Virtual Money and Bancarization in Latin America by Julian Colombo

In a talk with FM Milenium, Julian spoke about the truth behind digital wallets, the level of banking in Latin America, and the new role of banks in an ecosystem full of Fintechs.

Why do virtual wallets and banks lose money?

Throughout the world, banks make profits thanks to the small commissions that are charged for movements, deposits, and more services. This small income, multiplied by a large number of customers, is what ends up sustaining the company.

Virtual wallets, on the other hand, are based on a business model in which they do not charge these fees. This, logically, turns out to be unsustainable in the vast majority of cases.

Currently there are between 34 and 38 virtual wallets in Argentina, which is also related to the country’s low bank penetration.
However, as Julian comments, we can expect a consolidation process in the coming years. This would considerably reduce the number of virtual wallets available in our country.

Low bank penetration in Argentina

Argentina, as in the rest of Latin America, has historically low bank penetration in the region. Many people prefer not to use banks, which implies moving cash for their daily activities.

With the arrival of Covid-19, however, we saw an unprecedented move towards virtual banks. Making purchases and transfers had become more important than ever, and these new digital wallets are here to make things easy and free of charge.

All this led to unprecedented growth in the Fintech world, which in itself brought changes for banks as well.

Are banks adapting to new technologies?

As Julian comments in the interview, banks did adapt to these new trends. Today 93% of banks have a free digital account, for example. Likewise, communication changed, becoming more relaxed and adapted to the informal nature of Argentina.

However, banks are generally focused on generating income, while Fintech companies tend to bet on the future and therefore do not mind losing money in the medium term.

In general, the barriers to entry and exit of Fintech companies are very low. People become customers without problems, but sometimes easy comes easy goes.

What does N5 do?

N5 develops software for banks, insurance companies and credit cards. Our goal is to offer a system for managing data and improving processes that is both powerful and flexible to implement.

Editorial: Marcelo Frette