To get a sense of the inroads digital payments have made in Latin America, Aron Schwarzkopf, CEO of Kushki, told Karen Webster: Just use the “grandma test.”
All manner of younger, tech-savvy early adopters, spurred by the pandemic, have moved online to use apps and digital wallets to transact.
But an increasing number of older individuals in the region — the grandmas, in other words — have also found it easy to use digital channels to navigate everyday commerce, said Schwarzkopf. An inviting, easier user experience has done much to make people who might have been loath to use mobile devices for browsing, banking and payment more comfortable with the process.
The progress has been significant. In 2020, 81% of Latin Americans did not have credit cards in 2020, and 45% had no bank accounts. But, during the pandemic, 40 million unbanked consumers enrolled in financial services, many of whom were encouraged by the need to receive government-funded pandemic-related support.
Local payment methods accounted for 83% of eCommerce spending, and 60% of eCommerce transactions in the region are purchased in installments. Digital shopping and payments are thriving, and the share of buyers living in LatAm regions is anticipated to grow at least 30% by 2024.
A Blank Canvas for Innovation
Schwarzkopf said that with those numbers, and that outsized potential in place, digital payments represent a blank canvas for all manner of FinTechs, banks and infrastructure providers like Kushki.
None of this is to say that the runway is entirely smooth. Though we might be in “year one” of the digital transformation in Latin America, obstacles loom, threatening a smooth transition away from cash, chiefly in the form of fragmentation.
Latin America is marked by a slew of different underwriting, regulatory and compliance mandates, Schwarzkopf said. Kushki strives to standardize integrations, linking diverse players — inside and outside the region — into a connected ecosystem.
The efforts by the public and the private sectors to connect consumers and devices, he told Webster, have a positive ripple effect.
“Regardless of who puts a card out there or digitalizes an account, local banks benefit from a growing ecosystem,” he said.
People want to transact in their own domestic markets and across borders, using their preferred payment methods. Access remains critical, as merchants need to be able to offer a range of payment options and, increasingly, installment and credit options. Doing so presents a challenge should an enterprise choose to go it alone.
To reduce the market-by-market fragmentation, Schwarzkopf said, Kushki’s platform acts as a gateway and enables service providers to bring local and cross-border payments to Latin American firms, as well as other companies that want to enter the region.
The cross-border potential is still in its early stages, he said, and marketplaces and platforms (Netflix, to name just one) want keenly to enter those markets.
“When it comes to having access in Latin America,” he said, “we have feet on the ground there, we’re licensed there, we work there.”
He noted that Kushki has been instrumental in convincing banks to increase transaction acceptance rates and in enabling debit transactions, which typically have been restricted for most banking clients. Kushki, he said, also provides “on and off ramps” for real-time payments.
The platform approach, he said, enables enterprises to integrate a wealth of payment methods on their sites.
New Credit Landscape
Separately, the credit landscape has also been evolving, and it’s becoming more common in Latin America for alternative lenders to serve unbanked and underbanked populations.
For now, Schwarzkopf said that “pricing of credit is an issue,” but credit itself will get cheaper over time.
That’s because new credit products have increasingly been coming to online marketplace models, particularly as FinTechs in Latin America see more and more investment dollars from U.S. banks.
The marketplaces, he remarked, can operate as efficient sources of capital for borrowers, as they leverage data and advanced analytics to more effectively underwrite and price risk. Kushki, he said, can take the burden of know your customer (KYC) and anti-money laundering (AML) compliance away those firms’ operations.
Looking Ahead
Looking ahead, as cryptocurrencies take root across the globe, Schwarzkopf noted that “Latin America is a perfect launching pad” for those new payment options — particularly for blockchain projects that are not tied specifically to any particular cryptocurrency.
Blockchains can help make payments faster and more transparent, aiding financial services firms to move away from batch processing and improve settlement time.
Kushki’s own priorities in 2022 and beyond, he said, include launching whole-stack infrastructure — four years in the making — into Latin America. That offering will encompass regulatory and licensing requirements for client firms, FinTechs and banks.
“It’s a dream we’ve had ever since the company started,” he told Webster, adding that “it’s a good time to see, and be part of, this payments digitization revolution going on in Latin America.”
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