Blue Ocean: Why Do PSPs Target Latin America?

Why Do PSPs Target Latin America?

What is the first thing that comes to your mind when you think about Latam? Pirates of the Caribbean? Brazilian Carnival? Or the Pampas of Argentina?

From perspectives of payment service providers (PSPs), Latam is a breeding ground for successful entrepreneurship, because developing countries in the region try to seize the opportunity brought about by crypto enthusiasm, and people there resort to crypto assets as an alternative to fiat currency.

Let’s trace back to 2021 when people started to realize how crazy the crypto market can be for the first time. Bitcoin reached record high times and again due to bullish market expectation, repeated lockdown, and low interest rate by FED: It approached USD 40,000 on January 8, and rose to USD 50,000 on February 16. On March 13, it skyrocketed to USD 60,000 and USD 69,000 on November 10.

Crypto currency keeps developing and penetrating despite voices of objection and opposition. When most of the countries are careful and hesitating as to what attitudes they should take to treat the crypto currency, El Salvador decided to take a bold move.

El Salvador became the first country to adopt bitcoin as legal tender on June 9. Lawmakers in the Central American country’s Congress voted by a “supermajority” in favor of the Bitcoin Law, receiving 62 out of 84 of the legislature’s vote. The price of bitcoin was up 5% to $34,239.17 shortly after the vote. In the same month, Athena Bitcoin, operator of bitcoin (BTC, +2.28%) automated teller machines (ATMs) throughout the Americas, announced to to invest over $1 million to install cryptocurrency ATMs in El Salvador, especially where residents receive remittances from abroad. According to statistics on Coin ATM Radar, El Salvador has 204 Bitcoin ATMs, ranking №4 in the word, next to the US, Canada, and Spain.

Other Latam countries followed suit. A senator from Uruguay introduced a bill to allow businesses to accept cryptocurrencies as payments and regulate their use within the South American country last August. Crypto MKT, a crypto exchange located in Peru announced at the end of 2021 that residents could purchase crypto-related products and services from 5,000+ stores through crypto payment processors. A Colombian commercial bank planned to trial cryptocurrency services through a sandbox project set up by the country’s financial regulator. A new legislation called Crypto Asset Marketing Framework was introduced in the Peruvian Congress, on December 20, 2021. The draft aimed to regulate the cryptocurrency businesses in the country. The new legislation would also define crypto assets and clearly define the duties of virtual asset service providers (VASPs). In Argentina, it is very common to see crypto broker and exchange advertising everywhere, and some of them have even become sponsors to local soccer teams.

The whole Latam region is embracing crypto currency, except for Mexico that is relatively hardline against crypto currency, is all endeavoring to develop crypto-related economy and improving laws and regulation.

So why is crypto currency widely accepted in Latam?

First, demographics. The median age of Latam region is 31 years old, which is only elder than Africa. However, Latam has a larger proportion of investors between 15–65 years old who can make their voice heard online and in normal life. In other words, people that can be potential crypto traders take a very high share in Latam’s population.

Second, local turbulence and poor governance leads to distrust towards high inflation and distrust to fiat currency. The 1,000 Argentine Peso note has lost 85% of its denomination at the time it is issued; Its purchasing power plummeted to USD 8.44 in May 2020 from USD 57.37 in December 2017 when the first edition was introduced to the market. Brazilian Real depreciated 15.5% in 2020 against USD, and Venezuelan Bolivar depreciated 99.7% within 4 years.

High inflation forces local residents to seek other investment approaches to keep their asset safe. However, investing in gold has a high threshold with difficult access, so people start to resort to crypto assets. That is how crypto assets circulate in the market and during people’s daily life.

In addition, some Latam enterprises don’t have business account, making it difficult for them to exchange foreign currency, operate business, or purchase raw materials. Local residents don’t care too much about what type of the crypto assets is, be it Bitcoin or stable coin, as long as the transaction can be done. For instance, Argentina has adopted strict restrictions on exchanging USD, which even leads to a black market. So people are more prone to exchange their Pesos into Bitcoin, as they may have easier access and even at a more favorable price if it is a bullish market.

Latam people’s enthusiasm for crypto currency has attracted PSP’s attention worldwide who all want to increase their brand presence in the region.

Influential brands include PayU. The fintech business controlled by Prosus with operations in 50+ countries announced on April 20 a double-deal today to expand its presence in Latin America. The company acquired Ding, a mobile payments platform; and it has led a $46 million investment into Treinta, a financial “superapp” aimed at small businesses.

Before PayU’s case, Paysafe (NYSE:PSFE) completed its acquisition of PagoEfectivo, a market-leading, Peruvian-based alternative payments (APM) platform in August 2021. For Paysafe, the investment gave it a strategic foothold in Latin America, one of the world’s fastest-growing online markets where merchants and consumers alike are demonstrating an increased appetite for alternative payment methods and open banking solutions.

Local brand would not lag behind in this competition. On April 7, PayRetailers acquired Chile’s Paygol and Colombia’s Pago Digital to unify a $85 Billion Latam e-commerce market.

It is Latam’s enabling environment and wide acceptance to crypto assets that attract PSPs to step in. But who knows where the policies should be going in the future? Will the regime change? Will the economy recover as expected? As always, with uncertainties come opportunities. PSPs should not ignore the Latam market if they want to get a foolthold.