The main types of digital payments, and how to offer financial services using them

Published on Sep 21 2023.

reading time 12 minutes reading

With the increasing use of electronic devices, such as smartphones, computers, and other devices, digital payments are gaining traction in the financial arena, revolutionizing how transactions occur.

Some of the advantages of using digital means of payment include convenience, fast processing, security, and low operating costs. As we will see below, there are many reasons these payment options have become increasingly popular, and preferred both by consumers and companies all over the world.

In this article we analyze the main types of digital payments, and delve into how offering financial services with these types of payments has become essential for companies and financial institution to meet their clients’ needs.

 

What are digital payments?

 

Digital payments are financial transactions that are performed completely online. Payments occur through a simple virtual transaction from a device such as a smartphone, tablet, smartwatch, or computer.

The principal characteristic of a digital payment is that, contrary to more traditional forms of payment, there is no need to have a physical element, such as cash.

It is precisely this reason that digital payments offer the payer the ease of performing a transaction regardless of where they are, while the recipient has the security that the payment actually occurred.

 

Accelerated adoption of digital means of payment

 

There is no question that the coronavirus pandemic was a significant catalyst in large-scale adoption of digital payments. As concerns about safety and social distancing increased, both consumers and companies began to prioritize means of payment without physical contact.

According to Global Findex 2021, in Latin America 40% of adults made digital payments in a commercial establishment during the pandemic, including 14% who did so for the first time.

During the pandemic, 15% of adults paid their public utilities through digital transactions for the first time, which is more than twice the average of developing countries.

The same study states that there are even greater opportunities for digital payment , as 150 million adults with a bank account paid merchants using only cash during the pandemic, including 50 million in Brazil, and 16 million in Colombia.

 

Read also | Tokenization: what is it, and how does it impact financial services?

 

The most important digital means of payment in Latin America

 

The accelerated use of digital payments has profoundly redefined the manner in which we receive and conduct financial transactions.

As new financial solutions come to market, we are seeing a growing consumer preference for faster, safer, and more convenient methods of payment. The following are some of the digital payment services most used by Latin Americans.

 

Instant payments

 

Instant payments are a type of digital payment that allows amounts to be sent in real time from one account to another. Everything happens in seconds, without middlemen: the transaction occurs through applications, sites, or digital wallets.

Currently more than 50 countries work with instant payment systems. Thanks to Pix, Brazil ranked second in the number of this type of transaction in 2022, trailing only India, according to Prime Time for Real-Time Report, released by the Central Bank of Brazil.

In Latin America, the level of adhesion to instant payment is in different stages in the six countries with the highest GDP on the continent: Argentina, Brazil, Chile, Colombia, Mexico e Peru. On one end of the spectrum is Brazil, with its success implementing Pix. On the other end is Chile, with promises to set up a similar type of system, but without technological progress in recent years.



 

There is enormous potential for instant payments in Latin America, considering the fact that as of 2023, fully 21% of Latin American adults, or 91 million consumers, rely exclusively on paper currency, according to a study by Mastercard and Americas Market Intelligence (AMI).

 

Cards

 

Credit and debit cards are also popular means of digital payment in Latin America. With the evolution of technology, payments can now be made completely online, by cell phone, and contactless (tap).

In 2020, credit cards were the most used means of payment in e-commerce purchases in Latin America, representing 59% of transactions.

 



 

 

While 58% of Latin Americans have a credit card, only 31% have access to a loan or line of credit, 28% to individual insurance, and 21% to other investments, according to the Mastercard / AMI study.

 

Read also | Credit industry in Latin America: 4 opportunities for driving the industry

 

Payment link

 

A payment link is an electronic address generated by a platform that provides this service. Through the platform, the issuer registers the product, amount, and number of installments, and the system generates a link.

This link may be shared by text message, social network, or e-mail, taking the client to a page with the details of the financial transaction, such as amount and description. There, the client inputs their payment information, and after confirmation, the transaction is concluded.

Because of how easy it is to use, its low cost, and reduced attrition at checkout, the tool is a versatile solution that can be used by small, medium, and large companies, shortening steps in the online sales process.



 

 

Digital wallets

 

Many people confuse a digital wallet with a digital account; however, they are different means of payment. A digital wallet is a type of application in which the user can add a balance of funds and link their cards, allowing them to make purchases using just their smartphone. That is, it does not necessarily have to be linked to a financial institution.

