New technologies to improve the financial health of Latin Americans

In the 21st century and after a pandemic that confined us to our homes for months, only 55% of Latin Americans have a bank account, in contrast to the global average of 69%. This means that there are still 360 million adults in the region who only handle cash and therefore cannot make digital transactions. Most of them are outside the circuits of the formal economy, which implies fewer options to access social protection systems, such as pensions, for example.

Although levels of banking penetration in Latin America have grown significantly over the last decade, the gap between Latin America and advanced economies remains a cause for concern. Low levels of financial inclusion in Latin America have an impact on a wide range of areas, from the competitiveness of SMEs to the ability of citizens to save or to take advantage of the benefits of the formal economy.

The importance of financial inclusion in the development of countries is also decisive. On the one hand, it includes the supply of financial products and, on the other hand, the demand for products by citizens. In today's economies, which are being transformed by the integration of new technologies and new business models such as fintech, financial inclusion has become crucial to reduce the underserved population unable to access financial services.

Currently, most countries have tools to measure the access, use and quality of financial products and services, but few assess their impact on people's well-being.

"A better educated citizenry in economic and financial matters can not only contribute to a better functioning economy, but also to more effective public policies. By empowering people to make more informed decisions, it increases the likelihood that these decisions will be better and, in turn, that citizens will be able to control their financial future, which has a clear positive impact on their well-being," says Diana Mejía, CAF's Senior Financial Inclusion Specialist.

According to Mejía, the focus of public policy in this area should identify the barriers that constitute the greatest limitations for the financial inclusion of individuals and SMEs, and work hand in hand with private sector financial institutions, including fintechs, to reduce gaps and enhance the impact of financial inclusion on the economic activity and productivity of countries.

Technological innovation has brought with it new trends in the financial world that are transforming the provision of financial services and that also represent an alternative to meet the needs of the population, including the most vulnerable. The fintech sector in Latin America and the Caribbean has been growing rapidly in recent years, and few are forgetting to include financial inclusion tools. In fact, 40% of fintech startups in the region serve unbanked or underbanked SMEs as their main customer, according to Finnovista's monitoring.

"Like any innovation, fintechs have managed to show in short periods of time their ability to integrate actors, change schemes and design new products according to the needs of their customers, especially for those who have not had access to the financial system," says Mejía.

In this sense, there are also other initiatives that contribute to strengthening this new ecosystem and, with it, to improving the financial well-being of the underserved population, as well as the competitiveness of SMEs through the use of new technologies. One example is CAF's Financial Inclusion Lab (LIF), carried out this year in Argentina, Chile, Paraguay and Uruguay, which links the main actors in the private sector (private banks and investment funds), the public sector and technology-based start-ups to find solutions to the main challenges of financial inclusion in these countries. 

The LIF, which started in 2019 in Colombia and during the pandemic was carried out regionally, has accelerated more than 10 companies and is channelling the necessary investments so that fintechs with social impact have the necessary means to carry out their operations.

The fintech ecosystem in Latin America has a huge potential to contribute to the development of countries. Cases such as NuBank, Konfio, Global66 or Flink are examples of the great space that exists for technology-based ventures to provide services that are increasingly tailored to the needs of new consumers and the underserved population.

Robert Valls, Senior Communication Executive at CAF

Visiones del Desarrollo is a section promoted by CAF, Development Bank of Latin America, which analyses the main development issues in the region. The articles it contains are published simultaneously in the main Latin American media.