There has been growth in the acceptance of digital transactions in Latin America and the Caribbean (LAC), but the cost of digital options remains an obstacle to wider acceptance in the region.
This was one of the major points highlighted in a report by payment technology giant Mastercard and research group Payments and Commerce Market Intelligence entitled: “The future of remittances in Latin America: Digitalisation, multiple rails, and the strategic role of partnerships.”
The report noted that just about a decade ago, “Latin America was far behind the global average in terms of financial inclusion (with 55 per cent of the population owning a financial account compared to 68 per cent globally in 2017) but the region experienced the fastest digital catch-up of all world regions during the pandemic years.”
It stated, “Mastercard’s 2023 financial inclusion study on Latin America revealed, currently 79 per cent of Latin Americans have access to a financial account and/or debit card, and 88 per cent of this group use a mobile phone to make payments.”
This increase in digital acceptance was backed up by a report last week by Mastercard’s rival VISA, which identified a notable increase in the number of transactions with Visa payment credentials, indicating the growing acceptance and adoption of digital payments.
The number of Visa transactions during Trinidad Carnival 2024 increased by almost 20 per cent in comparison to Carnival 2023, while contactless transactions more than doubled in growth.
The report conducted by Visa Consulting and Analytics (VCA), Visa’s global consulting practice, revealed that transactions in key merchant segments–supermarkets, restaurants, gas stations, and telecommunications –showed double-digit growth year over year, while there was a simultaneous reduction in ATM withdrawals. Additionally, VISA reported that the number of Visa cross-border transactions made in T&T with international cards increased by double digits during Carnival 2024 versus the previous year, revealing a dynamic growth scenario in T&T.
Notably, the majority of transactions came from US travellers, followed by Canada and the UK.
The last point, however, highlighted that despite increased digital adoption, there are still signs of inequality as many LAC countries face issues of financial exclusion.
The report stated, “The region still must combat problems such as entrenched financial exclusion, poverty, and social and political instability. Countries like Mexico, Guatemala, Honduras, El Salvador, Peru, Paraguay, and Bolivia are lagging in financial inclusion indicators ( less than 60 per cent financial account access), as more than 91 million Latin Americans still do not have digital accounts and another 200 million are in the early stages of financial inclusion.”
This has led to slower adoption of digital payment solutions compared to the rest of the world as the report stated, “digital remittances have grown just slightly slower than the global pace, at 23 per cent annually (compared to 25 per cent).
Today, digital remittances have a 43 per cent share of the remittances market in Latin America, nearly 10 percentage points behind the digital remittances market share at a global level.”
The cost of these transactions, the report stated, was one of the obstacles to wider adoption.
The report said, “In many cases, remittances are still slow and expensive. The primary obstacle to customers transacting more frequently, according to Mastercard’s Borderless Payment 2023 global report, is high costs and hidden fees. The problems of cost, security, speed, and certainty persist, thanks to inefficiencies stemming from intermediaries.
Rasika Raina, global senior vice-president, transfer solutions, at Mastercard said in the report, “Moving money is still expensive. Depending on the transaction amount, payment method and transfer destination, remittances still involve multiple intermediaries, including correspondent banks or other service providers.”
Commenting on the report, Paola Mercado, digital accounts and card supervisor at the Argentine-based payment platform Mercado Pago agreed with this assessment saying, “There are many players in the entire flow. With so many players, it is a costly flow.”
The report further noted, “In a single transaction, money could flow from a digital wallet to a bank, to one or multiple correspondent banks, to another digital wallet or retailer, and ultimately to cash picked up by the receiver. Each institution and jurisdiction the money passes through adds a layer of cost, compliance requirements, and time.”
This trend was proven true in T&T.
In December, Finance Minister Colm Imbert noted an increase in financial exclusion while addressing a workshop hosted by the T&T International Financial Centre (TTIFC) and the EU-UNCDF- OACP partnership for digital financial inclusion.
Imbert noted that according to a survey done by TTIFC in 2023, which captured data from approximately 2,000 households across the country, it was reported that only 76 per cent of people own a formal financial account compared to 81 per cent reported in 2017 in the World Bank’s index report.
Imbert said then, “Therefore, we have witnessed a widening in the financial exclusion gap, or a reduction in financial inclusion, over the last five years. There is little doubt that the COVID-19 pandemic would have been partially responsible for this, as the vulnerable population suffered disproportionately from infections, loss of employment and income and financial difficulties.”
Independent Senator Hazel Thompson-Ahye had raised concerns about fees implemented by financial institutions, and its adverse effects on the low or vulnerable class during a recent Joint Select Committee sitting that examined anti-fraud and customer protection systems in the local financial services sector.
“Who is the among you to protect the poor people whose banking accounts fall below $15,000 and the bank grabs $15 until the poor person might be left without any money in the bank?” the senator had asked the deputy inspector of financial institutions at the Central Bank Michelle Francis-Pantor during the sitting.
Francis-Pantor stated that since 2018, the Central Bank had issued notices to banks to encourage low or no-fee accounts for the vulnerable population, which the senator called “gentle persuasion.”
In his December address, the finance minister noted that while many banks in our country have pushed digital transactions, there remained scepticism from the public to adopt these methods.
“The rapid switch from over-the-counter transactions to digital consumer transactions has created concern and anxiety for several persons. This is particularly true for persons who don’t know how to make contactless payments and are unfamiliar with online bank transfers or mobile wallets, which is further exacerbated by our low debit and credit card usage.
“Millions of people worldwide still rely heavily on cash; some are battling to hold onto it. This is the same for T&T, as cash is still heavily relied upon, particularly for low-value, high-volume transactions. The use of electronic payments is still low,” he said.
In an interview with the Business Guardian last year, Damian Cooper, marketing manager for personal segments at Republic Bank said the use of its ewallet Endcash increased by 100 per cent from fiscal 2022 to fiscal 2023.
However, Cooper explained to encourage adoption, which had been initially slow, the vast majority of fees for the service were waived.
