Application Programming Interfaces (APIs) – software intermediaries that allow different platforms, applications, and systems to talk to each other and share information – are quickly being integrated across Latin America (LATAM), especially in the payment industry. This movement towards embracing APIs is otherwise known as APIfication.
LATAM is ready to embrace this technology as the region has recently become a fertile field for financial and technical development. The market potential for fintech projects and tech startups has increased exponentially, and COVID-19 accelerated digital services’ adoption.
But despite the rapid rise of fintechs and neobanks, they have hardly reached the locally-driven demand and financial need. With untapped opportunities in the region, what’s next?
LATAM on the edge of financial inclusion
Some of LATAM’s traditional financial institutions still follow outdated methodologies and have manual operators. This can occasionally mean a lack of automated and standardized infrastructure for payments and money management, which can explain why nearly half of LATAM’s population are unbanked or have difficulty opening bank accounts. But this doesn’t mean they are financially inactive; they need loans and want to open savings accounts. Open banking APIs are the solution as they give third-party providers access to data from financial institutions in a safe and efficient way to speed up financial processes.
LATAM’s middle class has grown by more than 50% in the past decade, so there’s a huge demand for better financial products and services. APIs allow siloed systems to communicate with each other to develop products more agilely that are personalized to users.
The open finance wave means that banks, insurance firms, fintechs, and lending companies are innovating and integrating APIs to help with financial inclusion and initiate conversations around end-user management.
The growth in this industry won’t be slowing down anytime soon with governments taking regulation seriously across Colombia, Mexico, Brazil, Chile, and Uruguay.
Fintech-bank partnerships facilitating API integration
Fintech-bank partnerships have progressed drastically over the last two years due to fintech growth. This is also because API-driven collaboration between fintechs and traditional financial institutions is not a one-way street.
Banks have recognized how partnering with fintechs can modernize their offerings, without building the tech infrastructure themselves. At the same time, banks support a compliance and regulatory structure that helps fintechs establish appropriate security and regulatory frameworks. Their new products can be brought to the market faster and more efficiently, and they can benefit from a wealth of data.
In Mexico, the fintech Credijusto just bought a regulated bank. The deal reflects a global trend of fintech firms acquiring banks to enable more diversified product offers. Rappi also partnered with a Mexican bank, Banorte, to launch a financial services company.
Due to COVID-19 and the drastic digital transformation, the pressure for banks to innovate across the world has never been higher.
Empowering women to take control of their finances
In LATAM, women power the economy and are often the managers of household budgets. However, there is a lack of financial products designed for women. And when they were already less likely to get access to credit, COVID-19 further impacted their economic autonomy. However, LATAM’s fintechs using API are beginning to address gender inequality in credit.
Jefa, founded by Emma Sanchez Andrade Smith, is an up-and-coming challenger bank questioning the financial services available for women and encouraging a female presence in LATAM’s fintechs. Ana Barrera, Co-founder and CEO of Aflore, a female-led financial inclusion channel, gives access to financial products for the underbanked through a network of informal financial advisors.
In the microfinance landscape, there’s always been awareness about the role women play within their families. Microfinance institutions have often targeted individuals and small businesses with restricted access to conventional banking, which has led to female empowerment by influencing their decision-making. But API technology used by fintech companies is offering more opportunities to help women by increasing transparency in microfinance and allowing lenders to review client applications quickly.
Lastly, the huge caravan of immigrants currently making their way across LATAM, from Cuba to Venezuela to Argentina, has resulted in a wave of digital and crypto wallets and cross-border payment solutions. The ability to integrate all these different payment solutions via APIs is essential. It will allow alternative banking arrangements to have scalable operations, offering more flexibility and support to the millions of customers in the unbanked population.