An Overview of Payment Solutions in Latin America

In the US, most people gloss over payment processing because almost everyone has a credit card, Paypal account, or another simple way to pay. Developers use Stripe and can process in seconds. For consumers, Amazon even created one-click purchasing for some customers and physical buttons that automatically reorder your favorite products.

In China, paying is even easier; almost everyone uses Wechat or Alipay to scan QR codes and pay for everything automatically without ever taking out their wallet.

Startups have filled almost every niche in the payments industry, providing solutions for any vendor. Need to pay someone for something you bought in an online shop? PayPal can help. Setting up online payments for your business? Try Stripe. Want to compensate your roommate for your half of the gas bill? Venmo can help you do that.

We tend to take these solutions, as well as more traditional payment systems such as credit cards, for granted in the US. Only 6.5% of households in the US don’t have a bank account, although 18.7% of households are considered underbanked. If someone in the US wants to sign up for a Netflix account or buy a t-shirt online, they enter their credit or debit card information, and that’s it.

In Latin America, completing an online transaction is not so simple.

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How Latin America is Using Technology to Reform the Tax-Paying Process

As the calendar turns toward April 15th, everyone in the US knows what’s coming: tax day. While the Internal Revenue Service (IRS) has updated their systems, and there are dozens of tax management tech products, many people still have to file via a paper 1040 form that takes 6-8 weeks to process. Compare that to Chile,  a less “developed” country according the most of the world, where paying taxes is as simple as logging on to the Servicios de Impuestos Internos (SII, Chilean IRS) website to see all your paychecks and spending from the year. On Chilean tax day, people can immediately if they’ll get a refund and how much it will be, which then shows up in your bank account automatically in 1-4 weeks.

Electronic tax filing systems are not unique to Chile. Colombia, Argentina, and Mexico allow people to pay taxes online or even via app, using a personal identification number like a Social Security number.

However, not all of Latin America is so progressive when the time comes to pay taxes. According to the World Bank, Brazil’s tax policy is one of the most complex in the world, so much so that doing taxes requires over 2000 hours per year, compared to 291 in Chile,  311 in Argentina, and Colombia with just 239. Latin American countries also have Value Added Tax (IVA in Spanish) that you have to pay monthly included in their totals.

Across the region, government ministries are rapidly introducing new methods to simplify and speed up the taxpaying process. Here are some of the ways Latin American governments are working to improve the often-painful process of paying your taxes.

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Blockchain and Cryptocurrency in Argentina: The Bitcoin Early-Adopter

In the early-2000s, the Argentine economy went through a severe crisis, causing Argentina to default on its foreign debt and place strict controls on currency. While Argentina’s economy quickly recovered over the next few years, the Argentine Peso remains famously unstable, passing through periods of rapid inflation and deflation.

Why Are Argentines Bitcoin Early Adopters?

As a result of the instability, Argentines became some of the earliest adopters of cryptocurrency in Latin America – and the world – in an effort to protect their savings against inflation. With an inflation rate of 32% per year (or higher) and a restrictive foreign exchange policy, Argentina was a prime location for cryptocurrency adoption.

Buenos Aires currently beats out most global cities for businesses that accept Bitcoin, with 6.1 businesses that accept Bitcoin per one million people, while New York has just 4.7 Bitcoin-accepting businesses per one million people. However, the Argentine government does not necessarily sanction investment in cryptocurrencies. The Argentine Parliament does recognize cryptocurrency, but they see it as property rather than currency. Bitcoin and other cryptocurrencies are currently legal in Argentina, and the country reportedly installed as many as 200 Bitcoin ATMs last year.

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Overview of Fintech in Latin America: Startups, Funding and Opportunities

Only 11% of Latin Americans have access to credit from formal institutions. In fact, in Chile, 37% of adults have no accounts with a formal financial provider, even though Chile has one of the highest levels of financial inclusion in the region.

In comparison, under 40% of adults in Colombia, Mexico, and Peru have formal bank accounts. However, in one of the most chronically underbanked parts of the world, improvements in financial technology have opened the doors for widespread financial inclusion throughout the Latin America.

More and more people are accessing mobile payments, credit systems, and P2P lending opportunities through recent advances in local fintech, and investors are catching wind of the enormous opportunity.

While there have been considerable advances in financial technology in Latin America in the past five years, many tools are still only available in the countries where they were founded. A report by Oliver Wyman, released in September 2016, provides a snapshot of local fintech players in Chile, Brazil, Mexico, and Colombia.

Source

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