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Latin America Payments
6 Megatrends for 2021
A webinar presentation by Americas
Market Intelligence
February 2021
www.americasmi.com
Legal Notice
Wherever possible, AMI has verified the accuracy of information provided by third parties, but does not under any
circumstances accept responsibility for such inaccuracies should they remain unverified.
It is expected that the Client will use the information provided in this report in conjunction with other information and
with sound management practices. AMI therefore will not assume responsibility for commercial loss due to business
decisions made based on the use or non-use of the information provided.
© 2020. All rights reserved. ǀ Private and Confidential www.americasmi.com
Today’s
Presenters
Lindsay Lehr Marina Gil Ignacio Carballo
AMI Payments Practice Leader AMI Payments Practice AMI Payments Practice Southern
Brazil Affiliate Cone Affiliate
Moderated by Abel Delgado
AMI Marketing Manager
© 2020. All rights reserved. ǀ Private and Confidential 3
© 2020. All rights reserved. ǀ Private and Confidential www.americasmi.com
www.americasmi.com
6 Megatrends to watch in 2021
Disappearance of the Instant payments Debit becoming top of Rising dominance of Banking-as-a-service
Mass SME digitization
“unbanked” displacing cash wallet contactless over open banking
© 2020. All rights reserved. ǀ Private and Confidential www.americasmi.com
Trend #1 Disappearance of the unbanked
Reviewing the stats: 373 MM adults, 81% smartphone penetration
The primary enabler for financial inclusion (the smartphone) is closing in on its max penetration
39 MM 69%
95 MM 75%
167 MM 90%
25 MM 77%
34 MM 75%
Population 15 y/o+, millions
Smartphone penetration, % of population 15 MM 77%
Sources: EIU, GSMA, GlobalStats, AMI analysis and estimates
6
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Total bank account penetration reaches 70% in top 6 markets
Considering accounts from both banks and fintechs
Penetration of bank and fintech accounts
88%
Traditional bank
74%
82%
penetration
56%
60% 60% 60%
52%
49%
46% 45% 43%
37%
Digital bank &
fintech
penetration
Brazil Argentina Chile Colombia Mexico Peru 33%
2017 2021
Sources: World Bank, local sources, AMI analysis and estimates
7
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Digital banks and wallets have reached 50%+ penetration of banked
population and 33% of population overall
Millions of users, year end 2020
45
40
35
30 ~120+ MM people using digital-
25 only banks and wallets
20
15
10
5
0
RecargaPay
MercadoPago
Ame Digital
Next
Nubank
Yape
Banco Original
MagaluPay
PagBank
RappiPay(1)
PicPay
Uala
Banco Inter
Merchants Consumers
(1) estimated
Sources: Company investor reports, websites, interviews, AMI analysis
8
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Trend #1: Winners and losers
What is needed to win? Who could lose?
• Most seamless and fastest onboarding process • Institutions focused on their products
using facial recognition and digital document rather than their customers
uploading
• Require any physical step to account
• Carefully curated and targeted user journey that opening
adds value
• Fees and bureaucracy
• The most accessible and most helpful customer
support
• Capture urban youth
9
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Trend #2 Instant payments displacing cash
Pix and Yape are true proofs of concept for P2P payments
True cash replacers gaining traction. Scaled P2M is still speculative
$23 BN 4.5 MM users
in transaction (45% of Peru’s banked
volume in Dec population)
2020
500,000
merchants
Compare to av. $18 BN No major competition
in monthly cc spend from wallets/fintechs
11
© 2020. All rights reserved. ǀ Private and Confidential www.americasmi.comPix shows intensive experimentation by people and businesses
TED volume has remained stable, suggesting Pix is cannibalizing cash and boleto spend, not bank transfers
Registered chaves, millions Registered users, millions Pix volume by transaction type, Dec 2020
6
6%
11%
46%
127 Businesses 3.3 P2P
37% B2B
Individuals
Business to Person
52.4
Person to Business
35% of Brazil’s
banked population Pix volume, Dec 2020
TEDS
PIX
$0 $20 $40 $60 $80 $100 $120 $140
12
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MTrend #2: Pix scenarios
Pix may serve the #1 way to #1 entry point for new and Pix and debit card will battle
fund fintechs and wallets, early customers into the at the POS
making the much more banking system
competitive Merchant services still needs
Customer journey starts with to be defined within Pix to
Replaces boletos Pix compete with cards
To win: Get customers to register chaves and create a clear customer journey
13
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MPix at the POS? Still a question mark
Merchants take a “wait and see” attitude
What will determine Pix’s usage at the POS?
