In Payments

For all the turmoil COVID-19 has wrought across Latin America and the world, there are a few bright spots. Just like in all crisis situations, there are winners and losers. The payments industry will be one of the winners in the long term.

So far, the data tell us that COVID-19 and its corresponding lockdowns have accelerated the digitization of payments in Latin America. Forced to stay at home, with most stores closed, the Internet has become our God, provider all things: work, education, news, entertainment, social interaction, church, shopping mall, mass communication, etc. Despite our best technology, we have not yet discovered a way to feed cash directly into the computer to pay for things, so we have necessarily observed an increase in digital payment adoption:

  • Visa reports that 13 million Visa card holders in Latin America made their first e-commerce purchase in the first quarter of 2020.[1] That represents a 6% increase over the region’s 216 million online shoppers. At pre-COVID levels of e-commerce penetration growth, the region would have achieved that same number in Q4 2020—meaning COVID-19 accelerated e-commerce adoption by about 9 months. Under this speedy trend, by 2022, e-commerce will be used by 60% of the adult population, compared to the 52% penetration it would reach under normal circumstances in the same time period.[2]
  • This of course, speaks only to card-using e-commerce shoppers. While hard data is not available, there is evidence that previously under- and unbanked consumers are adopting digital payments as well.
  • E-commerce payment gateways that enable both cash and bank transfer payments are observing a marked migration away from cash to bank transfers.
  • Banks and neobanks are reporting a huge uptick in new account openings, a 400% increase in some cases. Most of these are entry-level that come with a debit card, and anecdotally we know they are being used primarily to pay for Netflix and other online purchases. Socialnet, a fintech in Argentina that provides digital onboarding for a leading bank, reports that online credit and debit applications soared from 250 per day in February to 1,000 per day in April and May.

Perhaps the most impressive example is the famed coronavoucher, Brazil’s social assistance program aimed at informal workers, three payments of $R600 deposited into a Caixa Econômica Federal digital bank account, accessible only through an app the bank created specifically for this purpose.  As of June 04th, 58.6 million Brazilians had received the first two installments of this payment into a digital account. Caixa Econômica Federal has opened 40 million digital accounts, 50% for of these were for previously unbanked people.

Now, how to make it stick?

COVID-19 is acting as an agent of change, as people adopt digital payments out of necessity. Two important questions remain:

  • Will these new users remain in the digital environment once quarantines end and brick-and-mortar shopping is available again?
  • Will these new users generate value for banks and drive banks to invest in them as a customer segment?

Certainly, we must not take this wave of digitization for granted. Consumers can fall out of the digital payment landscape just as easily as they fell into it, if banks and payment providers fail to deliver value. As a participant of our weekly Coffee Chats wisely stated:

“Banks must invest and re-invest in new customers on a daily basis, offering them value over and over again. Otherwise these consumers will continue to see banking only as a necessary evil, reverting to cash extraction at the ATM as the extent of their banking relationship.”

All too often, banks and others blame under-banked customers for their lukewarm attitudes toward digital payments, citing them as not educated enough, not digitized enough, too poor, or otherwise inadequate. However, the cash economy moves more than a trillion dollars in the region each year: what has been lacking is not on the consumer side, but rather a value proposition that motivates people to change their habits.

Institutions who attribute their failing product to a deficiency in the consumer (too uneducated, too poor) will never grow; companies who attribute a failing product to their own mismatched value proposition will position themselves to make a change and capture the new business they are coveting.  

How to do this? What value are these new consumers looking for, and what will motivate them to adopt digital payments for the long haul?

Must-have features:

  • Instantaneous and effortless onboarding using biometrics
  • Easy account management over mobile
  • A debit or credit card that is internationally enabled
  • Fee transparency is even more important than low or no fees

Value propositions to consider to generate ongoing value:

  • A virtual assistant to provide financial education
  • Personal budgeting tools
  • Tele-banking to easily connect with bank executives as needed: a bank branch in your mobile phone
  • Tools to manage subscriptions and card-on-file
  • Payments over social media
  • Integration with digital ID card

COVID-19 presents neobanks, fintechs, digital ecosystems and traditional banks with a golden opportunity — to expand the digital payments pie for good. To do this, companies must understand what is driving consumers in “the new normal.” Where will they shop, what will they buy and what motivates them? What will be the new payment pain points as retailers open up and life stabilizes? Understanding this and adapting to the customer — not asking the customer to adapt to us — will be the key to leveraging and preserving digital acceleration in payments.

Next Steps

Contact us to find out how we can help you modify your value proposition to reach customers. We can design and execute a customized study that will help you rapidly understand what these new consumers need and how you can tailor your services and marketing messaging to them. Going further, we can also help you with other critical needs that have come up during the COVID-19 crisis:

And more. Please feel free to learn explore the resources we offer for industry professionals, including case studies, our April 30 webinar on payment digitization, our recent whitepapers/thought leadership pieces and more.

[1] MarketWatch. May 2020. “Visa sees ‘massive’ digital acceleration with millions trying e-commerce for the first time.”

[2] AMI analysis

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