Ensuring FinCrime Compliance Amid New Payment Trends in Latin America

Latin America is a region that is constantly changing and evolving, especially when it comes to payment methods. As the region's economy continues to grow, so does the demand for new payment methods and technologies. Latin America is a key market for payment providers and banks due to the region's large connected population and a booming e-commerce sector that grows at an average 25 percent per year. In recent years, there have been several notable payment trends in Latin America, ranging from the increasing popularity of digital banking to the growth of e-wallets. 

As we move further into the 21st century, digital banking and payment services are becoming more and more commonplace. Across Latin America, bank customers are increasingly moving away from traditional banking products and services in favor of digital alternatives. This shift toward electronic payments and e-wallets has created new opportunities for FinCrime actors, who are now targeting these platforms to commit fraudulent activities.

To help protect their customers and ensure compliance with regional FinCrime regulations, financial institutions need to be aware of the latest payment trends emerging in Latin America. 

This blog focuses on some of  most important payment trends in Latin America for 2023. We will also explore some of the financial crime challenges that come with digitalisation.  Finally, we will offer our insights on how to overcome these challenges and capitalise on the opportunities that exist in Latin America's payments market. 

Growing Mobile Payments and Digital Wallets

Latin America is increasingly making mobile payments a part of its everyday life, with more and more people choosing to pay via mobile apps or mobile wallets. According to research, mobile phone-based payment methods, including QR codes, are now available in 80 percent of points-of-sale across the region, allowing mobile payments to be used for everything from bills to online shopping. Research says that digital wallet usage would surpass credit and debit card usage in Mexico by 2024. 

Several mobile solutions have arisen in response to this demand, offering improved security and convenience for both businesses and customers alike. This shift towards mobile payments shows no signs of slowing down; indeed, with over half of adult Latin Americans now possessing mobile phones, mobile payments look set to continue their trend of sustained growth throughout Latin America.

Growing Interest in P2P Payments

P2P payments have rapidly grown in popularity throughout Latin America, particularly as a result of mobile banking services. Consumers are increasingly utilizing P2P payment options as a safe and cost-effective alternative to traditional banking services. By taking advantage of P2P payment options, customers can save both time and money, making it easier than ever to transfer funds across various countries and regions. With its ease of access, P2P payments provide convenience that people around the world now come to rely upon in their day-to-day lives. 

P2P payment companies like MercadoPago, Ripple and Khipu have been able to capitalize on this opportunity quickly, providing innovative P2P services that facilitate digital payments for individuals, small businesses and enterprises, creating new opportunities for financial inclusion in the process.

Increasing Demand for Prepaid Cards

The prepaid card market in Latin America is experiencing remarkable growth. Whether it's prepaid cards, prepaid debit cards, prepaid credit options or prepaid travel cards, Latin Americans are increasingly turning to prepaid financial solutions as alternate payment mechanisms for the goods and services they need.

According to research, the prepaid card market in Latin America is expected to record a growth rate of 14.3 percent from 2022 to 2026. Among many advantages, prepaid products provide easier access to financial products as well as improved convenience for users. As prepaid providers continue to customize their services for Latin America audiences, demand for prepaid cards and other financial products will only increase in the coming years.

Rising Uptake of Open Banking

Open banking is transforming the way Latin Americans interact with their financial institutions. It enables them to open and manage accounts from multiple providers, compare products and services from a variety of providers, access personalized advice and customer service, get better control over their finances, and access credit more easily. It also simplifies payments by allowing direct transfers from one account to another without having to go through banks or other financial institutions. 

At present, Mexico, Brazil, and Colombia already have regulations in place for open banking. Meanwhile, Chile, Argentina, and Peru are making progress in structuring of their regulations to begin implementation. More established banks in Latin America are starting to open up data sharing agreements with FinTech companies and third-party providers to provide open banking services that were previously unavailable or difficult for their customers. 

The new banking mode is paving the way for digital innovation and financial inclusion. Open banking is set to open up even more opportunities within Latin America, creating a more secure, efficient, and connected financial landscape.

Slow but Steady Growth of Buy Now, Pay Later

BNPL, or buy now, pay later, has been experiencing exponential growth globally since it was introduced, leading to significant tech investments from companies eager to transform consumer-lender relationships with flexible payment solutions. 

Latin American countries may not have seen the same BNPL boom (1% of total ecommerce in the region in 2021), as other nations, yet that’s starting to change. A recent study found there has been a surge in BNPL usage in Brazil over the past two years due to digital banking switches among young consumers and an increase in general e-commerce activity. 

Growth of BNPL services is likely to continue as financial institutions realize the potential for wider access to micro-loans and lenders benefit from increased interest rates on extended payment terms offered by BNPL providers. BNPL is expected to dominate even greater parts of payments landscape everywhere soon.

The Rise of Payment Financial Technology Startups in Latin America

Payment financial technology startups are on the rise across Latin America. The economic growth of countries in the region have caused more businesses to go digital, and payment financial technology startups strive to make the transition from physical to digital payments easier for businesses. These startups strive to revolutionize financial markets, making them more affordable and secure for all users. 

Payment startups are expanding quickly in Latin America due to increased government support, greater global connectivity, and improved affordability. By introducing convenient features like P2P payments and mobile banking, payment startups help bridge the digital divide between the educated rich and the uneducated poor. Moreover, these allow businesses to operate efficiently by providing modern payment solutions that improve productivity, minimize risk of fraud and increase scalability for future operations.

The growth of FinCrime in Latin America

Latin America has seen an unfortunate increase in FinCrime in recent years. Scandals like Odebrecht, Petrobras, and more have exposed the depth of FinCrime within the region's corporate culture. Financiers from Mexico to Peru have been taken to court for FinCrimes like fraud, money laundering, bribery and corruption. 

The number of Fincriminals evading punishment keeps rising due to regional and international lack of cooperation. Furthermore, a lack of financial regulations and poor enforcement means that Fincriminals are able to get away scot free with their illicit activities. With FinCrime not only affecting Latin American economies but also damaging public trust in government institutions, it is time to take strong measures to deter FinCrimes throughout Latin America.

Mitigate Financial Crime Risks Associated with Payments in Latin America

Financial crime is a pervasive issue in Latin America, and with the rapid growth of digital commerce in the region, payment firms need to be aware of the financial crime risks associated with payments. In order to stay ahead of the curve, it’s important for payment companies to adopt new-gen compliance solutions that can mitigate financial crime risks before they become a problem. 

Tookitaki’s Anti-Money Laundering Suite (AMLS) helps financial institutions of all sizes in combating money laundering effectively. The AMLS is an operating system comprising four modules, such as Transaction Monitoring, Smart Screening, Customer Risk Scoring and the Case Manager, under one roof to address our customers’ compliance requirements. 

The Intelligent Alert Detection (IAD) module of AMLS  provides faster detection for fast-scaling fintech companies. The module helps ensure compliance at each step of the onboarding process powered by a library of typologies. This helps fintech companies stay up-to-date with regulatory requirements. 

Here are some of the proven benefits:

• Stay compliant with minimal resources and an ever-growing library of the latest risk scenarios
• Expand in new regions without the worry of them being on sanctions lists
• Ensure a 60% decrease in false-positives through a secondary layer of information
• Stay focused on innovation and curate new products via automated consumer risk-profile assessment 

Request a demo today to see how our solution can help your company mitigate the risk of financial crime in Latin America.