what will wallets start charging

In the last five years, Fintech ecosystem in Argentina grows from a handful of companies to nearly 300, Tapping the Half of the Unbanked Population or without access to financial services beyond a savings account.

thus, with many Services at no cost, greater agility and lower barriers to entrycompanies emerged that forced traditional banks to rethink strategies, And they were also able to conquer other countries in the region with similar problems. However, last year He Triggered Some Alarms Who Believe With “Everything’s Free”,

Digital wallets: what’s happening in the sector

2022 has been tough for startups Fintech companies that had to rebuild their businesses in the face of a perfect storm triggered by:

• money crisis: US raised interest rates to curb inflation and capital left startups seeking refuge in less risky assets
• recalibrating expectations: Due to the high cost of money, many companies downsized, reoriented strategies or closed

To Locally, various replications were registered within the fintech sector,

• Close, itau They “loose the arm” of their multi-bank wallet, Ank, with which they competed directly. MethodAnother attempt by local banks to stand more strongly in front of the Mercado Pago
• employee adjustment, Goodbit and Lemon they reduced their staff, while ula Made adjustments due to duplication of positions after the acquisition of Wilobank approved by the Central Bank
• low margin, reba He was the first to leave “everything free”, When charging subscriptions to your credit card. and some crypto exchanges reduced cash back or Revised Terms
• Promo “Falls”: Some QR credit card businesses promise discounts and interest-free installments, but while paying, you cannot choose the means of payment and the benefit is lost

Head of Crypto and Alternative Finance at AMI, Ignacio E. Carballo and director of the UCA Alternative Finance Center told iProUP He “This is mainly due to lack of funding,

“For any sector, not only fintech, the availability of funds was not normal: it was a promotion where everything was free And many firms raised capital without even having a website, We went into a crisis without first going through a period of normality,” he explained.

Santiago Mora, Director of Fintech Law and Crypto Assets at UDESA, UTDT and UBA, and Partner at GPG Advisory Partners explains, ,Many fintech companies have stopped providing many services for free“. and add others Factors Affecting Payment Service Providers (PSPs)A category that includes fintech wallets:

• ,Important increased regulation, Which resulted in less income. For example, the amount of commission that PSPs could charge merchants was limited and technical requirements were set, which significantly increased costs.”
• ,Unclear rule: In 2021, BCRA establishes 100% reserve requirement in accounts and PSP users are bound to deposit balances”.

According to Mora,Because of this the banks were no longer able to lend those funds, hence They stopped giving profitability to PSP. He started charging them significant sums for maintaining the accounts. Although this reserve was relaxed in September, the situation remains difficult for fintech companies.

For his part, Jorge Larravide, expert in payment instruments and professor of fintech programs, explains that iProUP He “Banks have long gone through this cycle of free services with home and mobile banking,

,They replaced face-to-face transaction costs with electronic costs, which were 65 times lower, Multiplied by the number of operations, it pays off any digital platform project. But in fintech, that is not the case because they started with free services.”

A top official in the crypto sector has warned iproup, in strict off the record, He “Everything for free” also includes a “less futuristic business model”.,

“Calculate for that Each transaction with a prepaid card, receives approximately 1.5% of a fintech ticket, any benefit that exceeds, such as a cash back 2% is not sustainablehe warns.

And he says that “obligation Paying only with crypto to access refunds is due to the fact that exchanges can compensate with Spread, Thus, when you buy crypto from them and convert to pesos at the time of payment, they make a certain profit, which they put into cashback and survive.”

According to the Cryptoya panel, The difference between buy and sell is around 4%.

Digital wallets: what’s happening in the sector

Carballo believes that There will be no end to “free everything” CommonBut “firms that are beyond a break-even point, or do not have a large Compare of the market, they are adjusting to get ahead of you break-even and get profitability.

because of this reason, There may be more victims of the “net” of wallets: “There are Multiple proposals competing with little margin and a very high concentration of early entrants, such as Market Pay or ULA,

In this sense, he speculates that “what makes a lasting community will last of loyalty, achieve discrimination and a market share This makes it less effective in facing crises”.

In the tune, LaraWide explains that The wallets that survive will be those that comply with the following six keys,

• critical mass of customers: “With a low number of users, there is no business that can survive. You also have to work hard on activation: many fintechs have a high percentage of inactive customers that do not help them grow”
• developed ecosystem: “If only an isolated service is provided, the business is too limited. You have to develop all possible legs to make it profitable
• value added: “As a fintech develops a large number of high-value services, Will drive trading and frequency, keys to volume generation”
• Difference: “Closed models or models with less integration will be less successful. The customer will choose the app with the ability to solve the biggest needs”
• ux: “Users are looking for simplicity and the best possible user experience. Captive customers no longer exist: they stick with the best and leave with what’s not. If they have any benefit in an app they don’t like it. it takes them 10. seconds to move the money to the other”
• Cyber ​​security: “Some people are very careful about complaining about platforms until they are the victim of a scam and it needs to be resolved. Add the best UX and the best security will be the winner”

Mercado Pago and Ualá seem to tick almost all the boxes, Too account for more than 80% of deposits in virtual accounts: around 77% for those led by Marcos Galperin and 4.4% for those led by Pierpaolo Barbieri.

the latter is best example of community buildingAn application in the virtual world and a card for the physical one on which was added:

• Investment: MEP and CEDEAR dollar operations through Ualintec’s own ALYC; and profitability with its common fund
• credit: consumption quota and buy now pay later(via acquisition of Seabo)
• crypto trading: Via Unix, a licensed firm in the United Kingdom, a country with strong regulations for digital banking
• SME Services: Online sales (Empretienda) and electronic payments (Ualá Bis)
• benefits to customers: Ula+ Discounts and Miles

in the matter of market pay, is an investment fundservices to SMEs, credit and benefits to customers with a tiered system, but No progress on crypto or stock issues,

Carballo comments that the common strategy of these fintechs is “Make progress in all financial services offered, like consumer credit in various forms, such as buy now pay later and quota, It is necessary to have a bank license for credit cards.

ula already has it Willowbank, And Mercado Libre offered one a while back in alliance with Patagonia., But today it doesn’t seem to interest the bank’s leader, Sergio Palazzo, and his project—now frozen—after an attack from affiliated fintech workers.

Galperin prefers not to wake up any guild elephants, For this reason, new businesses are now being tested in Chile and Brazil. own logistics Electric vans and even aircraft to order.

Credit CardFurthermore, they are the center of another controversy: the original design of Transferencia 3.0 alludes to “cash paymentWith available balance in bank or virtual account.

The bank is “hurrying” the Center to include them, as no bank or fintech can apply promos or quotas on third party QR payments. This points against Mercado Pago, which in turn defends that it needs more technological advances and security.

Meanwhile, Larawed assures that fintech companies are betting on the “model” freemiumin which a The end user has part of the service free and part paid, For example, if you just ask for a virtual card, it’s probably free, but if you want a physical card, you’ll have to pay a cost that includes manufacturing the plastic, delivering the mail, etc.”

But there is another danger. The temptation of “everything for free” is too greatNot only for users but also for businesses, and threatens to turn the electronic payment system into a snake swallowing its tail.

the irony is that Chinese Supermarket and MarketThe first wave of adoption only four years ago is largely responsible for Mercado Pago’s QR growth. They accept charges for both account balance or CVU/nickname transactions without additional charges, And, like that time, the shock wave has reached neighborhood businesses.