New issuers and market challenges

Although the pandemic has entailed various complications around the world, in the field of payment methods, it has led to accelerated progress in digitization processes and has transcended beyond the traditional financial sector, which faces the challenge of moving at the speed of the market to avoid being left behind.

During the pandemic, users have changed their behavior and adopted digital media as an important component in their daily routine to avoid making face-to-face purchases or transactions and to keep their physical distance. This represents an important challenge for issuers of payment methods.

Mobile devices, as well as the technological advances used in institutions and businesses, have simplified many processes that users traditionally carried out in person, vesting digital media with a greater importance.

An essential component of these methods is the user experience, which is not only intended to simplify their tasks but also implies differential treatment. In this way, a phone application, among other things, helps users avoid crowds and and having

to stand in line at the bank and it speeds up their errands because they won’t need to go anywhere. Currently, users are used to using mobile applications, such as Facebook, Instagram, and WhatsApp, where the user experience is constantly improving to increase people’s loyalty. This is a starting point when using other mobile or online applications.

The financial sector cannot straggle behind. Users demand faster responses and greater and better access to financial services at any time. If the customer needs to pay an electricity bill, the fact that a branch office closes at 6:00 p.m. should not be a determining factor or a source of frustration. The user experience with digital payment methods has changed the way they consume products and services.

Financial institutions have reached an important sector of the population. However, only 55% of the population in Latin America has access to banking services. Compared to Europe, where 95% of people have access to the banking system[1], it is clear that there is still a wide gap to close.

The bureaucracy in the processes, lack of technological knowledge among older populations, unemployment, insufficient income, and the lack of confidence in the traditional banking sector are some of the possible reasons why many people do not have access to financial services. The goal of reaching this underserved public becomes the engine that ignites a disruption in the market, giving way to new issuers that have the necessary conditions to promote the democratization of finances.

These new issuers are institutions that can issue payment methods but go beyond traditional banking: they follow new trends that revolve around the customer and provide an improved and differentiated user experience.

The greatest advantage for these issuers has been their agility to offer innovative products in line with the market’s evolution, such as mobile wallets and contactless payments, virtual cards, biometric data authentication, and business intelligence to anticipate users’ needs. They have been able to leverage the market thanks to their access to technology in the regions where they operate.

The pandemic years have prompted the growth of contactless payment technologies in many Latin American countries, where the way of doing business and the encouragement of governments or financial regulators have made a difference. However, there is still a long way to go to achieve a true penetration of this technology in the region, so that traditional issuers will not be left behind.

Those issuers with greater innovation and better technology will be the ones who will be able to go further.

The rise of Fintech

When talking about Fintech in Latin America, it should be noted that the five countries where the greatest growth is observed are Brazil, Mexico, Colombia, Argentina, and Chile. However, the landscape in all other countries of the region has been very similar: fintech companies have developed a certain ease to position themselves in the market because their processes are faster, there is less bureaucracy, and they have a strong technology component with which they participate in the financial market. Therefore, we are talking about a substantial improvement in user experience.

According to a Statista study[2], the number of smartphone users in Latin America and the Caribbean (LAC) exceeds 414 million people. This is equivalent to more than 60% of the population. This widespread use of mobile devices and the internet is one of the main causes for the accelerated growth of Fintech since there are more people in LAC with cell phones than with debit or credit cards.

In rural areas, which don’t necessarily feature a high use of banking products and services, there is a notable presence of mobile devices, which allows fintech companies to access these users quickly and efficiently through mobile applications.

A market in which there have traditionally been limitations to access credit lines and other banking services has been the perfect setting for the accelerated growth of Fintech. They started differentiating themselves through remittance payments, fund distributions, and international transfer services, and have evolved toward electronic payment solutions, where they have had a great impact with products such as payment gateways and aggregators, mobile payment solutions, and electronic wallets, among others.

Fintech companies have also positioned themselves in areas as diverse as fraud prevention, scoring solutions, digital identity, and crowdfunding.

Democratization of finances

The concept of financial democratization has been bandied around for more than 10 years, but it is slowly becoming a reality. It is understood to be a process that seeks to equitably distribute control of the financial industry so that financial services are more accessible to everyone, giving way to the principles of inclusion, transparency, and security.

In this way, a greater number of people, especially those who do not have the possibility to opt for certain financial products, could have access to different ways of managing their money and even have the option of applying for loans 100% online.

Banking is becoming possible for people who did not believe in the traditional financial system or who were deemed “unsuitable” for it. New issuers have provided these people with alternatives to manage their finances: loans, mobile wallets, cards, and fund transfers.

Challenges for issuers

Issuers are now facing new challenges that have emerged hand-in-hand with new technologies; one such example is risk management. Users need to feel confident in that their sensitive data is safe and their transactions are secure, whether they are performed online with no card present or from a mobile device with an e-wallet. Timely and proper cybersecurity management is essential for innovative financial products.

Another challenge is the diversification of channels in order to offer a digital payment experience that reels users in. It is no longer enough for financial institutions to publish a website for their users to access their banking services and payment methods. Nowadays, it is also necessary to have an application that lets users be authenticated and make payments, purchases, or transfers; a solution that offers the end user flexibility, efficiency, and a better control of their finances.

An additional challenge for fintech companies in the financial sector is to adequately balance their high flexibility and low bureaucracy with the need to establish controls to guarantee the correct execution of the procedures that allow them to operate in a market where security is an essential component.

For traditional banks, it is still important to reach the necessary speed to address all the changes brought by the market, while for new issuers, who are advancing at an accelerated pace, the key is to be ready to manage risk in a timely manner.

Looking ahead, an important challenge for issuers will be to start sharing their digital solutions through Open Banking, which is gradually making its way into the financial markets of Latin America.

Last but not least, every country has a challenge to be addressed: establishing adequate regulations for new financial institutions so that they are overseen by regulatory entities, just as is done with traditional financial institutions. This way, users can be guaranteed and assured that their money is in good hands. Mexico has demonstrated its leadership in this area: it has about 23% of the fintech companies in Latin America and already has regulations to work the financial markets of these participants.

Evertec as a technology partner for new issuers

One of the best options for new issuers is to establish partnerships with institutions that already know the market so that they can delegate to these partners everything that could become a bureaucratic issue and hinder the work of these flexible, fast, and efficient issuers.

The processor’s role can become a valuable asset for both new issuers and traditional institutions, since it facilitates the process of having

and offering better solutions to end customers.

A processor has the services required for processing, such as authorization systems, transaction routing systems, card management, risk controls, processing security, as well as knowledge about brand regulatory changes. These services are then made available to the issuers.

At Evertec, we have more than 30 years of experience in payment processing in Latin America and the Caribbean, using solid and stable processing systems, as well as a proprietary and robust platform for fraud monitoring and prevention: RiskCenter360. This is in addition to an extensive catalog of APIs (Application Programming Interface) to integrate issuer applications with the information in the processor and multiple features we have developed with the experience and knowledge of the markets where we operate Our solutions have high system availability, thus ensuring business continuity, and we are PCI certified.

The continuous improvement of the user experience to promote access to financial services for the entire population, backed by the knowledge and support of established companies, becomes a way to diversify participants while expanding and developing the path toward digitization.

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