Cards vs. APMs: the $500 billion dispute for Latin American consumers

The traditional reign of cards

For decades, credit and credit and debit cards have been the cornerstone of payments in Latin America. Credit cards still dominate with an impressive 48% market share, processing a transaction volume of $240 billion. Giants such as Visa, Mastercard and American Express have long been synonymous with reliable and widely accepted payment options throughout the region.

Debit cards, although less dominant, play a crucial role in financial inclusion and serve as a bridge between cash and digital payments. With a 10% market share and $50 billion in volume, they remain a significant player in the payments ecosystem.

The rise of alternative payment methods

However, the winds of change are blowing strongly. APMs are rapidly gaining ground, challenging the status quo:

1. Instant Payment Systems: Leading the Charge is PIX from Banco Central do Brasil, a revolutionary that has captured 16% of the market with $80 billion in transaction volume. Its astronomical growth and potential for regional expansion is reshaping the payments landscape.
2. Digital wallets: With a market share of 9% and a volume of $45 billion, players such as Mercado Pago, Ualá, MODO , Yape y Nequi not only facilitate transactions, but also drive financial inclusion and offer value-added services that traditional cards cannot match.
3. Cash vouchers: In spite of the digital revolution, cash-based systems such as OXXO Pay from FEMSA, Boleto Bancario, PagoEfectivo, A Paysafe Company and Efecty maintain a strong 9% market share ($45 billion in volume), serving as a vital lifeline for unbanked populations.
4. Bank transfers: Although smaller, with a market share of 5% ($25 billion in volume), systems such as SPEI of Banco de México, PSE from ACH Colombia Oficial, Khipu and BROU remain crucial for high-value transactions in markets with strong traditional banking sectors.

‍

‍

The transition to a multi-rail environment

The diversification of payment methods in Latin America represents a fundamental transformation in the way consumers and businesses approach financial transactions. This shift to a multi-rail environment is driven by several key factors:

Consumer demand for simplicity and flexibility

Latin American consumers are increasingly looking for payment solutions that offer ease of use and adaptability. This demand is driving the rise of digital wallets and instant payment systems that simplify transactions across platforms and contexts.

The "P2P-ification" of payments

Peer-to-peer (P2P) functionality has become a cornerstone of modern payment systems in the region. Solutions such as PIX in Brazil and Yape in Peru have made P2P transfers so seamless that they are redefining expectations for all types of financial interactions.

Financial inclusion

Alternative payment methods (APMs) play a crucial role in bringing financial services to the unbanked and underbanked populations. For example, cash-based systems such as OXXO in Mexico continue to bridge the gap between digital commerce and traditional cash transactions.

Mobile approach

With a significant portion of e-commerce transactions occurring on mobile devices (69% in Argentina, 64% in Peru), payment solutions optimized for smartphones are gaining rapid adoption.

Real-time payments

The success of instant payment systems such as PIX in Brazil and PSE in Colombia demonstrates a strong preference for real-time transactions, putting pressure on traditional payment methods to evolve.

The numbers tell a compelling story of this change:

• Credit cards have seen their market share erode from 55% in 2018 to 48% in 2023, indicating a clear movement away from traditional payment methods.
• Alternative payment methods are projected to grow at impressive rates from 2023 to 2026: Bank transfers: 38% CAGR, PIX (Brazil): 26% CAGR, Digital wallets: 20% CAGR, and Cash vouchers: 15% CAGR.

The rise of multi-rail platforms is inevitable as consumers and businesses seek to leverage the strengths of multiple payment methods. These platforms integrate traditional banking services with innovative fintech solutions, offering a full suite of options that meet diverse needs and preferences.

Country-specific trends

This change is not uniform across the region. Each country has its own unique dynamics:

Brazil

The PIX revolution has redefined instant payments, setting a benchmark for the region. As the fastest growing real-time payment method in the world, PIX processed a staggering $80 billion in Brazil alone by 2023, capturing 16% of Latin America's total e-commerce volume. With more than 140 million users (about 65% of Brazil's adult population), PIX has become an integral part of Brazil's financial ecosystem, surpassing debit and credit card volumes combined.

Mexico

OXXO' s vast network demonstrates the enduring power of cash-based systems to drive financial inclusion. OXXO Pay accounts for 10% of Mexico's online transactions, processing approximately $6 billion in total payment volume. In a country where 66% of retail payments are still made in cash, OXXO Pay bridges the gap between digital commerce and physical cash transactions, enabling e-commerce participation for the unbanked population.

Colombia

The rapid adoption of digital wallets is transforming the payments landscape. Nequi, a digital wallet-turned-neobank, is leading the charge with 18 million users and 13 million active monthly transactions. It commands 3% of Colombia's total e-commerce market, processing around $1.3 billion. In addition, PSE, a real-time payment method, handles 32% of all online transactions, totaling $13.53 billion, showing the country's rapid transition to digital payments.

Argentina

The "QR-ification" of payments is revolutionizing Argentina's financial landscape. In the $28 billion e-commerce sector, Mercado Pago is leading the charge, with digital wallets accounting for 23% of payment volumes. As a pioneer of QR code payments since 2015, Mercado Pago has made smartphone-based transactions commonplace. Complementing this, MODO, a collaborative effort of more than 30 banks launched in 2020, has rapidly gained 12 million users and 500,000 merchants. With both platforms driving QR-based transactions, Argentina is seeing a rapid transition to cashless payments in the online and offline spaces.

Peru

The fastest growing e-commerce market in Latin America is being transformed by Yape, the country's leading mobile payments platform. With more than 15 million users and 11.5 million monthly active users, Yape processes a total payment volume of $13.39 billion annually. As digital wallets account for 11% of e-commerce payment volume, Yape is at the forefront, addressing key barriers in a country where only 54% of adults have a bank or fintech account. Its easy-to-use, commission-free platform aligns perfectly with Peru's mobile focus, where 64% of e-commerce volume comes from mobile devices.

The future of payments in Latin America

As we look to the future, the growth trajectory of APMs shows no signs of slowing down. Traditional card networks are not sitting idly by: they are innovating and adapting to stay relevant. The future will likely contain a mix of competition and collaboration between cards and APMs, ultimately benefiting Latin American consumers with more choice and better services.

In conclusion, the $500 billion dispute between cards and APMs in Latin America is far from over. This dynamic shift to a multi-rail environment is not only changing the way transactions are processed, but is also revolutionizing financial inclusion, the growth of e-commerce and the very nature of money in the region.