The State of Cross-Border Payments in Latin America: Opportunity & Innovation

Quona Capital
7 min readOct 2, 2024

By Alfonso Rojas and Alejandro Safdie

As financial technology developments continue to revolutionize financial services globally, the landscape of cross-border payments is experiencing unprecedented changes. In Latin America, these changes are creating new opportunities for operators, customers, and investors alike. Leveraging insights from Quona’s recent research, this blog post explores the emerging trends, challenges, and investment opportunities in the cross-border payments sector in Latin America, focusing on two subsectors: B2B cross-border payments and C2C remittances.

Understanding the Cross-Border Payments Landscape

I: The Global Context

Cross-border payments are a critical component of the global financial ecosystem, enabling international trade, remittances, and personal transactions, among others. In 2022, the global volume of low-value cross-border payments (transactions of < US$100,000) reached $12 trillion in total volume. These lower-value transactions, while representing only 8% of total global volume, accounted for 33% of the global payments industry’s revenues, given that they are higher-margin transactions. The large number of transactions — combined with the higher margin profile of users — creates a uniquely attractive opportunity for those who would use technology to drive innovation in this space.

Players offering cross-border payment services often count on two main revenue streams to sustain their businesses: (1) processing fees, where an FX spread can represent up to 10% of the total transaction value; and (2) value-added services associated with requirements for the transaction itself (think banking services, fraud prevention, loans, insurance, accounting platforms, services payments, and credit scoring, among others).

II: The Latin American Market

Across Latin America, cross-border payments are gaining momentum as the region experiences rapid globalization, increased migration, and digital transformation.

C2C Remittances: Latin America represents 17% of the global remittances market, despite accounting for only 5% of the global population. This comes from explosive growth in the corridors of money being transferred into the region, with a compounded annual growth rate of 12% over the last 5 years. In 2018, $87 billion in remittances were received in Latin America; by 2023 this grew to $156 billion, with Mexico alone being the biggest market, receiving 41% of that total volume, according to reports from the United Nations and the World Bank.

B2B cross-border payments: This sub-sector is growing quickly, a trend which is only expected to continue. