13 Mar

Innovation

Fintech and Metal Card Opportunities in Latin America

Written By Samia Bounaira

View blog in Portuguese here.

Fintechs have spread globally over the past decade, taking root in major financial markets like the UK or the US. The Latin American fintech market was still behind compared to this worldwide trend; however, it is undeniably booming today. According to CB-Insights Research published in February 2020, the investment in fintechs in Latin America grew considerably from 2018 to 2019, and now the region is the hottest fintech marketplace. Brazil is without a doubt leading the region with the largest number of fintech companies, followed by Mexico and Colombia. The main sub-sectors in fintech are payments, digital banks (Neo-banks), loans and funding.

The main driver for the remarkable boom in Latin America is the massive technology shift: first, by increased internet penetration, which surpassed 66% in 2019, over the world average of 53% according to the World Bank; second, by the penetration of mobile subscribers which, according to GSMA Latin-American, accounts for nearly 67% of the total Latin American population. Nearly 80% use their mobile devices for the internet, with forecasts estimated to reach 87% by 2025. This technological evolution helps access the massive unbanked and underbanked populations, in addition to the small- to medium-sized businesses, which digital products and services can be offered.

At the same time, authorities and regulators in many of these Latin-American countries have enacted fintech-friendly regulations with lower market entry barriers, identifying fintech and digital financial services as a way to provide widespread financial access.

Finally, according to Finnovista, an organization that propels fintechs and startups in Latin-America, international investors have moved into the region as an attractive investment space with a peak seen in 2018. Today, despite COVID-19 and political uncertainty around administrations in Brazil and Mexico, the Latin-American fintech industry is very dynamic. According to Latam Fintech Hub, it raised US$ 525M (US $ 249.3M in equity and US $ 275.7M in debt) in 74 deals in the first half of 2020, showing that investment has continued despite turbulences. 

Make an impression with innovative products

As the pandemic continues and the post-COVID-19 economic impact remains to be seen, many fintech companies in Latin America may be under stress. However, great opportunities for them may arise while the need for digital services suddenly increases. Fintechs could seize this unique situation to leverage assets, challenge and differentiate themselves through more innovation and creativity. 

While the number of fintechs in Latin America is expanding, market research companies sustain that those who will make an impression when starting a new business will find their way through this pandemic storm. Those who will be able to attract new consumers and connect to their audience by creating unique experiences will grow stronger through the adversity. This is where metal card influence can come into play and make a difference. 

In this context, a recent Aite Group research paper on next-generation metal payment cards shows how in the US and Europe metal cards have represented a key medium for financial institutions, fintechs and digital banks to communicate with their digital customers, delivering a human experience through premium products.

For example, Mexico is a favorable market to watch in terms of the successful adoption of premium products. The average age in Mexico is 28, with 41% of the population being 25 to 54 years old, which represents a fruitful base of young, tech-savvy consumers. These young consumers are attracted not only by neo-banks’ digital services, but also by their overall benefits that aim at differentiating themselves, including specific products such as the cool form factor of metal cards.

Metal cards to drive fintech growth

Metal payment cards are by no means a new concept. They have been present in the marketplace for nearly 20 years. However, their issuance was originally targeted towards tier-one and limited to ultra-high-net-worth (UHNW) segments.

Today, the target consumer for metal cards has changed. This is driven by requirements for segmentation and differentiation, targeting the premiumization of the mass affluent consumer base. Included in this are millennials, a highly desirable segment for fintechs. Fintechs in Europe and the UK, among others, seem to have helped boost the issuance of metal variant card bodies, as a uniqueness form factor, integrating latest EMV and contactless technologies to innovate and compete against traditional incumbent banks offerings.

Metal cards are attractive for fintechs for many reasons. Not only does the metal card the “look and feel” that a customer is looking for in a product, but it also creates an elevated emotional connection where the customer has the feeling of being part of  a cool premium community. The premiumization effect associated with specific brand-connected benefits is key to a unique customer experience. Metal cards are a differentiation that combine digital services with an attractive physical product. Metal cards help create a top-of-wallet status. They elevate the fintechs brand positioning and the customer’s perception of it. According to a CompoSecure proprietary analysis, they drive higher transaction and spending volumes, increase customer retention and, in a virtual circle, can help contribute to new customer acquisition. 

Disrupt the status quo

Latin America is following the example of European fintechs, where business cases point to metal card adoption as a successful business growth driver. Latin American fintechs could define their own product innovation offering, in accordance with their regional and local market specificities and ecosystems. The Aite Group report concludes that metal cards could be a key driver to disrupt the status quo, especially in a region where the population segment of millennials is high, and where differentiation and “cool factor” are important.

For more information on best practices of common fintech challenges and an overview of metal card issuance, we invite you to down-load the full report of Aite Group commissioned by CompoSecure LLC “A Competitive Edge for Fintech Issuers”

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