How coopetition can boost financial inclusion in LatAm

    Financial inclusion has made great strides in recent years in Latin America (LatAm), but there are plenty of opportunities for fintechs, banks and tech companies in collaboration with regulators and legacy players to take the mission of inclusion even further.

    Latin America

    The financial industry must build on its initial progress and take the next step

    Democratising access to a transactional account is the first step towards true and complete financial inclusion. Fostering opportunities for everyone to participate in the world of finance and business creates possibilities not just for individuals, but for entire economies by driving innovation, investment and equality.

    Brazil became the benchmark for financial inclusion in the region due to a combination of factors, most notably the evolution of regulation. Over time, the central bank opened up competition and created an opportunity for new businesses to emerge with expanded capabilities, leading the country into a fintech boom – there were, according to the Brazilian central bank, 111 companies created in Brazil that were considered a fintech by 2021, compared to just six in 2017. You also need to consider the multiplicative effect – the banking-as-a-service (BaaS) model makes it possible that one of those 111 companies can have dozens of standalone fintech services and solutions. Do the math, and that leaves consumers with a tonne of options.

    The innovation coming out of fintechs is also driving big banks to create new products and services. Incumbent financial institutions are increasingly realising that there is an accessibility problem.

    One way to break down the accessibility barrier is through the expansion of embedded finance – or banking-like services offered by non-banking institutions. It has allowed companies, regardless of size, area or segment, to offer financial services such as digital accounts and cards to their customers. Companies participating in this movement range from retailers to telecom providers to insurers. Embedded finance means that consumers no longer need to work with a bank directly to create a transactional account or build credit. A person can walk into their local retail store and make a purchase or get credit at that location without needing to go to a bank first.

    These strategies are helping to establish trust between consumers and a new wave of financial service providers. By allowing retailers of any size to become banks, embedded finance provides a myriad of new opportunities for people to access financial services.

    New payment methods have also served as a means for achieving financial inclusion, such as Pix in Brazil, which contributed to boosting the digital market in a region where almost half of the population does not have a bank account. The instant payment system from the central bank of Brazil paved the way for more than 150 million people to shop online for the first time. The pandemic was also a booster, no pun intended, as it paved the way for 16.6 million Brazilians to join the financial system during this period alone.

    The mission to create more access is working. According to a “post-pandemic” survey conducted by Mastercard and AMI, more than 40 million people in 13 LatAm countries became banked in late 2020 –  a nearly 20% boost from the World Bank’s January 2020 statistic. In Brazil specifically, more than 10 million residents opened their first account between mid-April and October 2020 to receive financial assistance from the federal government, according to the IBGE. For the same reason, countries like Colombia, Chile and Costa Rica followed this movement.

    How do we create a more inclusive financial future?

    Now it’s time to build on that initial progress and take the next step.

    I strongly believe that the upcoming trend in the financial sector in LatAm will be the expansion of access to credit and the provision of fairer and more transparent products and services. This will make life significantly easier for consumers, empower individuals and companies and encourage economic development.

    To get to that point, financial services companies need to better understand today’s consumer. Society has changed and people are rejecting harmful, complex and opaque products. Today’s consumer wants to understand, compare and assess. They are suspicious of a lack of information – both about how products work and about the values of the companies behind them.

    Conversely, there are numerous examples of consumers gravitating towards brands that promote transparency, inclusion and an easily understood value proposition. Once a company gains the trust of customers, opportunities to win more mindshare and wallet share through expanded offerings begin to present themselves.

    It’s time for collaboration

    To further democratise access to credit, tech companies, banks and fintechs must come together, establishing an environment of coopetition – cooperation and competition. This will benefit them and their customers, while accelerating the evolution of the entire financial ecosystem.

    To continue the progress that has been made, banks and fintechs should commit to two things: 1) offering more flexible, fair and transparent credit options to consumers; and 2) providing services for people who have not yet found ways to access credit.

    The industry should work collaboratively to democratise access to financial services that benefit both the company and the consumer. This approach will provide business growth opportunities for companies, while also delivering a societal good.

    While there are certainly next steps to achieving true financial inclusion, it’s promising to see the work companies are doing to break them down to create more equity within the system. According to the World Bank, in 2021, 71% of adults in developed countries had an account with a financial institution or digital wallet, a growth of more than 50% compared to a decade ago.

    There is still work to be done, but through teamwork and collaboration between fintechs, regulators, SMBs and other industry players, we as an industry can inaugurate the next phase of inclusion and further democratise access to a more complete offer of financial services.

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