Consistently ranked as the fastest-growing and most innovative globally, Latin American and African markets have attracted significant investor interest.
There’s a comfortable, if misplaced, perception in the West that the economies of Latin America and Africa can be lumped into the category of “developing markets.”
As we’ll see, though, much development has already happened in these regions’ banking and payments infrastructures – and there’s more to come.
This ain’t Kansas, Dorothy
A fresh perspective is required for Europeans and North Americans used to slower rates of growth, established banking and payment systems and tortoise-style rates of change.
For one thing, there will be 109 million new adult consumers this year alone across Africa, Latin America and Asia excluding China, according to emerging markets payments specialists dlocal. But that’s chicken-feed compared to the online opportunity.
“Online sales in the four leading Latin American economies will hit $1 trillion by 2027.”
Speaking at the recent MPE conference in Berlin, dlocal’s Head of EMEA, Agustin Botta, said that online sales increased by 60 percent in Brazil last year alone, driven mainly by PIX – the instant payment phenomenon that needs no introduction to payments professionals everywhere.
Across Latin America, Mr. Botta said, we should prepare for a 200 percent increase in e-commerce by 2027, with online sales in Brazil, Mexico, Argentina and Peru reaching 1 trillion US dollars
Comparing this explosive growth with relatively anaemic rates of 6 percent in Europe, and the revolutionary shift from North to South that’s happening in the global economy becomes clear.
Mr. Botta adds Africa that is “the next wave in payments digitalisation. We expect consumer spending to grow by 350 percent over the next five years, and 64 percent of Africans to be active online.
As these changes happen, you’re going to find that mobile money services like Egypt’s Instapay or Ghana’s GIP will be the main winners.”
African money goes mobile
In a report published a few weeks ago, the GSMA said that around two-thirds of sub-Saharan Africa’s 1.2 billion people are registered for mobile money accounts – a form of digital wallet payment that allows cash to be added at registered locations, then spent either at Point of Sale (POS) or online.
Over a quarter of these accounts are used at least monthly to spend around $1 trillion as at March 2024.
Africa is not just the biggest region for mobile money – it’s also the fastest-growing, with positive effects for overall economies.
The GSMA claim mobile money services added $600 billion, equivalent to 1.5 percent GDP growth, to African economies in the last ten years.
Mats Granyard, Director-General of the GSMA, says: “Sub-Saharan Africa has been a key driver of mobile money’s success, home to almost three-quarters of the world’s accounts.
In the past 10 years, West Africa has emerged as a key player with the number of registered mobile money accounts doubling between 2013 and 2023, driven mostly by growth in Nigeria, Ghana and Senegal. As the industry continues to grow, we see further maturity.”
From instant to super: Latin America
The success of PIX in Brazil and Yapi in Colombia has galvanised demand for new payments and financial management solutions across the continent, including thriving national-level instant payments infrastructures.
Colombian regulators have openly stated they want to replicate PIX in that country, while Peru has created a real-time transfer banking system interoperable with leading digital wallets and El Salvador and Nicaragua are looking to introduce instant payments, all via app-based wallet solutions.
According to Strategy Consulting and M&A Advisory Services firm Korefusion, there were 482 payments-related fintechs active in Latin America at the start of 2023, 90 percent of which were founded in Latin America.
“The next step for Latin America is the emergence of super-apps including POS and cross-border online payments.”
Jan Smith, Founding Partner at Korefusion, says: “We’ve seen payment methods such as Yapi and MercadoPago extending their range of services and being used for remittances as an alternative to banks and money transfer services.
The next step for these app-based solutions is to become SuperApps, increasing their capabilities further to include POS and cross-border online payments. Apps like these are going to be key to the continuing development of Latin America’s digital infrastructure over the next five years.”
As payments infrastructures develop, it’s likely that we’ll see amalgamations and tie-ups between existing banking and payments infrastructures and new digital alternatives emerging to traditional bank and merchant relationships.
According to payments consultancy Kushki, cash use across the continent is now at an all-time low (36 percent of all transactions), while the penetration of digital banking is now greater than nine in ten citizens in Brazil, Argentina, Chile and Colombia, with other countries catching up fast.
Consumers are embracing contactless payments and biometric authentication solutions. Kushki say that as wallets and contactless payments continue to replace cash, while ongoing investment spurs infrastructure improvements, we can expect to see incremental gains in terms of lower costs and greater efficiency – in other words, the pace of development will pick up even further over the next five years.
Regulators are playing their part, too, making moves to support lower-cost, higher-efficiency payments.
In 2010, for instance, Brazilian regulators mandated an end to exclusive acquiring networks run by banks – as a result, Brazil is now home to over 30 domestic and international acquirers, many of whom operate more like fintechs than financial institutions.
Other regulators have followed Brazil’s example, banning exclusive acquiring networks in Colombia (2012), Peru (2018), Argentina (2019), and Chile in 2020.
The net result of such actions is to reduce costs, improve competition and drive technology gains that benefit consumers.
Those of us who inhabit heavily-regulated, relatively slow-moving markets in Europe and North America should get ready: if we think growth in Latin America and Africa has been impressive so far, we ain’t seen nothing yet.
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