Are there too many virtual wallets in Latin America?

In the wake of the initial boom in fintechs, the market dynamics have changed, especially in Argentina, where some of the digital wallets that were launched have recently announced that they are closing down, including Ank, Bimo and TodoPago.

“We can still expect many more to go, because those who have already gone still don't include those with dismal figures,” Julián Colombo, CEO of banking and fintech company N5 Now, told BNamericas.

“The fact that Ank [owned by Itaú bank] has gone is bad news, because it was one of the ones that didn't need the money. It was the least sensitive to economic results, which tells you about the complexity of [the digital wallet market],” he added.

The executive said that e-wallets are a "highly commoditized" product and that they "aren't sustainable in almost any geography."

The exit of these digital wallets from the market could be repeated across the region.

When asked by BNamericas about the closure of various e-wallets in Argentina, Santiago Urrizola, CEO of tech company Flux IT, said "it responds to a global phenomenon, normal in any process of expansion of a new business, added to the fact that there's a withdrawal of investment funds for certain projects like these.”

Colombo underlines that investors are no longer betting on this type of business. "In the financial industry, worldwide, if you want to earn well, you have to go for the credit margin or charge fees," he said.

Due to the fact that the competition in the digital wallet market has led to the elimination of fees, some fintechs are trying to move into the credit market.

The N5 executive claims that the problem is even larger and includes digital banks, saying "98% of digital banks worldwide lose money." Therefore, investors are not funding companies that don't already have a captive customer base.

In this context, while there some companies are closing down, others are consolidating. An example is the purchase of Wilobank by the Ualá digital wallet.

“The movement is convergence. Digital banks are moving towards traditional banking and traditional banking is moving towards digitization,” he added.

"Wallets that can offer financial products from a bank are going to have a higher level of adoption," Gabriel Arango, technology manager at GlobalLogic, told BNamericas.  

“The key for wallets is the user experience and for them to leverage their business by serving businesses or having some type of financial leverage behind them,” he said.

THE FUTURE OF DIGITAL WALLETS

“The future is yet to be discovered. Wallets have generated great changes and innovations. They've driven the evolution of standards, regulations and financial services in general,” said Urrizola, but he refrained from making any predictions.

The survival of digital wallets certainly seems to be linked to their size, which is why examples such as MercadoLibre's MercadoPago are those that are most successful.

"Those who broke the adoption threshold are going to remain, while the smaller ones are going to sell their clients or transfer their operations to another bank," said Arango.

Colombo sees particular appeal in spin-off businesses, which already have a customer base that they can take to wallets. One example of this is Modo, the wallet used by Argentine banks.

Meanwhile, the main attraction of the wallets backed by telecommunications groups is offers of discounts when topping up data, while those owned by retail companies can also take advantage of this model.

However, for Colombo, opportunities for growth remain on the side of traditional banking, because it is easier for them to go digital than for a wallet to incorporate the new services they need to resemble a bank.