Account to Account payments (A2A) is making inroads in Latin America, but their growth remains limited as credit and debit cards continue to dominate the market.
Last year, Promete became one of the first Latin American fintechs to offer A2A payments. This 2023, Belvo, an open banking fintech, doubled its bet to provide such payment capabilities in the region. It launched a payments product in Brazil, one of the countries with the most innovative framework for fintech startups. Others could follow through.
There is potential for A2A payments to carve a place for themselves, fintech analysts say, mainly bolstered by e-commerce adoption and new regulation. A widespread lack of credit cards in many countries yields a strong case for alternatives. Could 2023 be the year for A2A to make decisive progress in the regional market?
For some local leaders, it certainly appears so.
“During 2023, we will have a great advance in A2A in Latin America,” Hanna Schiuma, Chief Growth Officer at Callao, told Fintech Nexus. The growing adoption of mobile financial technologies, she said, is one of the major factors driving that. Also, favorable regulation throughout the region provides fertile ground for innovation.
Alternative digital payments growing in LatAm
In a recent study, Ebanx said alternative payment methods, or APMs, are growing fast on the heels of e-commerce. According to the company, non-traditional payments amounted to 39% of the total LatAm e-commerce volume in 2022. That is up from 31% just two years ago.
Over the past years, the share of Latin Americans with bank accounts has risen considerably. Yet the number of adults with credit cards remains low, at an average of 28%, according to the report. In this gap – newly banked Latin Americans without credit cards -alternative payments such as A2A find room to grow.
Essentially, A2A removes the need for a third-party middle man such as a credit card, as it links two accounts on a specific transaction. Simply put, an Account-to-Account payment transfers money directly from the client’s virtual or bank account to the merchant’s account. Customers can now pay from their bank account using merchants’ apps, potentially reducing fees.
A2A payments still have a long way to go
At any rate, Schiuma is careful to curb expectations.
“There is still a long way to go,” she said. “There is abundant competition in the Latin American market. Also, regulatory changes require constant updating, and there are costs associated with data protection and security.”
Credit cards still hold 51% of all e-commerce sales in Latin America as of 2022, the Ebanx report found.
But that number is down from 56% in 2019, going downwards.
Regulation and Open Finance to drive A2A payments
Around five years ago, e-commerce activity in Latin America was slim. Its weight in online trade was minuscule compared to other regions. One pandemic later, online shopping is catching fast, providing new opportunities for alternative payment methods.
In addition, progress in open banking regulation is paving the way for new business models to emerge. Brazil has fully implemented the data sharing framework, and other countries, such as Chile, are moving in that direction with its recent fintech law.