Since the first payment gateway appeared 14 years ago, a lot has happened with these tools that are key to the world of electronic commerce and digital economy. Although the term was already used for the first time in the United States in 1996, when the young engineer Jeff Knowles founded Authorize.Net, the truth is that it was developed for processing only credit card payments, and remained that way for many years, even after the company was acquired by Go2Net Inc in 1999.
With the pandemic and the boom of e-commerce, digital payment platforms and other fintech vertical platforms have become more significant, increasing dramatically the investment of companies in this sector and even their profitability. This is an industry that, just some years ago, had been advancing at a more paused pace, but today, it poses great challenges to countries, given the speed at which it is evolving.
The first payment gateway (defined as the service that allows a merchant to accept all payment methods through internet, automate operations between customers and merchants and centralize information) was Adyen, created in The Netherlands. Founded in 2006 by a group of young entrepreneurs, including Pieter van der Does and Arnout Schuijff, its main objective was making the businesses grow in a country where, despite being economically developed, payment technologies were becoming increasingly obsolete.
They decided to name the company Adyen because in a Suriname's creole language it means “to start again”, which made sense with the idea of building a modern infrastructure to connect first, The Netherlands, and then, the whole world. Today, it is the payment platform that giants such as Uber and Spotify use, and it has offices in 22 cities around the world. In 2019, they processed 240 trillion euros.
In Latin America, the development of the payment gateways has advanced at a slower pace, but it is not less relevant. In a region where, according to Brookings Research Center data from Mexico, Colombia, and Peru, less than 40% of the people have formal bank accounts, the development of the fintech industry, and specifically, of digital payment gateways, has become more necessary than ever.
In this context is where Kushki and many other companies and startups are created for payment processing, financing, financial infrastructure, personal financial management, insurtech and digital assets negotiations, among other activities. In 2018, according to a study by FinteChile in collaboration with EY, the Latin American fintech industry counted up to 55 investments for a total of US$500 million. With the pandemic, the investment increased dramatically: according to quantitative data by KoreFusion Consultancy, the fintech sector in Latin America reached historical investment values for US$8 billion, a payment category that accounts for a 50.5% of the total.
Until 2018, only in Chile –one of the countries with the highest bancarization rates in Latin America– online banking users had doubled during a period of five years, reaching 9.3 million in 2017, according to the Association of Banks and Financial Institutions of Chile (ABIF, in Spanish). A 70.3% of the customers used banks websites and among them, 34.5% connected to banks from a mobile device. By mid 2017, Law 20.950 was promulgated in Chile, establishing the legal framework for payment gateways, among other provisions concerning payment cards.
In Colombia, payment gateways appeared massively in 2011, after the creation of the Colombian Chamber of Electronic Commerce in 2008. Before that, the main operator was Pagosonline, which changed its name to PayU Latam. In June 2020, payment platforms operations increased by 64% compared to 2019, as a result of the pandemic. Some of the best known digital payment platforms in that country are PayU Latam, PlacetoPay and ePayco, among others. In this scenario, Kushki has been progressing together with state entities such as the Superintendence of Notaries and Registry (SNR, in Spanish) and the Single National Registry of Vehicles and Drivers (RUNT, in Spanish), digitally transforming analogous processes and making them more accessible for the general population.
A study about e-commerce in Colombia's neighbor, Ecuador, conducted in 2017 by the Ecuadorian Chamber of Electronic Commerce, revealed that the most used method to pay in e-commerce transactions is credit cards (61%). Debit cards follow them by far, accounting for a 17%, and cash is the least used, accounting for only 8%. In Ecuador several platforms operate and, among them, the most important are Kushki, Paymentez and PlacetoPay.
A little behind, but advancing quickly, we find Peru. According to 2019 data by the Inter-American Development Bank (IDB), the country had 81 fintech enterprises, most of them payments and remittances (27.2%). The main sponsor is the Ministry of the Production (PRODUCE), with a non-refundable seed capital that, since 2016, has contributed $ 2.7 million Peruvian Soles. Although there are some popular payment gateways, cash transactions continue to be strong, with PagoEfectivo positioned as one of the most used. There is still a lot to do: According to some studies, four out of ten Peruvians mistrust online purchases and payments.
Some of the best opportunities can be found in Mexico, one of the biggest countries in Latin America and the second most important economy of the region. There, cash is still the king. It is not a coincidence to see long lines of people in front of ATMs waiting to withdraw money at the beginning of each month. Although Mexico was one of the pioneers of the region after promulgating a Fintech Law, their bancarization level is the lowest in a group that includes developed countries such as Spain, and emerging economies such as Chile, Argentina and Peru. According to the National Banking and Values Commission, only 12% of the Mexicans owns a credit card. All the above, place this country as one of the greatest territories where digital payment platforms can earn more space. Kushki has recently opened a branch in this country some months ago, where also Conekta and Stripe have operations.
In six years, the Latin American fintech ecosystem has grown exponentially: It went from being a financial market US$50 million worth to reach US$2.1 trillion, closing 139 venture rounds in 2019. In addition, Latin American countries are the fastest adopters of mobile internet, reaching a 66% of the population versus the global average of 53%. This is an industry that moves faster than regulations at each country; regulatory agencies will now have to catch up with the technological acceleration that has resulted from the worldwide pandemic.
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