Cash is no Longer Latin Americans’ Preferred Way to Pay
The shift from cash to digital payments is transforming financial landscapes in Latin America. With the rise of debit cards and mobile payments, the region is experiencing unprecedented consumer behavior and financial inclusion changes.
Within two years, the preference for noncash payments, particularly debit cards, has surged among Spanish-speaking Latin Americans, surpassing the use of cash. This rapid adoption, especially in countries like Argentina and Peru, is reshaping the financial landscape, opening up new avenues for banks and payment companies to explore.
Our comprehensive surveys, conducted in 2021 and 2023 with over 15,000 participants across Spanish-speaking Latin America, reveal a significant shift in payment preferences. In 2023, respondents overwhelmingly favored debit cards, credit cards, and mobile payments over cash. This trend is striking, given that Latin America has traditionally been a cash-based market with a high rate of informal labor. Many people still receive their wages in cash and use it for numerous transactions, as many small merchants accept only cash. However, when given a choice, consumers increasingly prefer cards and mobile payments.
The growing popularity of noncash payments highlights the region’s potential for growth and presents lucrative opportunities for banks and other financial services companies. However, it also poses challenges, such as the need to invest in digital infrastructure and security measures. This trend could also benefit consumers by improving their payment experiences and offering more tailored payment options, giving financial institutions a positive outlook and a sense of optimism.
The Journey Toward Financial Inclusion
Latin America is undergoing a process of bancarization, a term used to describe the integration of unbanked populations into the financial system, including online banking. Historically, much of the population conducted transactions in cash. In 2019, only 30 to 50 percent of people in several Latin American countries had an account with a financial institution, compared to over 90 percent in Spain, the United Kingdom, and the United States, and roughly 80 percent in China. By 2021, the share of people in Latin America and the Caribbean with bank accounts had grown to approximately 73 percent.
This shift has been significantly boosted by the proliferation of new payment offerings and the COVID-19 pandemic, which forced many Latin Americans to try online banking and e-commerce as bank branches and stores closed during lockdowns. The habit continued post-pandemic, leading more people to use financial services regularly, highlighting the global impact of the pandemic on the financial industry. The pandemic accelerated the adoption of digital payments, as people sought safer and more convenient ways to transact.
The Role of Technology in Shaping Payment Preferences
We conducted two surveys to understand the evolving payment trends among Spanish-speaking Latin Americans. In 2021, we surveyed respondents in eight countries: Argentina, Chile, Colombia, the Dominican Republic, Ecuador, Guatemala, Panama, and Peru. In 2023, we expanded the survey to include Costa Rica and Uruguay, covering ten countries representing roughly 60 percent of the GDP of Spanish-speaking Latin America.
Between 2021 and 2023, the preference for cash was cut in half, while the preference for noncash payment methods—debit cards, credit cards, or mobile payments—more than doubled. These changes were observed across different countries, with variations in the adoption rates of specific payment methods.
Respondents who preferred debit cards cited speed and ease of payment, better control of expenses, and merchant discounts for debit card use. Chile is a prime example of fostering bancarization through the widespread adoption of debit cards. BancoEstado, Chile’s public bank, simplified access to debit cards with the introduction of CuentaRUT, a maintenance-free, digitally accessible debit card linked to a resident’s national identification number, covering about 70 percent of the population. The success of CuentaRUT demonstrates the potential of innovative solutions in promoting digital payments.
People who preferred credit cards highlighted access to high-quality credit, with the option to make installments at relatively low interest rates and loyalty programs offering points, miles, discounts, or cash back. These benefits have made credit cards an attractive option for many consumers.
Respondents preferred this method in countries where mobile payments are widely used—such as Argentina, Colombia, Panama, and Peru—because it is easy to use, secure, and low-cost. Mobile payments have played a significant role in boosting financial inclusion in these regions.
Conversely, in countries where mobile payment adoption is not yet mainstream—such as Chile, the Dominican Republic, Ecuador, and Guatemala—respondents indicated that they would consider using mobile payments if they were more widely accepted by merchants and easier to use in-store, through technologies like contactless payment or QR codes. QR codes, a low-cost way of connecting payers and payees, are standard in many Latin American countries. Payers scan a QR code with their phones, enter the amount to be paid, and complete the transaction with a few clicks. Merchants using QR codes do not need to invest in point-of-sale terminals, making this method particularly attractive.
