LocationsA surge in digital payments, mobile wallets, and fintech innovations is redefining the financial landscape in Latin America and the Caribbean (LAC). The number of digital banks in the region increased sixfold, going from 10 to 60 in just five years (2017-2021), while mobile money accounts saw an exponential growth. In Argentina, usage jumped from less than 1% in 2014 to 27% in 2021. As financial services shift to electronic platforms, traditionally underbanked or unbanked groups, such as those at the tail end of the income distribution and small businesses, are finding new ways to meet their needs.
The Global Findex Database provides insight into the digital finance boom in LAC and its impact on bancarization -access to and use of banking services like savings accounts, debit and credit cards, and loans. Figure 1 shows a sharp rise in digital payments after the pandemic, with 66% of people in the region using digital channels in 2021, up 22 percentage points from 2014 (44%). While LAC remains behind more developed economies (96% in OECD countries), its levels slightly exceed the global average (64%). In Venezuela, which has the second-highest adoption rate in the region, the early and widespread adoption of digital payments can be linked to remittances. Digital payments offer a faster and more affordable alternative to traditional channels such as banks and remittance companies, making them an important financial tool for households.
Improving financial access has long been a challenge for LAC, but the pandemic unexpectedly accelerated bancarization. Many people opened bank and mobile money accounts to receive cash transfers, send and receive remittances, or make purchases. Figure 2 highlights the surge in account ownership, from 52% in 2014 to 74% in 2021. Today, most adults in LAC have a bank account. This growth was not universal; in countries with already high financial inclusion, like OECD members, ownership increased only slightly from 94% to 97%.
However, owning a bank account does not guarantee full financial inclusion and its benefits. Many households still do not use formal banking services for saving or borrowing -essential tools for managing economic shocks or investing in the future. In 2021, only 18% of people saved in a bank account, and just 30% borrowed from formal institutions, far below the 59% and 57% seen in developed countries (Figure 2). This does not mean that people don’t save; they often rely on alternative methods. A previous #GraphForThought with 2016 data shows that 37% of people in LAC save, but only 12% do so through a financial institution.
Several factors contribute to low savings account usage in LAC. High transaction costs -such as opening and withdrawal fees, or minimum balance requirements- deter people, especially when yield rates fail to offset these costs. Distrust in financial institutions also plays a role, shaped by the region’s history of financial crises and bank runs. Additionally, knowledge gaps prevent individuals from feeling confident about entrusting their money to institutions they do not entirely understand.
When fully realized, financial inclusion helps people move beyond short-term decisions and focus on long-term well-being. Saving in a bank account provides collateral for credit, enabling consumption smoothing during shocks like illness, unemployment, or extreme weather events. It also supports productive investments, such as education or entrepreneurship. In contrast, informal saving -storing cash at home, joining savings groups, or buying durable goods- is riskier, exposes money to inflation, and limits liquidity. Informal lending is often costlier than formal credit, with exploitative interest rates that can lead to debt traps.
Achieving full bancarization in LAC still has a way to go, but progress is underway. Digital banks and fintechs are driving inclusion by lowering interest rates and focusing on underbanked consumers and businesses. Although the pandemic pushed more people into digital finance, access to formal savings and credit remains low. Offering entry-level credit products, such as secured credit cards or microloans, can help individuals with no credit history begin to build their credit scores, especially among underserved populations. Stronger regulations and consumer protections can boost trust, ensuring people feel safe keeping their money in banks, and derisking loans, even during economic downturns. Financial education is equally important, helping consumers understand banking products so they can make informed decisions. Facilitating the adoption of financial products to protect household consumption is the first step toward building resilience, ensuring that people can rebound and grow after a setback.
