is accelerating this trend as more consumers test emerging digitally-driven financial solutions. Recent studies, however, highlight the low penetration of banking services in the region, with a report revealing that 70% of Latin American consumers do not have traditional bank accounts. What’s remarkable about this discovery is that consumers may not need such accounts to take advantage of digital banking technologies.

The number of FinTechs and neobanks offering online financial solutions that allow consumers to send or receive funds with virtually no traditional bank accounts is growing rapidly across the region. Consumers’ payment preferences are moving away from cash and shifting to digitally connected methods like virtual wallets and QR codes, even for everyday transactions. A report found that neobank customers in Latin America more than doubled between 2019 and 2021, from 36.7 million to 77 million consumers.

These developments have massive implications for legacy banks in Latin America. They need to capture the attention of digitally-minded consumers in the region, even as more nimble, digitally-driven or digital-only banks and FinTechs enter the market. Attracting new customers and satisfying existing customers will be paramount, and financial institutions (FIs) will need to innovate in their payment services and solutions with digitalization in mind.

The following Deep Dive analyzes the barriers traditional banks face when engaging new Latin American digital consumers and how partnering with payment service providers (PSPs) and other industry partners can help them to meet these challenges. It also examines how the banking habits of Latin American consumers might change in the years to come and how banks can ensure that they keep pace with those changes.

Tilting digital bank scales

Traditional banks, neobanks and FinTechs need to pay close attention to changing consumer banking and payment preferences. The region’s unbanked population remains high, but public health and safety guidelines imposed during the global health crisis have led to record numbers of consumers experimenting with digital payment tools. As a result, cash use in Latin America has plunged during the pandemic, with a study showing a 32% drop in cash payments since 2019.

A separate 2020 study found that mobile commerce has become particularly attractive to Latin American customers, with growth of almost 34% in Mexico and 76% in Argentina from 2019 to 2020. connections will reach 500 million. by the end of this year, marking an overall adoption rate of 74% across the region.

This means that traditional banks have a key opportunity to engage Latin American consumers as interest and convenience in online payment solutions increases, especially those connected to mobile devices. However, neobanks and FinTechs can also work to establish their dominance in the market, as traditional financial institutions and digital entrants are unknowns to many consumers trying digital banking tools for the first time.

The number of FinTechs is growing steadily across the region, with a determining report that there are around 700 financial service providers operating in Brazil alone. Five hundred FinTechs offer their solutions to consumers in Mexico and 200 operate in Colombia.

Thus, FIs wishing to stand out from the competition push to quickly innovate offers that can equal or exceed those of neobanks or FinTechs. Partnering with PSPs is an option that can put legacy institutions on a par with other emerging market players, especially as Latin American consumers seek faster and more connected digital payment experiences.

The challenge of digital transformation

Most of the region’s legacy banks are aware of the digital challenges ahead. For example, a recent study found that nearly 56% of finance professionals believe financial inclusion is the greatest opportunity for growth in Latin America, and 30% of those surveyed said their best option for finance. expansion was digital transformation.

Forging lasting partnerships with PSPs in the region could be essential in helping traditional banks achieve their goals of digital transformation and financial inclusion. This can enable FIs to offer transparent digital payment options to consumers, thereby sparking their interest and capturing their loyalty and business.

There is a need to successfully engage primarily digital Latin American consumers, as the region’s banking environment becomes increasingly saturated, forcing financial entities to continue innovating their offerings to meet the needs. of consumers.