Cash-Loving Argentina Sees Record High FinTech Use Amid COVID-19

Cash-Loving Argentina Sees Record High FinTech Use Amid COVID-19

While Argentines have traditionally had a preference for cash, they have been forced to look for alternative payment methods during the lockdown. This has led to an unprecedented amount of FinTech activity for the country.

Argentina’s Historical Preference for Cash

Fintech institutions in Argentina seem to be enjoying a boom period as the citizens have been ordered to stay at home during the government-enforced lockdown to battle the Coronavirus pandemic. With no other choice left to them, the traditionally cash-happy Argentines have been forced to pay for goods and services through digital payment platforms and banks. Fintech companies like the George Soros-backed mobile-payments platform “Ualá” have significantly benefited from the situation.

Argentines have lost faith in banks and financial institutions due to decades of hyperinflation, seizures, and devaluations. As per a November 2019 survey by the INDEC national statistics bureau, almost 70% of all household expenses are paid in cash, with food and tobacco among top purchases.

As of March 20, just when the lockdown began, more than half of all Argentines didn’t have a bank account. When banks reopened on April 3, thousands of pensioners and citizens ignored social distancing rules to rush over and collect government welfare payments.

Demand for Financial Services Skyrocket During Lockdown

Under the current lockdown conditions, the demand for credit cards, new bank accounts, and wallet apps has surged considerably:

  • The aforementioned Ualá issued  127,000 new prepaid cards since the lockdown began. That’s a 20% jump in a single month.
  • Brubank, a digital bank, received an additional 80,000 clients. Since January 2019, the number of users on its mobile-phone banking platform has climbed to half a million.
  • Mercado Pago, the largest payment facilitator in Latin America, stated that the number of bills paid on its mobile wallet app doubled in the final two weeks of March.
  • Prisma Medios de Pago has printed about two million debit and credit cards in the first month of the lockdown. The firm noted that the majority of issuers are pensioners and the “unbanked.”

Juan Bruchou, Brubank’s founder and former Citigroup executive, believes that a vast majority of the new clients are people who have never had a bank account before. Pierpaolo Barbieri, founder and chief executive officer at Ualá, observed:

“The change we expected over years is happening in weeks. Ever since the quarantine started, we’ve seen an unprecedented acceleration in requests for new accounts.”

The coronavirus pandemic has had a largely negative economic impact, hurting the housing market, startups, and entire industries. FinTech is one of the few areas to see an increase in demand, with a 72% spike in use.

Analyzing Argentina’s Lack of Banking Penetration

An interesting thing to keep in mind is that a high percentage of Argentines work in a gig economy, which is why they are so cash-dependent. As per a 2018 study done by the Catholic University of Argentina’s (UCA) research institute, almost half of all the workers are in the informal sector, including jobs like street vendors and maids.

Along with that, several high-profile investors already had an eye out on Argentina before the lockdowns began due to its lack of banking penetration. Canadian billionaire and business magnate David Thomson owns a 15% stake in Brubank. Ualá has received backing from Soros, Goldman Sachs Group Inc, and Softbank Group Corp. Ualá’s Barbieri believes that there is still plenty of scope for growth and noted that Argentina’s level of financial inclusion is below its peers “even within the region.”

Do you feel that the lockdown is going to permanently move Argentina into exploring alternative payment methods? Or, is this just a temporary measure before they move back to a cash-based system? Let us know what you think.

Image courtesy of Continental Currency.