How neobanks in Latin America address consumer needs

Over the past few years, neobanks have experienced massive growth in Latin America. In fact, one report found that the number of neobank customers in Latin America more than doubled between 2019 and 2021, growing from 36.7 million to 77 million.

Without physical branches, neobanks are well-positioned to provide services to consumers at lower costs than traditional financial institutions. This approach has opened up the banking system to under-banked and unbanked Latin American consumers, including those in rural or underserved geographic areas.

Let’s take a look at how neobanks are putting Latin American consumers’ needs first.

Neobanks unlock financial inclusion

In 2018, it was estimated that around 70% of people in Latin America did not have a bank account. This meant that not everyone in the general public could walk into a regional bank branch (or open a web browser) to open a checking or savings account. High account minimums have further excluded those with limited financial resources. In contrast, many neobanks like Mexico’s Albo do away with minimums and offer accounts with low or no commissions or fees.

Latin America has one of the highest percentages of smartphone penetration in the world — supporting neobanks’ mobile-first approach. Smartphone connections in Latin America were expected to reach 500 million at the end of 2021, which is an adoption rate of 74%. High smartphone penetration, combined with digital banking, is helping drive up banking penetration in the region. In 2020, research found that 55% of consumers in Latin America now have a bank account.

Neobanks build trust through bespoke banking

Latin American consumers who open accounts with regional banks often become subject to those banks’ less-than-desirable practices. According to a 2016 Center For Global Development report, there’s a “lack of contract enforcement between creditors and debtors” among Latin American banks.

Access to a neobank can help Latin American consumers take a different approach. For example, Brazil’s Nubank makes it easy for Brazilian adults to set up free accounts so long as they have a regular CPF status on the Receira Federal Brasileira (the Brazilian version of IRS) and a smartphone. Nubank went public in December 2021.

The rise of neobanks accelerates alongside societal changes

Neobanks are on the rise at a time of digital transformation. Though Latin American consumers have long relied on cash for transactions, this is starting to change. In 2020, 62% of 2,556 consumers surveyed in 13 Latin American markets reported using less cash due to COVID-19.

A report from Mastercard and Americas Market Intelligence noted that neobanks in Latin America are “doing a good job of enabling a seamless digital experience — and attracting new customers to banking while they’re at it.” While they face competition from traditional banks that are expanding to digital brands and features, neobanks may have a head start in “a new reality in banking where digital experiences will become a primary way for consumers to interact with their preferred brand,” according to the report.

Bottom Line

Neobanks in Latin America are prioritizing customer service and forging opportunities for financial inclusion.

This article is for general informational purposes only and is believed to be accurate as of posting date, but may be subject to change.  All screenshots are for illustrative purposes only. Alpaca does not recommend any specific securities, cryptocurrencies or investment strategies.

Securities brokerage services are provided by Alpaca Securities LLC ("Alpaca Securities"), member FINRA/SIPC, a wholly-owned subsidiary of AlpacaDB, Inc. Technology and services are offered by AlpacaDB, Inc.

Cryptocurrency services are made available by Alpaca Crypto LLC ("Alpaca Crypto"), a FinCEN registered money services business (NMLS # 2160858), and a wholly-owned subsidiary of AlpacaDB, Inc. Alpaca Crypto is not a member of SIPC or FINRA. Cryptocurrencies are not stocks and your cryptocurrency investments are not protected by either FDIC or SIPC. Depending on your location, cryptocurrency services may be provided by West Realm Shires Services, Inc., d/b/a FTX US (NMLS #1957771). Please see the Disclosure Library for more information.

This is not an offer, solicitation of an offer, or advice to buy or sell securities or cryptocurrencies, or open a brokerage account or cryptocurrency account in any jurisdiction where Alpaca Securities, Alpaca Crypto, or FTX US respectively, are not registered or licensed, as applicable.