In 2020, according to study performed by Visa Consulting & Analytics, 12% of Latin Americans already had digital wallets as their preferred means of payment, which shows that the trend of consumer-focused payments is becoming the norm.

McKinsey’s Digital Payments Survey 2022 states that more than two-thirds of Americans expect to have a digital wallet within two years, and it is likely that many will have multiple digital wallets. Furthermore, the percentage of consumers who intend to use three or more digital wallets in the next few years rose from 2% in 3, to 18% in 2021.

 

Trends in digital payments

 

Without a doubt, consumers are focusing closely on digital payments, and consequently, on the companies that offer financial products.

According to the New Payments Index 2022, 74% of Latin Americans pay their accounts online, and 19% plan to do so in the future. Furthermore, the previously mentioned McKinsey study shows that the percentage of consumers who use digital means of payment catapulted from 51% in 2021, to 62% in 2022.

Against this backdrop, we can confirm that digital means of payment are trending upwards.

 

Crypto Payments

 

Cryptocurrencies are gaining ground as a means of payment. These are called Crypto Payments.

Research conducted by CoinsPaid in Brazil, Colombia, and Argentina, shows that 41% of people have a better perception of an establishment when it accepts transfers in digital currencies.

El Salvador, the first country to implement Bitcoin as legal tender, is leading the way in Crypto Payments in Latin America. Other countries are also taking steps to facilitate the use of cryptocurrencies in different sectors and at different companies.

 

Buy Now Pay Later

 

Known by the acronym in English BNPL (from Buy Now Pay Later(BNPL) references a category of payment solutions which, as the name indicates, allows clients to purchase something now and pay for it in the future.

Most of the time this model applies to purchases made online that can be paid for in a single payment, or in installments without interest on short-term financing.

The main reasons to use BNPL are ease and convenience, especially because there isn’t a long credit verification process, and the method is completely integrated with the purchasing journey and the checkout experience.

 

Cross Border Payments

 

A Cross Border Payment is a financial transaction that occurs between two parties located in different countries.

Although this transaction might look simple, there are several factors impacting the process, such as currency conversion, service fees, and taxes. Cross Border payment solutions help make this procedure simpler and more flexible.

According to BIS International , banks all over the world recorded a US$ 782 billion increase in this type of transaction in the second half of 2022, which is annual growth of 8% compared to the prior year.

 

Read also | International remittance: what motivates the expansion of this financial service?

 

Digital payments and financial inclusion

 

Digital payments drive financial inclusion by offering more people access to financial services. By eliminating geographic barriers and reducing costs, they allow individuals in remote regions and the unbanked to conduct convenient and secure transactions.

A study by the Central Bank of Brazil, for example, shows that the growing use of digital payments in Brazil has resulted in a reduction in the number of unbanked people.

The study shows growth of 14% between 2017 and 2021 in the number of adults with bank accounts in Brazil, with 84% of respondents indicating they had an account in 2021. Considering only the poorest 40%, the numbers rose from 57% of respondents in 2017, to 82% in 2021.



 

How to offer solutions with digital means of payment using Dock’s technology

 

Dock One is Dock’s payments and banking platform that was created to be a modern, secure, and efficient technological solution for any institution and company interested in offer digital payment services as part of their growth strategy.

Integrated and in constant evolution, Dock One is fully API-based, operating on four main fronts:

  • Banking: offer your clients a complete digital account with access to the most-used financial services.
  • Cards & Credit: structure a flexible credit, debit, and pre-paid card operation.
  • Acquiring: simplifies business management with processing, software updates, and real-time monitoring.
  • Fraud Prevention: state-of-the-art fraud management technology that identifies and prevents fraud at all stages of the transaction.

 

When you choose Dock One, your company has access to the most modern and secure financial services, with a very fast time to market. And best of all, there is no need for costly investments or long waiting times to develop and manage new solutions. Learn more:

 



 

 

Digital payments: what you saw in this article

 

  • Digital payments are financial transactions that take place completely online, using devices such as smartphones, tablets, and computers.
  • Some of the advantages of using digital means of payment are convenience, quick processing time, security, and low operating cost.
  • Instant payments, cards, digital wallets, and payment links are some of the most popular digital means of payment in Latin America.
  • Crypto Payments, BNPL, and Cross Border Payments are some of the trends in digital payments.
  • There are even greater opportunities for digital payments, as 150 million adults with a bank account paid merchants using only cash during the pandemic.

 

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