• Final fees charge to merchants
• Merchants’ promotion of Pix vis-à-vis debit
• Promotion from competing payment methods (i.e. contactless debit)
• Overall user experience
“We don’t expect to incorporate Pix as a payment method right Still to be defined for Pix for purchases
away. People are happy with paying with credit and debit. We’ll • Returns and refunds
continue to watch and see what happens.” • Claims disputes
--Ride-hailing app in Brazil • Reconciliation and integration with merchants’ systems
14
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MDebit card rails provide a clear path to P2P and P2M,
following the Yape model
Key ingredients for the Yape model
• Issuer with high market share or consortium of issuers
• Low penetration of fintech
• Limited bank interoperability
• A supporting card network
• Underserved banked population wanting a mobile
Candidates for the Yape model
payment solution
Strong
Candidate for bank consortium
/government P2P led model
15
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NTrend #3 Debit becoming top of wallet
Within F2F retail, cash still represents 75% of spend
Thanks to the pandemic, debit has surpassed credit in brick-and-mortar retail
Face-to-face Retail, 2020, % of volume
F2F retail
$348 $313 $77 $32 $58 $60
Top 6 markets
spend,
USD BN
10% 4%
17% 4%
14% 19% 23% 11% $665 MM
5% in cash
18% 14% 10%
$125 MM
86% 85%
81% in debit card
65% 67% 67%
$100 MM
in credit card
BR MX CO AR CH PE
Cash Credit card Debit card
Sources: EIU, local Central Banks, AMI analysis
17
© 2020. All rights reserved. ǀ Private and Confidential www.americasmi.comWhat happened in 2020? Cash didn’t
decline as much as expected
Credit card and cash lost share….debit gained share
% of F2F retail spend, 2019
11% Cash
12% Credit card
Estimated 2019-2020 growth in F2F retail
77% Debit card
-18% Total retail spend, MM
-1% Debit card
% of F2F retail spend, 2020
-26% Credit card
14%
11% Cash
-19% Cash Credit card
75%
Debit card
Sources: EIU, local Central Banks, AMI analysis
18
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NE-commerce market volume in 2020 grows despite economic contraction
LatAm e-commerce grew 8% in 2020 to reach $191BN while the rest of the economy contracted. 15% growth projected through 2023
$171 2020(f) Latin America total
e-commerce market
$191 BN
E-commerce market size, USD BN
$112
2020 market value(f)
2023 market value (f)
$52
$31
$28 $18
$17
$10 $9 $11
$15 $5$2 $2 $2 $3 $2 $5 $3 $3 $2
$6
BR MX CO AR CH PE UY DR CR PA GT
(f) forecasted. Analysis conducted Q3 2020. AMI will publish updated 2020 and forecasted data at the end of Q1 2021
Sources: AMI analysis
19
© 2020. All rights reserved. ǀ Private and Confidential www.americasmi.comShifts in the e-commerce payment methods landscape
Debit is the winner, gaining four percentage points in share over the next three years, taking away from cash-based payment methods
Forecasted CAGR Debit card
through 2023
4% 4%
10% 10%
Credit
card
Bank 10%
14% Regional payment Wallets Regional payment
transfers
method distribution method distribution
2020 57%
26%
2023(f) 58%
15%
Cash
11%
vouchers 16%
14% 14%
6%
Credit card Debit card Cash vouchers Wallets Bank transfers
(f) forecasted
Sources: AMI analysis
20
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MTrend #3: Winners and losers
What is needed to win? Who could lose?
• Debit enabled for online and international • Institutions with a poor online debit
purchasing experience
• 3DS 2.0 to maximize frictionless payments • Institutions lagging in debit contactless
issuing
• Virtual debit card deployed instantly into a digital
wallet • Fintechs focused on closed-loop wallets
• Relevant debit to credit transition • Credit cards with irrelevant rewards
programs
21
© 2020. All rights reserved. ǀ Private and Confidential www.americasmi.comTrend #4 Rising dominance of contactless
Contactless makes significant progress in some markets
Pandemic boosted use of contactless/NFC
Estimated contactless penetration
of F2F payment volume, 2020Chile dominates in contactless volumes, followed by Brazil
Estimated 2020 contactless volumes,
BN USD
• COVID massively boosted
$29
contactless card and mobile usage
due to fear of contagion
Est. 25% is NFC
$18
mobile/wearable • Success of contactless depends on
issuers’ commitment to promotion
$4 $4 $3 $3
• Paves the way for contactless NFC
Chile Brazil Mexico Peru Argentina Colombia
Sources: ABECS, BBVA, Visa, Mastercard, interviews, interviews, AMI analysis
24
© 2020. All rights reserved. ǀ Private and Confidential www.americasmi.comQR code is being offered more and more often, but makes up
The battle continues: Merchants becoming banks and vice versa
All players aiming for full service, super-app status. Solutions in small markets could capture large market share
• Credit cards
• Loans
MagaluPay
• Cash-in a Magazine Luiza stores • QR codes payments in-store
• Purchases at Magazine Luiza stores • Card-on-file online
(QR code) • P2P payments
• P2P (closed-loop + Banco do Brasil) • All purchases earn CRM Falabella
• Bill pay loyalty points
• Cash back • Transactions funded via card or bank • In-app marketplace
• Shoppers earn cash-back on
• 1 million users in less than 1 year account purchases
26
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MTrend #5 Banking-as-a-service over true open banking
Open banking timeline in Brazil and Mexico
A vision is in place, but is the demand there?
