Fintech solutions are revolutionizing financial inclusion in Latin America, with 70% of the region’s population now having access to financial services, up from just 51% in 2011. This dramatic shift is transforming the economic landscape of a region long plagued by financial inequality, offering hope for millions previously excluded from traditional banking systems.

According to a new report by the International Monetary Fund (IMF), the rise of FinTech in Latin America (LatAm) over the past ten years has upended the region’s financial landscape, spurring innovation in the banking industry, increasing competition, and aiding in the increase of inclusion.

IMF specialists examine the condition of FinTech in Latin America, highlighting emerging trends in the industry and examining the effects of the industry’s growth on the region’s financial environment, according to a report.

The FinTech sector in Latin America has grown in recent years due to many positive demographic variables, such as the region’s high percentage of unbanked and underbanked people and government attempts to improve payment infrastructures through digitalization. Significant advancements, increased productivity, and improved accessibility for businesses and customers have resulted from this.

Why Latin America is Attracting FinTech Innovation?

Latin America is a great place for those looking to get into the financial services and payments industry. LatAm is leading the FinTech revolution thanks to its comparatively youthful, tech-savvy populace and strong governmental support for financial digitization. 

Consumers Prioritize Digital Payments

In Latin America, cash used to be the primary means of payment, but the usage of digital alternatives is quickly increasing. According to a recent survey, between 2020 and 2023, fewer consumers in Argentina utilized cash for over half of their monthly expenses, a 20 percent decline. According to the report, that percentage dropped by 5% in El Salvador and 17% in Brazil and Mexico. 

The fact that most small businesses—92 percent of them, according to the same survey—accept electronic payments has made it possible for people to move away from cash. This change is largely due to mobile devices, as 88% of consumers said they make purchases on them. Notably, the study found that 82% of these payments are made through bank transfers and peer-to-peer transactions.

Furthermore, not all forms of payment are going digital in Latin America. The significance of smartphones and other digital tools in the customer buying experience is becoming important. 

According to a study of Mexican consumers, the typical buyer used ten distinct digital shopping features for each purchase, and 30% of the female respondents expressed a desire to include digital tools in every step of their shopping experience. 

Government Backing

In addition to consumer demand, government backing has been essential in driving the expansion of digital payments throughout Latin America. Some nations in the area have even entered the competition directly. 

For instance, the central bank of Brazil oversees the Pix system, an instantaneous payment network. 43 percent of customers regularly use Pix, compared to just 29 percent who use credit cards and 21 percent who use cash.

Even well-established institutions have adjusted to stay up with the times. The biggest bank in the area, Itaú, has opened a digital-only neobank in Chile called Itu. It offers deposit accounts that come with Mastercard debit cards. 

Limitations to Financial Inclusion in Latin America

Consumers are being denied the resources they need to properly manage credit due to a lack of opportunities for financial education and safe credit use. Thus, their prospects of achieving long-term financial security are diminished.

1. Lack of financial education

In a Mastercard survey based on interviews with over 2,800 customers, 84% of respondents emphasized the need for financial education for financial inclusion. But the research also makes clear an alarming fact: most Latin Americans lack the necessary financial management education, counseling, or support.

2. Limited availability of credit

According to data from Mastercard, 77% of respondents said they have never looked for a financial product, and 42% said they have been turned down, particularly when applying for credit cards.

Enhancing consumer credit availability is crucial for increasing financial inclusion since it lowers financial vulnerability, particularly in emergencies. By facilitating responsible credit access, financial institutions can foster financial flexibility and provide a means of stimulating economic recovery.

3. Gender Gap

Despite the progress in increasing the accessibility of financial services throughout the region, gender inequality remains a major challenge. Women still face obstacles when trying to get credit, savings accounts, and bank accounts. 

In addition to supporting women’s economic empowerment, the gender gap in financial inclusion is a mirror of greater societal inequalities. It impedes their ability to obtain credit for personal growth, education, and enterprise, which feeds the cycle of poverty and scarce opportunities.

Further Measures for Financial Inclusion in Latin America

To serve more people and improve financial inclusion, banks and FinTechs must focus on three main areas: service personalization, access to digital accounts and credit cards, and financial education.

1. Having access to credit cards and digital accounts

According to a Mastercard survey, there are 91 million clients in Latin America who do not have digital accounts. Stated differently, 21% of adults handle their money exclusively using cash, which keeps them outside the financial system and prevents them from using all the benefits of digital banking. 

Banks and FinTechs must target customers more closely with credit cards and loans to improve these numbers. Prioritizing the creation of financial services and products that are tailored to these consumers’ requirements and financial goals is one strategy to achieve this.

2. Financial literacy

Banks and other financial institutions providing financial education are hard to come by in Latin America. However, gaps present opportunities, so banks may and should continue to make significant progress toward accessibility.

Traditional classes and seminars are one type of education that springs to mind, but there are a lot of additional approaches to make finance understandable. From gamified financial education to a user interface (UI) that makes managing finances easier. 

3. Customization of Services

Banks must concentrate on the populations that have difficulty obtaining financial services. Integrating Open Finance and Personal Finance Management technologies will bring confidence and value to Latin America’s impoverished clients.

Most clients also think that receiving financial education and counseling might greatly improve their understanding of their financial circumstances, enabling them to make more thoughtful and educated choices. 

What does the Future Hold?

With only three out of ten Latin Americans having access to credit forms like loans, insurance, or investment goods, the Internet lending market is one of the FinTech segments with the most development potential.

Open banking is another significant development opportunity for FinTech software development and, by extension, for financial inclusion. The primary means through which governments may assist is by enabling investment and regulations to aid in the development of infrastructure, ensuring that access to digital technology is equal in both urban and rural locations.

While much work remains, LatAm countries are not only completely embracing the digital revolution but also grabbing the opportunity it gives to expand financial inclusion in the region. 

LatAm FinTech startups may grow and effect genuine, significant change in the region with the help of financial partners and the crucial backing of local governments. A bright future is ahead, one that will expand underserved and unbanked populations’ access to FinTech services when they most need them, ultimately enhancing financial wellness for all.