Ualá’s personal finance app’s runaway success demonstrates how fintechs can thrive in Latin America by offering financial services to customers with smartphones but not bank accounts. Since being founded in 2017, the start-up has grown to employ 800 people and has been valued at up to US$1bn after investment heavyweights including George Soros, Bessemer Venture Partners, Point72 Ventures, Tencent and SoftBank having pitched in with almost US$200m of financial backing.
A recent interview with “Conversations with Tyler” saw Ualá founder and chief executive Pierpaolo Barbieri outline the company’s progress so far and his expectations for future expansion in Latin America. Having first launched in Argentina, Ualá expanded into Mexico in November last year . Less than six months later, it has issued over 100k accounts in the country.
Unbanked looking for alternatives to cash transactions
Barbieri attributes its early success to the fact that large swathes of the Mexican population are “unbanked” and are looking for alternative payment mechanisms that allow them to shop online and avoid visiting ATMs and bank charges. Ualá operates using a prepaid card sent to customers free of charge when registering for the app, with no issuing, renewal, maintenance or closing fees. That reduces banking costs by up to 80%, says Barbieri, a significant advantage that brings the price of making digital transactions closer to using cash.
The World Bank suggest only 37% of adults in the country have bank accounts, and only 9.5% have credit cards. Most purchases are still made in cash, with only 13% of Mexicans aged over fifteen making online transactions. Ualá has pledged to promote greater financial inclusion whilst reducing the use of cash. This strategy mirrors efforts by the Mexican government aimed at moving the country away from being a cash economy (read DOCOMO Digital CEO Jonathan Kriegel’s blog on the Mexican payments revolution here).
Using a smartphone to conduct financial transactions makes sense in Mexico. GSMA Intelligence estimates there are 88 million mobile Internet users in the country (68% of the entire population), 92% of which own smartphones. GlobalWebIndex figures indicate that 99% of Internet users aged between 16 and 64 own a smartphone. Mobile Internet speeds are high, having increased 13% to 32Mbit/s between January 2020 and January 2021, according to Ookla speed tests.
Increased appetite for eCommerce and other services such as over the top (OTT) video and audio streaming platforms like Netflix, Disney+, and Spotify push more Mexicans to embrace cash alternatives. And once they get used to having digital accounts and debit cards, believes Barbieri, people will quickly move to receive funds on those accounts without being charged for it or third-party providers demanding a cut of the proceeds. A detailed breakdown of transactions in a digital form is also a draw for many consumers, primarily if those records can be used like credit histories to access other financial products like loans and insurance.
Digital currencies will reduce the cost of international transfers
While its Mexican business is relatively new, Ualá has been active in Argentina for almost four years. The latest figures suggest it now has around 2.7m cardholders in the country. It has seen its online bill payment service (supported by Western Union) boosted by a dramatic increase in transactions since the onset of the Coronavirus pandemic. The company also allows customers to top up their Ualá prepaid balance through their local bank accounts, as well as PagoFacil and RapiPago. These services enable Argentines to exchange cash for vouchers.
For the moment, Ualá’s mobile app has managed to avoid the financial services regulations that traditional banks have to comply with as it doesn’t lend money using other customers’ deposits (instead, it uses investor funds, says Barbieri). That could change when Ualá completes the acquisition of digital bank Wilobank announced earlier this year.[i] Wilobank is reported to have around 240k savings accounts and has issued over 170k debit and credit cards.
Barbieri thinks that implementing central bank digital currencies will fundamentally change the financial services landscape over time, particularly when it comes to international transfers.
Sending remittances to Mexico from the US, for example, could become much cheaper because there is a direct way of connecting a Mexican digital wallet to one in the US. Suppose the sender can connect Ualá in Mexico to a US financial institution. In that case, Ualá can wait until the end of the day and do one net transfer for all similar transactions rather than doing a SWIFT for every individual transfer. TransferWise is already taking a similar approach in Europe. Barbieri predicts that eventually, there will be a federation of financial institutions or digital wallets that use private protocols rather than SWIFT connections to lower the cost of money transfers too.
Barbieri is now eyeing further expansion of Ualá’s operations into neighbouring countries with a high proportion of unbanked customers, such as Peru, Paraguay, Columbia and Chile.[ii] While China and Northern Europe are likely to become cashless economies much earlier, with so many fintechs Latin America may not be far behind.
[i] Report: Mobile Payments App Ualá To Acquire Digital Bank Wilobank, PYMNTS.com, 9th April 2021
[ii] Argentina’s cashless king targets Latin America’s unbanked millions, Reuters, 7th May 2021