To truly massify digital payments in Latin America, it will first be necessary to make them simpler, industry experts agreed on Thursday.
The use of cash has regressed considerably but to close the gap, the region still has to focus on building comprehensive ecosystems that connect the transactions of people, businesses, institutions and authorities.
“What’s needed is simple products—as simple as sending a message,” said Miguel Díaz Díaz, general director of payment systems and market infrastructures at Banco de México (Banxico), during his participation in an iupana master class on the future of digital payments.
“We are at a point where the penetration of smartphones is marking a paradigm shift. We can leverage the use of these telephones to provide very easy services, so that people are hooked from the moment they use them,” he reiterated.
To do this, the official suggests decision makers in the sector should focus on three layers of development: first, improving the basic network infrastructure through which payments travel, which must be very powerful and solid; second, a firm regulatory layer over the institutions that provide services, in order to build trust.
And finally, establish a level playing field so that it’s very easy to integrate into the ecosystem, regardless of the size of the service provider or whether it is a bank or fintech.
This laying of networks and connections would allow, for example, the dispersion of payments through messaging platforms, such as WhatsApp or Telegram.
Today, you can’t send a message from one platform to another, nor can you send a payment. But if the basic infrastructure worked with agnostic and open technology, different applications, banks and even operating systems could be connected.
“What we want is for everyone to be able to integrate,” Díaz added.
Integrated payments ecosystem
The region has made great strides in issuing payment products, such as wallets, said Daniel Aguilar, Veritran’s commercial director for Latin America. However, in everyday use they run into a wall.
“The mobile app, the wallet, that part is practically solved (…) but when I go out onto the street and with that virtual money I can only take it out of an ATM to make it physical again, that’s where the ecosystem is failing,” said.
“Today, we face the challenge of how to be able to use digital payments so that they become a means of barter (…) and for that, the ecosystem plays part, both for commerce and for people; make it natural, obvious, like cash is,” he added.
Aguilar highlighted the decline in the use of cash of up to 60% in Colombia or 50% in Mexico, largely due to the pandemic. The challenge is to continue building on that trend.
To that end, he recommends banks invest in getting to know their users better—whether they are individuals or SMEs—because by being more assertive in offering products, they’ll also streamline their internal processes, through data collection and processing.
He also stressed that the user experience (UX) is paramount, as consumers are already accustomed to the ease of the digital world.
“What’s coming now is biometric payments. It’s something we are venturing into, and it may become a trend: using facial recognition—which we already do for digital onboarding—to pay.”
Changes in competition
The evolution of digital payments is also an invitation to financial institutions to change their paradigm on competition, even if that means minimizing the fees they charge for payments.
Banks have traditionally used commissions to monetize their operations and cover costs, but technology companies that offer free transactions have begun to eat up part of that market. In addition, transaction fees hinder the expansion of virtual payments and, in turn, limit the size of the market.
The interoperable payment platforms being launched by central banks, such as Pix in Brazil or Codi and SPEI in Mexico, with costs equal to or close to zero, also open a door for banks to integrate and offer free services to their customers. Díaz announced that this year SPEI, the Mexican instant payment system, will process about 2 billion transactions, an increase of close to 60%.
“The important thing is to use the information that the payment has as a raw material to produce more advanced financial services. And if we can get the industry to see it that way, we’ll achieve significant benefits not only in terms of financial inclusion but also in expanding the footprint of business,” said Díaz, recalling that in Mexico 90% of transactions are still made in cash.