Trends Shaping the Future of Payments in Latin America
Although each country has nuances in how residents view and use various payment methods, our surveys revealed four overarching payment trends in Spanish-speaking Latin America that banks and other financial institutions can learn from.
Despite the rise of noncash payments, cash continues to be widely used in Latin America. Our 2023 survey showed that 70 percent of respondents used cash within the past 30 days, even though only 30 percent said it was their preferred payment method. The staying power of money is due to two main factors: many merchants accept only cash, and over 50 percent of workers in Latin America are informal workers typically paid in cash. Informal labor is deeply ingrained in the region, and this status quo will likely change with primary regulatory or economic intervention. However, increasing the number of merchants accepting cards or digital wallets could further popularize noncash payment methods.
The increased use of digital payments is positively reinforcing, meaning that higher usage of one noncash payment method often leads to using others rather than cannibalizing them. This trend highlights the importance of financial services companies providing a comprehensive payment experience by offering digital payments, debit cards, and credit cards instead of focusing on just one method. Consumers prefer their primary bank to offer various noncash payment options, creating opportunities for banks to expand their product offerings and attract more clients.
Mobile payments are more prevalent in countries where merchants commonly display QR codes. In contrast, in countries where tapping and paying with a physical card or a card stored in a digital wallet is more common, QR code use is lower. For instance, in Chile, where nearly 85 percent of purchases are made through tap and pay, a significant effort would be needed to persuade consumers to switch to other technologies. Mobile payment providers in such regions must offer more experiences and benefits, such as an extensive merchant network and attractive incentives, to encourage adoption.
Millennials are the biggest proponents of mobile payments, with 17 percent considering it their preferred payment method, compared to 12 percent for Gen Z and 13 percent for Gen X. Additionally, men are more likely to use mobile payments than women. Our 2023 survey indicated that 20.5 percent of male respondents preferred mobile payments, compared to 16 percent of female respondents. Banks can attract more clients by enhancing their mobile payment offerings for segments that already use them and exploring innovative strategies to reach segments with low digital wallet use.
Strategies for Financial Institutions
Our surveys indicate a growing preference for credit cards, debit cards, and mobile payments among Spanish-speaking Latin Americans. Financial institutions should encourage more merchants to accept noncash payments through strategies such as establishing partnerships with large retailers to boost noncash payment acceptance and gain access to new customer pools. Expanding into untapped segments, alongside the merchant acquirers that authorize and authenticate transactions, could help financial institutions consider expanding their offerings to micro-merchants that currently accept only cash. Supporting government initiatives to open closed-loop payment systems and implement systems enabling any payment app to send payments to any merchant could provide a frictionless, low-cost solution for growth.
Financial institutions that aspire to be a daily presence in people’s lives should consider embracing a comprehensive strategy that combines several payment methods into one seamless experience that meets customers’ various payment needs. Making online transactions via digital payments even smoother, digitizing other elements typically found in a physical wallet, such as IDs and keys, and minimizing friction by simplifying and reducing the number of payment and authentication steps are crucial. Ease of use is essential for people deciding whether to use mobile payments.
Banks should tailor their card offerings to microsegments of customers to foster deeper relationships and modernize their card operations to be more profitable and better serve customers. Building solid digital sales teams, promoting cards with discounts, cash back, and no fees to attract young people with disposable income, and modernizing risk management by adopting agile operating models and automation are essential strategies. These efforts can help banks respond to changing customer preferences, follow regulations, and integrate risk considerations into their core business.
Embracing the Future of Payments in Latin America
The transition to digital payments in Latin America is gaining momentum, offering financial services companies the opportunity to attract new clients and better serve existing ones. While the trajectories will differ depending on each country’s unique characteristics, the overarching trends indicate a promising future for noncash payments in the region. Financial institutions that understand the need for a nuanced approach will be best positioned to navigate and capitalize on the evolving payment landscape in Spanish-speaking Latin America.
Also read: Latin America Reels from Global Microsoft Outage Disruptions