March: BANXICO credit June: Open data Q1 Transactional data
bureau participation rules secondary regulations secondary regulations
2020 Nov: phase 1 – enable
2021
May: Regulation published access channels, products May: Phase 2 – Aug: Phase 3 – Oct: Phase 4 –
and services customer data sharing payment transaction sharing all other
initiation sharing services and
information
June: Regulation enforced
• Large investment for a long-term strategy
Alternative priorities • No apparent or immediate monetization
CHALLENGES:
• Other priorities
CoDi, CNBV licensing fintechs
• Efforts to centralize information
Instant payments • Willingness to share information
Banks Investment to digitize infrastructure
• Developing APIs
• Bureaucratic delays
Fintechs Gathering investment
(TPPs) Increasing user base • Change in mindset where customers own their financial data and
the have the right to share it with third parties to obtain benefits.
28
© 2020. All rights reserved. ǀ Private and Confidential www.americasmi.comCard networks working to facilitate fast issuing; FaaS and BaaS in high demand
Enabling more issuers and more prepaid/debit cards
Mastercard Accelerate Fintech partners
Visa Fast Track for Fintechs
29
© 2020. All rights reserved. ǀ Private and Confidential www.americasmi.comRegulatory environment uncertain and infrastructure incomplete
While growing rapidly in some markets, the region is not ready to fully support FaaS
Presence of fintech-as-a-service
Very common
Uncommon
Mexico regulators crack down on FaaS
“Las entidades financieras que presten servicios
financieros a través de terceros sin la autorización
respectiva, se harán acreedoras a las sanciones que
establezca la ley.”
“Se informa que las autorizaciones otorgadas a
entidades financieras son intransferibles”
30
© 2020. All rights reserved. ǀ Private and Confidential www.americasmi.comTrend #5: Winners and losers
What is needed to win?
• More FaaS enablers -> more card network primary
members
• More issuers to provide BIN sponsorship
• Enabling regulation and players in small markets
• Pioneers to pave the way
31
© 2020. All rights reserved. ǀ Private and Confidential www.americasmi.comTrend #6 Mass SME digitization
SMEs more interested in digitizing than ever. Retail and
fintech giants ushering in SMEs, becoming new acquirers
Opportunities
• Pay links
• Sales over social media and
messaging
• ERP and CRM
• P2M
• Banking for SMEs
• Purchasing platforms
• Lending and insurance
33
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NTrend #6: Winners and losers
What is needed to win? Who could lose?
• Easy, cheap plug-and-play solutions • Acquirers losing business to platforms and
ecosystems
• Services like returns, partial returns, account
reconciliation
• Break the cash cycle: Creating an ecosystem
34
© 2020. All rights reserved. ǀ Private and Confidential www.americasmi.comAMI 2021-2022 predictions
#1. Debit will become the #1 #2. Contactless will reach 25% #3. Pix will dominate as P2P and
payment method for penetration of card volume by year become a major funding source
everyone but the top 10%. end 2021 for wallets, which will then fund
Credit to recover in 2022 card-based purchases
NFC Mobile will reach 50% of total
contactless in Brazil
#4. Some wallets and neobanks #5. Other ecosystem players #6. Retailers will increasingly
will trend toward becoming (MercadoPago, Pagseguro, Rappi) become SME service providers and
payment and shopping will remain front-end ecosystems increase their overall market share
marketplaces, with credit and running on top of card rails, with
debit cards staying top of wallet their eyes on banking/lending
35
© 2020. All rights reserved. ǀ Private and Confidential www.americasmi.comQ&A
AMI Coffee Chat series
Beginning Feb 22nd 11am EST
Scan me to register!
Lindsay Lehr
llehr@americasmi.com
Marina Gil
mgil@americasmi.com
Ignacio Carballo
icarballo@americasmi.comWorking with AMI
LatAm’s top Payments Industry Market Intelligent Provider and Strategy Advisor
Available industry data
• Credit and debit card spend
• Top banks by cards and assets
Market Opportunity Competitive
landscaping benchmarking intelligence • Total retail spend and payment method breakdown
• 2016-2024 e-commerce data
• Wallets and estimated users
• Banking and smartphone penetration
Consumer/ Regulatory Thought leadership
end user research analysis and strategic • List of fintechs, payment facilitators, and industry players
Mystery shopping planning & capabilities
37
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