Visa, Mastercard enlist fintechs to reach Latin America's unbanked

Visa and Mastercard are courting fintechs to help them reach more consumers in Latin America, where a substantial unbanked population has otherwise turned to nonbanks for financial services.

Because tech companies have succeeded in reaching a market that banks have underserved, technology partnerships have become vital to the U.S. card networks' efforts to expand across borders.

“We’re helping our partners in the U.S. and worldwide in a range of areas including digital wallets, crypto-linked card programs, digital banking, buy now/pay later, B2B payments, cross-border remittances, bill payments, payments infrastructure and P2P payments,” said Terry Angelos, Visa’s global head of fintech.

Only 56% of people in Latin America have traditional bank accounts, according to the World Bank (by comparison, 85% to 90% of the U.S. is considered banked, according to Aite-Novarica). However, many unbanked Latin Americans have been opening accounts with fintechs. Americas Market Intelligence estimates that over 120 million Latin Americans — 33% of the region’s overall population — used digital-only bank accounts or mobile wallets as of the end of 2020.

This has led Latin America to become a hotbed for fintech development. Half of Latin Americans who have traditional bank accounts also have digital wallets or digital-only bank accounts, according to Americas Market Intelligence. In Brazil, for example, 88% of the population in 2021 had digital accounts with banks and/or fintechs, the firm says.

The success of neobanks and digital wallet providers in Latin America provides card issuance opportunities for Visa and Mastercard.

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As of November 2021, 100 Latin American and Caribbean fintechs had issued a combined 100 million digital Mastercards in the region. These issuers include digital wallet providers such as Argentina-based Ualá and neobanks such as Brazil-based Nubank and C6 Bank.

“In Latin America, a lot of the Visa cards issued by our neobank and digital wallet partners are debit cards,” said Arnoldo Reyes, Visa’s head of fintech, ventures and business development. “For example, [Latin American on-demand delivery company] Rappi issues Visa debit cards linked to its Rappi Pay wallet, and recently launched Visa credit cards which have seen phenomenal growth.”

At Mastercard, the fintech strategy goes beyond card issuance, according to Tim Montgomery, Mastercard’s senior vice president of digital partnerships.

“We’re building our digital footprint by expanding our fintech strategy into new growth areas,” he said. “We believe in enabling everyone to participate in the modern economy with digital-first payment tools, which fintechs are delivering to consumers and [small and midsize businesses].”

Both U.S. card networks have established programs to establish relationships with fintechs in Latin America, which are part of their global fintech programs.

“We work with a number of Latin American fintechs through our Visa Fintech Partner Connect program,” Reyes said. “This provides a Visa-branded portal where fintechs with whom we have formal partnership agreements, are listed as preferred partners whose solutions are available across different markets.”

Mastercard’s Start Path program enables the company to collaborate with later-stage fintechs that aren’t necessarily going to issue Mastercard-branded cards, but add value to the payments industry.

“Globally, we have 270 companies in the Start Path portfolio and have invested in 28,” said Thiago Dias, Mastercard’s vice president for Latin America and the Caribbean fintech and enablers.

In November 2021, Mastercard acquired New York- and Mexico City-based Start Path alumnus Arcus FI, which operates U.S. and Mexican bill payment networks, to extend Mastercard Bill Pay to Latin America.

Visa has offered its Visa Everywhere Initiative program in Latin America for the last five years.

“Fintechs participating in VEI sign commercial partnerships with Visa, and we distribute their products to our clients throughout Latin America,” Reyes said. “In the last 18 months, open banking and cryptocurrencies have been of enormous interest to us. There’s a very symbiotic relationship between Visa and companies in those spaces.”

In addition to partnering with neobanks and digital wallet companies, Visa focuses on financial infrastructure development, with a goal of modernizing the financial services industry in Latin America.

“Latin America’s financial services infrastructure is mostly legacy, so we work with fintechs that offer digitally native issuing processing or card issuance platforms, enabling other entrepreneurs to build on top of modern infrastructure,” Reyes said.

In 2019, Visa invested in the Miami-based banking-as-a-service provider NovoPayment which enables Latin American companies to issue cards on its platform. In November 2021, Visa formed a partnership with the Latin American open finance and digital ID verification provider Belvo and invested in the firm.

“Our open finance API platform enables banks and digital wallet providers to share their customers’ financial data with their consent,” said Pablo Viguera, Belvo’s co-CEO. “For example, a bank wanting to lend to a consumer who only has a digital wallet can view the borrower’s income and spending history. We want to collaborate with Visa so we become their open-finance partner of choice when they provide services to their issuers.”

Cryptocurrencies are an important focus for Mastercard in Latin America.

“We’re working with most of the cryptocurrency fintechs in Argentina, Brazil and Mexico to develop programs,” Dias said. “This is a key component of our multirail strategy to touch different flows of money going beyond cards. Other areas where we focus in Latin America include digital onboarding, ID verification, access to credit and financial management.”

Mastercard has partnered with San Francisco-based Start Path alumnus Juvo to provide unbanked Latin American consumers with access to credit. Juvo, which received an investment from Mastercard, draws on borrowers’ cellphone account data to provide Latin American lenders with credit references.

U.S.-based Flourish FI, which joined Start Path in August 2021, provides U.S. and Latin American banks with a white-labeled app using gamification and behavioral science to promote positive financial habits.

To expand the adoption of open banking in Latin America, Mastercard plans to bring Finicity, the U.S. open banking aggregator it acquired in 2020, to the region. “We plan to bring Finicity to Brazil first as it’s the largest country in Latin America and its open finance regulations are the most evolved," Dias said.

But the bridge between the U.S. and Latin America goes both ways; Elo, a Brazilian card network founded 10 years ago by three banks to challenge Mastercard and Visa’s dominance of Brazil’s cards market, works with Discover. Their partnership enables Elo’s cards, which are issued only in Brazil, to be accepted in the U.S. and other global markets through the Discover Network; also, in Brazil Elo issues Discover’s Diners Club International cards.

Elo models its fintech partnership program on Mastercard’s fintech platform. Around 10 million Brazilian merchants accept Elo cards and 50 million active ELO-branded cards have been issued by Brazilian banks.

“We develop partnerships with fintechs that can improve our business, and plug their technology into our platform,” said Giancarlo Greco, Elo's CEO. “The only way we can do that is by following Mastercard’s benchmark. Mastercard has a flexible and dynamic platform, and, if you don’t have that type of platform, you can’t partner with fintechs.”

Several of Elo's fintech partners provide services in the U.S., including Mexico-based Kublau, which helps issuers onboard and activate new cardholders; and Portugal-based fraud prevention vendor Feedzai. Greco said U.S. fintechs can partner with Elo as a way to access the Brazilian payments market. “We could definitely incorporate U.S. technology into Elo, and we want to do this,” he said.