The financial sector in Latin America has been stretched as typically cash-first countries have been forced to digitise as a result of the pandemic. The digitisation of payment systems has historically faced cultural obstacles in Latin America, but in an era where there is no alternative, social benefit programs launched by governments in the region have managed to help incorporate around 40 million people into the financial system (public and private) in Brazil, Colombia and Argentina, causing many to support fully digital solutions.
Omar Arab is the EVP Corporate Business of VeriTran, a global company that speeds up and simplifies digital application development through its Low-Code Platform. Arab has more than 25 years of experience in the technology, banking, fintech and entrepreneurship industries, has founded a software company and served as CEO of Fintechs, digital banks and payments companies.
Here, he gives his views on the lasting impact rapid financial digitisation will have on Latin America:
The pandemic ripped up the traditional playbook for outdated processes across industries, as consumers and companies alike were forced to adopt a new digital life. In Latin America, where internet adoption is ongoing and many organisations’ digital tools are still nascent, this shift was a particularly challenging one and revealed a stark digital divide within the region.
This is particularly true for the financial system – Latin American countries have historically viewed cash as king, leading to the adoption of digital payments and systems often facing cultural obstacles.
As a result, millions of people in Latin America used banking services for the first time during the peak months of lockdown in 2020, supported by fully digital solutions that were forced to be rapidly developed as physical branches shut down. Social benefit programs launched by governments in the region alone helped incorporate around 40 million people into the financial system (public and private) in Brazil, Colombia and Argentina, according to a study conducted between June and August 2020 by Americas Market Intelligence, commissioned by Mastercard.
These millions of newly-banked individuals resulted in the region leveraged digital channels to an unprecedented degree. With the boom in digital usage, an opportunity has emerged to reassess the long-term digital transformation investments being made by the financial services sector, given the indications that the new consumption habits will continue.
Some financial digital transformation investments that have increased include digital wallets, as well as the use of emerging technology – from biometrics to AI –. These have served to simplify and elevate the products being presented to consumers and improve their day-to-day financial touchpoints.
Veritran recorded a 180% increase in the usage of digital wallets since the beginning of the pandemic – this, along with Boston Consulting Group data that 24% of global consumers plan to reduce or completely discontinue their visits to bank branches post-pandemic, point to digital-first banking being a trend that is here to stay. Additionally, AI is now being leveraged to facilitate a more robust and superior consumer experience, from enabling chatbots and personalised recommendations on banking websites to generating credit scores for customers new to the banking sector using preexisting data. As these innovation-enhanced business models continue to demonstrate their scalability, usability, and return, it is likely that adoption will only continue to grow as the technology becomes more integrated in the day-to-day financial ecosystem.
Beyond the technology itself, this rapid digitisation has created a lasting shift in the way that financial organisations approach innovation and product development, and two driving factors have become clear as areas of focus moving forward.
The first is user experience (UX) – first-time users of financial websites and apps, as many consumers in Latin America now are – can be easily overwhelmed or confused by digital interfaces. As a result, UX is particularly important across virtual channels, and development must place special emphasis on generating interactions that transcend interfaces and displays to generate connections – even emotional ones. As disciplines, UX and UI design will continue to gain ground in the coming years, promoted by the surge in the use of digital channels, such as web portals and mobile applications. Additionally, intuitive and simple UX often helps drive customer loyalty, which was key during the pandemic in helping businesses stay afloat – moving forward, a consumer-centric mindset will have the dual effect of helping create financial products that customers want to use, while also improving the bottom line. Ultimately, humanisation of financial services will become key.
Furthermore, product creation cycles have progressively shortened, as it has become more important to release relevant updates and push out digital products with an accelerated time to market. With development cycles in the technology industry being drastically reduced, the frequency of releases has increased. Speed and efficiency in digital channel production cycles has become a user requirement – the public calls for changes, and the response must be instantaneous. This allows financial institutions to maintain a competitive edge, as well as have a best-in-class product.
Digital channels are continuing to develop and evolve across Latin America, as organisations update and create their payments and financial offerings. Although digital transformation in the financial industry was initially rushed in 2020, now is the time to leverage key learnings and technologies to create a lasting digital financial ecosystem that better serves the company itself, consumers, and the wider region.