Availability of financial services is improving rapidly in emerging markets around the world. Driving this change is the widespread usage of mobile devices. Among the 1.7 billion unbanked adults worldwide, it’s estimated that over one billion now have access to a mobile device. In Latin America, the percentage of the region’s population that used a smartphone in 2018 reached 64%, and that number is expected to reach 78% by 2025. What’s more, it’s predicted that 90% of all Internet connections in Latin America will be made through mobile devices by 2022. Business opportunity that the unbanked sector represents in Latin America is estimated at $34 billion. Fintechs are making significant strides to tap into this opportunity, most notably Brazil’s Nubank. Nubank is a digital bank that found an innovative way to tap into Brazil’s large, young consumer base (where the average age is 32 years old) with mobile-first banking services. With more than 8.5 million customers, Nubank is now the largest digital bank outside of Asia. It’s also the highest-valued, private digital bank in the world, recently raising a mega-round of funding ($400 million) from U.S. investment firm TCV. The digital banking giant plans to use its latest funding to fuel its expansion across the region.
Mobile banking is an efficient and cost-effective way for small- and medium-sized businesses (SMBs) to manage their finances. In Latin America, mobile banking can help reach SMBs in rural areas, or simply provide them with a better way to access financial services without the need to queue up at a physical bank. Access to credit is another major pain point for SMEs in Latin America, and digital banks are able to use technologies such as machine learning to evaluate a business’ creditworthiness faster and more efficiently.
Many countries in Latin America have introduced or are in the process of introducing new regulations that level the playing field between traditional financial institutions and new fintech players. For example, Mexico recently introduced a new fintech law which provides a detailed framework outlining how financial services served through digital platforms are regulated. Regulatory initiatives are in the works in other countries, such as Chile and Brazil. Latin America is well-positioned to become a global leader in digital banking. The opportunities to attract new customers who have been unbanked or underbanked up until now and bring them into the system via mobile-first services are still limitless. There are certainly challenges when it comes to achieving this goal, however, an increasingly friendly regulatory environment, increased investments, and mobile-first successes in other emerging markets around the world are enough to prove that financial inclusion can be a reality in Latin America and the region will certainly lead the digital banking revolution over the years to come.