April 2021

Authors: Paula Garnero; Ignacio E. Carballo; Andrés Chomczyk; José Oscar Henao Monje

Main Findings

1. Asia has become a global benchmark for new payment systems and digital financial tools, where Chinese super apps such as WeChat and Alipay enable users to conduct virtually any type of transaction through a single interface. In contrast, users in Latin America still need multiple applications to carry out different financial operations, except in Colombia, where Rappi is consolidating its position as a super app. Globally, there is a growing trend toward embedding payments directly within services, making the payment experience virtually “invisible,” as already occurs in some transportation apps, such as Uber. These experiences are made possible by API-based models that allow financial products to be integrated into third-party platforms, creating new digital ecosystems and concentrating an increasing number of transactions within a single platform.

2. This landscape is further shaped by emerging banking business models such as neobanks, challenger banks, Banking as a Service (BaaS), and the growing adoption of open banking and collaborative finance models across Latin America.

3. In Latin America, the most significant fintech ecosystems for digital payment services are located in Brazil, Mexico, Colombia, Argentina, and Chile. Among the leading players, Brazil stands out with Nubank, a neobank with more than 20 million customers and 1,500 employees, valued at US$10 billion. In Mexico, although PayPal remains the dominant player, initiatives such as Clip—which offers a mobile application that functions as a credit and debit card reader, enabling small businesses to accept card payments—Konfío, which provides unsecured working capital loans to SMEs, and Albo, the country’s leading challenger bank, are particularly noteworthy. In Colombia, notable companies include OmniBnk, a neobank that uses big data and machine learning to provide business credit lines, and Rappi, a super app that enables users to order taxis, purchase food, pay bills, rent electric scooters, and more. In Argentina, companies such as Mercado Libre—the country’s leading unicorn, operating in 18 Latin American countries, with more than 144 million registered users and listed on NASDAQ—have built a comprehensive fintech ecosystem that includes Mercado Pago, Mercado Crédito, and Mercado Fondo. Other notable Argentine fintech firms include Ualá, a neobank linked to a prepaid Mastercard, and Afluenta, a collaborative lending platform for consumers and MSMEs. In Chile, leading companies include Cumplo, the largest peer-to-peer lending network for SMEs in Latin America; Global66, an international online payment platform for money transfers and remittances; and ComparaOnline, a financial services and insurance comparison platform.

4. Brazil stands out as the leading regional benchmark in the regulation of digital payment systems and competition policy, having developed the most dynamic and mature fintech ecosystem in the region. The country was the first in Latin America to liberalize competition in the acquiring market (2010), implement measures to promote open banking (2019), and introduce an instant payment system operated by the national central bank (Pix, launched in November 2020), in addition to other initiatives such as regulations for mobile payments and electronic money (2013 and 2016, respectively). The announcement of WhatsApp Pay’s launch in Brazil in June 2020 generated significant repercussions throughout Latin America, where WhatsApp penetration—reaching nearly 80% of the population—is substantially higher than access to financial services. The abrupt suspension of Facebook’s payment functionality in WhatsApp Brazil several weeks later prompted the Central Bank to clarify that the measure was not intended to protect Pix, but rather to allow time to assess the profound impact that the entry of new BigTech competitors could have on the market.

5. The five countries selected for this research have adopted different regulatory approaches to the fintech ecosystem for digital payment services. Argentina and Uruguay have followed a case-by-case approach. Argentina has promoted the category of Payment Service Providers (PSPs) to enhance transparency regarding fintech resource management and protect users. Chile has, so far, adopted a stance of regulatory inaction, although there is a tendency toward creating a special regulatory regime. Recently, Chile introduced reforms to its credit card system that may facilitate the participation of fintech players and promote competition in the acquiring market through a four-party model. Mexico has clearly adopted a special regulatory framework through its Fintech Law and the development of technological infrastructures such as CoDi and SPEI, which are interoperable by design. However, these initiatives have not necessarily led to greater competition in the payment system or increased use of the available instruments—at least not yet. Paraguay has thus far maintained a position of regulatory inaction toward the fintech sector, although it has implemented specific measures targeting telecommunications companies and their digital wallets.

6. Digital payment systems in the five countries analyzed retain a predominantly local character, resulting in regulations that restrict payments within national territories and, in many cases, hinder international e-commerce transactions. Similarly, the region has made little progress toward harmonizing digital payment regulations within major trade blocs such as Mercosur and ALADI. Regional coordination efforts remain more focused on preventing money laundering than on creating the conditions necessary to promote cross-border e-commerce. To overcome these limitations, countries could either facilitate direct access to foreign exchange markets or allow consumers and businesses to access financial instruments denominated in foreign currencies for these transactions.

7. Fintech companies operate payment systems characterized by limited competition and low interoperability. Most countries maintain a separation between electronic money systems and transactions conducted through traditional financial institutions, creating barriers to financial inclusion. Argentina is the only jurisdiction among the countries analyzed that has established clear regulatory measures to achieve full interoperability between bank accounts and electronic money accounts in both directions through the use of CBU and CVU identifiers. However, in practice, full interoperability has not yet been achieved across all payment instruments, such as QR codes. In Chile, nearly all market participants rely on Transbank’s technological infrastructure, which has reduced the importance of interoperability on the domestic agenda—although this is expected to change with the consolidation of the four-party model. The remaining countries exhibit varying degrees of interoperability, but with notable shortcomings, either because transfers are unidirectional, as in Mexico, or because interoperability depends on the discretion of market participants, as in Uruguay.

8. The COVID-19 pandemic prompted many individuals and MSMEs in Latin America to engage in e-commerce for the first time (Mercado Libre, Mastercard, 2020). However, some private-sector estimates suggest that e-commerce may decline alongside the broader economic contraction, albeit to a lesser extent than in-person commerce. Using a proprietary econometric model, the study analyzed the impact of economic activity levels on digital payments in the selected countries under two scenarios: with COVID-19 and without COVID-19. Based on the available data, the study confirmed a significant relationship between economic activity levels and the expansion of digital payments. Specifically, it found that a 1% change in GDP directly affects the growth rate of digital payments, although the impact varies across economies. A 1% increase in GDP boosts quarterly digital payments by 0.48% in Argentina, 0.23% in Chile, and 1.37% in Paraguay. By contrast, the effect is nearly neutral in Mexico (−0.01%) and negative in Uruguay (−0.76% semiannually, or −0.38% quarterly). The study also confirmed that, although the decline in economic activity caused by the pandemic would slow the growth rates of digital payments in each country, digital payments would continue to follow an upward trajectory. Moreover, Uruguay stands out as the only country where, under a scenario of GDP contraction caused by COVID-19, digital payment growth would be greater than in a scenario without the pandemic. Future research should explore whether this behavior may be linked to the country’s high levels of financial inclusion.

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