Beyond Cash: Three Lessons From the Digital Payments Revolution in Latin America and the Caribbean

Over the past decade, Latin America and the Caribbean (LAC) has undergone a profound transformation in how people and businesses transact. Once dominated by cash, the region is now facing a digital payments revolution that is reshaping financial inclusion and offering valuable lessons for the world. A new report from the Inter-American Development Bank, Beyond Cash: The Digital Payments Revolution in Latin America and the Caribbean, documents this transformation and the policy and institutional innovations that made it possible.

A massive shift in how people pay

In 2011, fewer than 3% of adults in LAC made or received payments using novel digital financial products like digital wallets or mobile financial accounts. By 2021, that number had surged to 40%, an enormous change in just a decade, according to data from several waves of the World Bank’s Global Findex survey. Half of that growth occurred between 2017 and 2021 alone. Supply-side data confirms this trend as well, with the number of digital transactions per 1,000 adults tripling between 2019 and 2023, based on data from six economies in the region for which data was available and compatible. In Brazil, the number of users of financial products rose to over 150 million – roughly the country’s entire adult population – just three years after the launch of its instant payment system, Pix, in 2020. 

Figure 1: Digital transactions tripled between 2019 and 2023 (2019 base year =100).

Source: Beyond Cash: The Digital Payments Revolution in Latin America and the Caribbean. Figure based on data from the Central Banks of Brazil, Bolivia, Costa Rica, Chile, Peru and Mexico.

This remarkable growth is clearly more than a technological shift. It represents a scaling up of financial inclusion. Digital payments are now a gateway to the formal financial system for millions of people who previously lacked access. Behind this transformation there are important lessons for LAC, and for future efforts around the globe.

Lesson 1: Private sector innovation was crucial, but public policy made the difference.

This transformation didn’t happen by chance. It was the result of a powerful combination of private sector innovation and sound public policy. The region has seen an explosion in fintech activity with the number of fintech firms growing from 700 in 2017 to over 3,000 in 2023. Many of these firms focus on digital payments, offering solutions like mobile wallets and QR-based payments.

But innovation alone wasn’t enough. Governments and financial authorities played a critical role in addressing market failures, particularly those related to network effects and fragmentation. 17 countries in the region have implemented fast retail payment systems (FRPSs), which allow users to send and receive money instantly, 24/7. Importantly, 11 of these systems include regulatory dispositions that promote interoperability, ensuring that users can transact across platforms, regardless of their provider.

This alignment of technology, regulation and incentives has been key to the region’s success. It has enabled both public and private actors to build inclusive, secure and efficient payment ecosystems.

Lesson 2: Interoperability is key, and there are many roads to get there.

One of the most striking findings of the report is that, while financial authorities focused on promoting interoperability, there is no one-size-fits-all model for achieving it. Countries in LAC have taken diverse paths to interoperability in their payment systems. In some countries, the financial authorities built payment platforms from scratch, while in others, financial authorities built on top of private investments.

In Brazil, the central bank led the development of Pix, creating the infrastructure and mandating participation from large institutions. In contrast, countries like Uruguay and Chile relied on the private sector to build the platforms, with financial authorities focusing on oversight and regulation. Peru also took a hybrid approach, mandating interoperability between leading digital wallets while leveraging existing infrastructure. Despite these differences – in scale, baseline adoption of digital payments and institutional settings – the outcomes have been similarly impressive. Brazil, Peru and Bolivia all saw dramatic growth in numbers of interbank transactions after introducing interoperability. 

Figure 2: Substantial growth in intra-bank transactions after the implementation of interoperable payment systems.

Source: Beyond Cash: The Digital Payments Revolution in Latin America and the Caribbean. Figure based on data from the Central Banks of Brazil, Bolivia, Peru and Mexico.

However, there were also cases where efforts were not as successful, such as with Mexico’s fast retail payment system, CoDi. In this case, implementation challenges like the limited participation of all financial providers may have played a role, as well as issues of trust in both financial institutions and digital tools.  From these examples, we can see that success also depends on how policies are implemented and on identifying and addressing important barriers to adoption.

Lesson 3: Cross-sector policy measures  can boost financial access and support interoperability.

Individuals will only adopt a platform if other individuals with whom they are likely to transact use the same platform. As such, they will wait for their peers to adopt the technology before they do. Without coordination, this may lead to sluggish adoption of digital payments. Beyond promoting interoperability, it is important to solve these types of coordination issues to ensure the widespread adoption of digital payments. Governments in LAC have made progress on this front by changing the disbursement method of benefits from social programs. The percentage of beneficiaries of social programs who receive benefits into financial accounts grew substantially from 47% in 2014 to just over 80% in 2021. 

The road ahead: From payments to financial health

While the progress in digital payments in LAC has been remarkable, the journey is far from over. The lessons we’re learning – on public policy to complement private sector innovation, achieving interoperability and expanding access to finance - can help countries chart a path towards widespread adoption of digital payments.  The next big challenge will be turning that widespread adoption into broader access to financial products – and then making sure that access contributes to improved financial health.

If countries continue building on what works, while actively addressing frictions like limited participation, fragmentation and low trust, digital payments can deepen financial inclusion and unlock new opportunities for households and firms across Latin America and the Caribbean.