Exploring the rise of consumer-driven digital wallet adoption in LATAM

Key takeaways

• Digital wallets are quickly becoming the preferred method for transactions in LATAM, driven by high smartphone penetration, a push for quicker transactions and increased convenience, especially post-COVID-19. This trend is supported by both consumer preference and aggressive promotion by financial institutions.
• The expansion of digital wallets usage has significantly improved financial inclusion, providing underserved or previously unbanked populations with access to financial services. This accessibility is helping to lift individuals out of poverty and stimulate regional economic growth.
• Digital wallets reduce the need for cash production, which lowers the carbon footprint associated with traditional banking operations. This shift not only supports sustainability efforts but also offers economic advantages by decreasing the costs associated with currency production.

Over the past ten years, there has been a significant shift in how payment transactions are carried out. Although cash remains in use across various parts of Latin America (LATAM), it is increasingly being replaced by newer and more convenient methods of payment such as contactless cards, digital wallets and IoT methods.

According to The World Bank, in Ecuador, 47% of individuals used digital payment methods in 2021, nearly doubling the figure from 7 years prior.

This dramatic increase has been propelled by technological innovation allowing everyday devices to become payment vehicles, such as mobile phones and wearables.

Digital wallet services like Mercado Pago in Argentina and RappiPay in Brazil, Mexico, Colombia, Chile, and Peru have popularized the use of tokenized contactless payments, a trend that is expected to continue its upward trajectory.

So, you may be wondering, what has spurred the sudden increase?

Infrastructure

The rapid adoption of digital wallets and contactless payment methods can be attributed to several factors including a deep smartphone penetration rate combined with a growing demand for quicker, and sometimes instant, payment transactions. This global trend has been accelerated by changes in work, especially post-Covid. For example, gig economy workers and small businesses depend heavily on swift cash flow to sustain their operations.

Additionally, OEM wallets like Google Wallet and Apple Pay have gained significant traction in LATAM. Apple Pay is currently operational in 13 countries across the region, while Google Wallet is available in 12, showcasing their widespread acceptance and growing popularity in facilitating secure and convenient digital transactions.

Trust

As individuals grow more accustomed to security features implemented within digital products, their trust in using such services has significantly increased. The enhanced security features of digital wallets, such as tokenization and card controls, have effectively lowered the initial barrier to adoption, making users feel more secure about protecting their financial information. To learn more about Tokenisation you can download our ebook "Tokenisation, transformation to digital payments". 

Ecosystem 

The surge in popularity of digital wallets can largely be attributed to their convenience. The ability to make payments with a quick tap, bypassing the need to handle cash, is not only faster but also simpler. This ease of use is particularly appreciated in today’s fast-paced society. Additionally, banks and fintech companies have been instrumental in promoting these payment methods by offering various incentives and rewards. These efforts have proven successful in both attracting new users and maintaining the loyalty of existing customers.

Overall, the use of digital wallets in LATAM is increasingly being woven into everyday life, providing more personalized, convenient and adaptable financial services. This trend is expected to continue upwards, fueled by digitalization, globalization and a shift in consumer preferences, steadily reducing reliance on traditional cash payments in the region.

In a 2024 report by The Global Payments Report, digital wallets have emerged as the fastest growing payment method across LATAM. In 2023, wallets accounted for 21% of regional e-commerce spending and are expected to maintain a compound annual growth rate (CAGR) of 21% through 2027, potentially increasing their share to 28% of online spending. At physical points of sale, digital wallets represented 15% of the transaction value in 2023, with projections suggesting a growth rate of 24% CAGR leading up to 2027. By then, they are anticipated to nearly double their share to an estimated 29% of regional POS spending.

To conclude, the adoption of digital wallets brings several advantages that are transformative for Latin America. One of the primary benefits is financial inclusion. Digital wallets make financial services accessible to previously underserved or unbanked populations, bridging significant gaps in traditional banking infrastructure. This accessibility is not just about opening bank accounts but also includes providing essential financial services which can all be managed from a smartphone. This increases participation in the financial system, which can help lift people out of poverty and stimulate economic activity.

Another significant advantage is sustainability. Digital transactions minimize the need for physical branches and the associated environmental costs, like paper and plastic-printing emissions. Moreover, the shift to digital can lead to a decrease in the production and circulation of physical currency, which has both environmental and economic benefits. The reduced reliance on cash helps decrease the carbon footprint associated with transporting and securing money.

At MeaWallet, we are dedicated to helping issuers integrate into the digital ecosystem by:

• Securing digital payments with tokenization
• Launching personalized, branded mobile wallets
• Easily adding cards to wallets with push provisioning 
• Enabling a digital-first strategy with digital cards
• Enhancing user experience with token control
• Enabling NFC payments for the end users

Contact us today and explore how we can support you to digitize your services! 

FAQs

Q: What are digital wallets and how do they work? 

A: Digital wallets, also known as e-wallets, are electronic devices or online services that allow individuals to make electronic transactions. Payments can be made quickly via NFC technology or QR codes, directly from a smartphone or wearable device. 

Q: Why have digital wallets become so popular in LATAM? 

A: The surge in popularity of digital wallets in LATAM is due to a combination of high smartphone penetration and the demand for quick and easy payment solutions. Financial institutions and fintechs have also played a crucial role by offering incentives to use these modern payment methods. 

Q: What is the impact of digital wallets on financial inclusion in LATAM? 

A: Digital wallets significantly enhance financial inclusion by providing access to financial services for the unbanked and underbanked populations. This technology enables a broader range of people to perform transactions, manage finances and access services that were previously unavailable to them, thus helping to reduce economic disparity. 

Q: How secure are digital wallets? 

A: Digital wallets employ advanced security measures like encryption, tokenization and biometrics to ensure the safety of users’ financial information. These features help build trust among users by protecting against fraud and theft. 

Q: What future trends are expected for digital wallets in LATAM? 

A: The future of digital wallets in LATAM looks promising, with projected growth in adoption both at e-commerce platforms and physical points of sale. As technology evolves and consumer behavior shifts further towards digital solutions, digital wallets are expected to become a primary method for everyday transactions. 

Q: How do digital wallets contribute to sustainability? 

A: By reducing cash usage, digital wallets contribute to sustainability. This shift helps decrease the carbon footprint associated with currency production, aligning with global efforts to reduce environmental impact.