Search

We investigate how the presence of physical bank branches moderates financial technology diffusion. Our identification strategy uses services suspensions caused by criminal groups that perform hit-and-run raids exploding branch facilities and rendering them inoperable for months. We show that the shock depletes the cash inventory of branches, but the stock of credit and deposits remain unaffected. We then document that customers increase their usage of noncash payments after the events. We investigate a new instant payment technology called Pix that was a remarkable success in terms of adoption. After robbery events, the number and value of Pix intra-municipality transactions increase, as well as the number of users. We also find Pix usage spillover effects that go beyond cash substitution. First, the number of Pix transactions and users also increases when either the payer or the payee is in an unaffected municipality. Second, we show that there are local spillovers to digital institutions, indicating that cash dependence can be an impediment to their expansion. Our results shed light on the determinants of technology adoption and the consequences of the recent transition in the banking industry from a physical branch-based model to an increasing reliance on digital services.

Between the first and second quarters of 2020, e-commerce website traffic from five of the regions major markets increased by over 150%. The COVID-19 pandemic has pushed and pulled tens of thousands of businesses in the region to go digital. The impact and advantages of such digitalization are quite telling for small and medium-sized enterprises (SMEs) in particular. SMEs in LAC can diversify their customer base and reach 20 foreign markets when operating online, while those that operate offline can only reach from two to five. As todays digital economy becomes the norm, universal basic services such as education and medical care are also taking place online. Digital payments are critical to enabling this transformation at both domestic and cross-border levels. But many challenges still exist that preclude the broadening of digital payment use throughout the region from a lack of access, regulatory harmonization and affordable payment solutions, to a need for further public and private sector cooperation, consumer protections and an open, inclusive and interoperable payment ecosystem. In 2021, the World Economic Forum and the innovation laboratory of the Inter-American Development Bank, IDB Lab, jointly launched the Payments to Advance Growth for All (PAGA) initiative to address these challenges. This initiative has convened a diverse community of over 100 public and private sector representatives to explore, through dialogue, how to best unlock the true benefits of digital payments in LAC. As digital payments continue to thrive and drive financial inclusion and economic growth, we hope this paper will provide a timely snapshot of the most pressing issues and highlight the importance of public-private and private-private cooperation to advance digital payments for all in an open, inclusive and safe manner. * The opinions expressed in this work are those of the authors and do not necessarily reflect the views of the IDB, its Board of Directors or the countries they r

This framework is a set of recommendations for the development of Self Sovereign Identity based solutions which can be applied in both public and private implementations. It covers decentralized identifiers, verifiable credentials and presentations, digital wallets, on-chain public key directories and trusted lists, on-chain roots of trust and frameworks, regulations, and trust frameworks.

This report shows that Latin America and the Caribbean faces critical policy challenges going forward. It must accelerate the digital transformation to allow businesses and consumers to adapt to a new normal and leverage pandemic recovery to create stronger economies, and also tackle long-standing barriers to adopting digital technologies and bridging digital divides. These have impeded sustained and equitable economic growth even before the pandemic struck. This crisis should be a wake-up call for governments, the private sector, civil society, and international development partners to come together and take concerted actions to advance on consistent, long-term, and sustainable e-commerce strategies that are at the forefront of national and regional productive development agendas. Just as digital solutions allowed countries to overcome the increased role of distance within the context of the pandemic in shaping consumption and business, they should also be harnessed to increase regional economic integration beyond this emergency situation.

This document describes the proof-of-concept (PoC) developed by the Inter-American Development Bank, the IDB Lab, LACChain, Citi Innovation Labs, and ioBuilders to demonstrate cross-border payments between entities in different countries that involve currency exchange, using digital money represented by tokens -tokenized money- in the LACChain Besu Blockchain Network. For this PoC, Citi played the role of the bank holding the funds; the IDBs headquarters in the U.S. played the role of the sender of tokenized dollars; an individual in Dominican Republic played the role of recipient of tokenized Dominican pesos; LACChain provided the blockchain infrastructure and developed the back end, the smart contracts and the integrations; and ioBuilders provided technical advice and developed the front end.

The way to pay for transit services has evolved significantly over time, from cash to magnetic stripe cards, smartcards and mobile-enabled solutions, with the roll-out of automated fare collection (AFC) systems. The benefits of introducing new fare media vary depending on the local context and the starting point. In cities in the Latin American and Caribbean (LAC) region, cash payments are the dominant way of paying for transit and few comprehensive AFC systems have successfully been implemented and maintained. This Technical Note aims to discuss the benefits and challenges of moving from cash-based payments to other fare media, particularly for urban transit systems in the LAC region. To accomplish this, general benefits in international experiences were reviewed and the challenges and opportunities specific to the LAC region identified. Furthermore, the document analyses different types of fare media technology, and factors to consider when making the switch from cash to other fare media. Despite the challenges of switching from cash to other fare media as part of an AFC system, there are several key benefits: the emergence of providing fare integration, the option to choose an interoperable system from the beginning, solutions to promote financial inclusion, and the creation of proprietary data for analysis and planning. The choice of a fare media, however, depends on the local context and culture as it requires operational and behavioural adjustments from all stakeholders involved in public transport.

The FinTech industry has grown significantly in Latin America and the Caribbean and has become an alternative for improving regional financial inclusion levels. However, the innovations brought about by this growth pose a series of challenges for regulators and financial supervisors, who are tasked with reducing uncertainty associated with the phenomenon. Regulatory sandboxes are tools to mitigate uncertainty in a controlled environment in which companies can test their services under the financial regulator’s oversight. There is a possibility that the region can advance toward common principles to allow ecosystem development and regulatory convergence among the different countries.

This report represents an initial effort to systematically describe the commercial activities of Fintech in Latin America. In the first part, we offer an overview of the sector and its main trends in terms of emergence, magnitude, and location of the main startup hubs, as well as of the forces that drive the businesses, their potential clients, deployed technologies, and the development of a collaborative system. In the second part, different types of innovation observed throughout the region are analyzed in further detail, dividing them in 10 large segments among which platforms of alternative financing and payment solutions stand out. Startup hubs in Mexico and Brazil are the focus of the third part, being these the two leading countries in this activity. Part four discusses the creation of public policies and specific sector regulations such as mechanisms to achieve financial inclusion goals and boost consumers’ trust in the services offered by these young enterprises. In the fifth part, we analyze the industry’s scaling potential, its internationalization, and its growth given that increasingly more and more Fintech firms are expanding their services outside of their home countries, seeking to operate sustainably and create jobs throughout the entire region. In part six, we estimate the amount of venture capital investment in the sector stemming from angel investors, startup accelerators, private capital funds –from Latin America as well as from the United States and Europe–, and from financial and non-financial corporate entities. Finally, the seventh and last part provides a series of conclusions regarding the evolution and future development of Fintech firms in the region.

Innovations in digital payment technologies and digital currencies suggest that extending access to central bank money (CBM) to firms and individuals is now feasible. This paper focuses on a recent related debate regarding alternative organizational models for the payment system and their implications for the banking industry. One of the main conclusions is that extended access to CBM will likely create a centrifuge force in the financial system that might result in the unbundling of the banking functions.