How to Get the Unbanked Banked in LATAM

The banking sector in Latin America has been booming in the last few years, although the experts who talked about this instance with Finance Magnates agreed with the World Bank Financial Inclusion Index’s metrics: almost 45% of the population in LatAm was unbanked until 2017.

As of January 2020, only 342 million adults in the region have a bank account, an average of only 55%, which is not far from the statistics collected in 2017.

Speaking with Finance Magnates, Eduardo Delgado, Director at Fintexify, highlighted that Latin America has a total population of 622 million, making it one of the regions in the world with the most people lacking access to banking or finance services.

The numbers unveil high inequal access to the banking system compared to other regions like the United States and Western Europe, where the numbers are much less. For example, Andrew Latham, Certified Financial Planner (CFP) and the Managing Editor of SuperMoney.com, told Finance Magnates that only 5% or less of Western Europe and North America residents are unbanked.

Challenges Ahead

But, what are the main challenges for the Latin American countries to address this issue? Latham talks about it: “The main challenge for many Latin American countries is providing access to banking services to low-income families living in isolated areas with little to no access to physical branches of banking institutions. However, 75% of Latin America has access to a smartphone, so there are huge opportunities for online banking. The key is to provide free or very low-cost checking accounts with low minimum initial deposits and reasonable fees so that banking is affordable for low-income families.”

In this sense, Latham noted that the challenges are very similar to the obstacles to unbanked households on the US front. He quoted an FDIC report, noting that the most common reason households don’t have a checking account in the United States is they do not have enough money to meet minimum balance requirements.

Covid-19 Impact on Unbanked Population

But the Covid-19 pandemic significantly impacted the metrics of the unbanked population across Latin America. Statista’s numbers unveiled that Brazil had the largest change regarding unbanked people, decreasing by 73%. Colombia and Argentina experienced a reduction of 8% and 18%, respectively, according to Statista.

In the case of Brazil, the Brazilian government designed the ‘coronavoucher’ program as a response to Covid-19, an emergency subsidy distributed by the state-owned bank Caixa Econômica Federal (CEF). As a result, the coronavoucher program That said, 66 million people have received the subsidy by August 5, 2021, 36 million of whom were previously unbanked.

As well, the Colombian government has created the Ingreso Solidario so that families can cope with Covid-19. Over 3 million families are assisted by the program, representing approximately 19% of the population. For the unbanked 1.5 million Colombians, the program used digital wallets Daviplata, Nequi, and Movii, first sending funds directly to their bank accounts.

The Argentine government established Emergency Family Income, to be deposited into bank accounts or redeemed at ATMs, post offices, and retail stores for cash.

Closing the Gap

Delgado proposed some solutions to fix this gap in Latin America: “The way to fix this gap is by building financial inclusion, which means removing barriers like high fees and restrictions, increasing product and service value, and expanding digital and financial education.”

Furthermore, he dives deep into the fintech companies, and how they could play a critical role in bolstering this front. “Fintech companies have realized the huge opportunity this represents in LatAm. There has been a rapid growth from 2015 to 2020 and then even more in 2021, when Latin American fintechs raised $138 million and $3.14 billion, respectively, in 2015 and 2020, and then this number skyrocketed in 2021,” Delgado noted.

He added that online banks, fintech companies in general and cryptocurrencies will play an ‘important role in allowing the unbanked in LatAm to get access to financial services.’ “The companies that are able to position themselves well will reap big gains in the next years,” Delgado highlighted.