Today, new financial technologies (fintech) help make it cheaper, faster, and easier to send money to virtually anywhere in Latin America. But businesses and individuals seeking to take advantage of new options may need to be tech savvy, or at least committed to staying on top of the current evolving trends.
Fintech is Reshaping the Latin American Economy
Fintech startups focused on payment-related services in Latin America grew 61 percent in 2018, according to a recent report by the Inter-American Development Bank (IDB) and Finnovista (an organization focused on developing and scaling fintech opportunities in Latin America and Spain).1 That growth was driven in large part by an infusion of almost $600 million in venture capital the year before.2 According to the IDB, these fintech startups are partnering with banks and money transfer operators to help develop the Latin American economy and make it easier to transfer money internationally.3
Developments include neobanks (fully mobile, branchless banks), like Brazil’s Nubank, and the growth of cryptocurrency. Launched in 2013, Nubank now has five million customers for its no-fee credit card. That makes it one of the top-five issuers of credit cards in the country.4 Meanwhile, the Financial Times reports that in Argentina last month Bitcoin prices measured in the peso hit an all-time high.5 The currency is so well integrated into the Argentine economy now that riders can use it to pay for public transportation in 37 cities.6
Seeing as nearly half the Latin American population do not have bank accounts and most people use cash, the direct shift towards fintech and digital payment and banking services may be inevitable.7,8 In other words, without an entrenched banking infrastructure of the depth and quality seen in some more developed economies, Latin America might leapfrog directly from a cash-based economy to one defined by fintech.
That leap may also address two more realities: relying on an influx of money from outside the region, and the difficulty SMEs face when seeking credit. In 2017, for example, incoming remittances from expatriates exceeded 15 percent of GDP for El Salvador, Haiti, and Honduras.9 And according to the Inter-American Investment Corporation, micro SMEs make up 99 percent of the private sector in Latin America, but cash can make it difficult to obtain credit and send money easily and affordably—especially internationally. Those obstacles can hurt business growth.10
Enter fintech. While established options like major banks can take several days, fintech options can quickly send money internationally, sometimes within hours. Traditional channels can also be more expensive, routinely costing about 6 percent of the total amount sent compared to fintech’s average of about 3 percent.11 What’s more, fintech options tend to be more flexible as well, whereas banks may restrict transfers to other bank accounts—creating hurdles in underbanked Latin America. In short, fintech options and digital banking opportunities may make it much easier for individuals and businesses to send money to and from Latin America.
Factors to Consider Before Sending Money Internationally
Before making any decision on how to send money internationally, here are some factors businesses and individuals may wish to consider:
- Cost: Most transactions will include exchange rates (including mark-ups, if any), service fees, and costs beyond individual transfers (such as account maintenance fees).
- Timing: Businesses may want to understand how long it typically takes before funds are available to the recipient, and what factors influence the timing. Some fintech services may be quicker than banks, for example.
- Convenience: Can funds be sent via computer or smart phone, or does the sender need to visit a physical location? Where (and how) can recipients get the funds? Again, this may depend on the payments service provider.
- Market: Does the vendor have experience transferring money for businesses? Does it offer any services or pricing specifically for business customers? It’s also worth noting that not all vendors serve every market.
Sorting Through International Money Sending Options
Fintech may be making it easier and cheaper for businesses and individuals to send money internationally—but only if you can sort through all the available options. There are many different vendors, all with their own business models and ways of calculating fees.
Some international money transfer services charge actual exchange rates (with or without a mark-up), plus a transaction fee. Others mark-up the exchange rate they offer, but don’t charge additional fees. Some offer plans specifically for businesses, some don’t. Some offer volume discounts, so that the more often you transfer money the less you pay per transfer. Some are mobile and/or online only. Some serve specific regions, not others.
Given that this is just a tiny fraction of all the available options, businesses may wish to research which vendors are most appropriate for their specific needs and budget.
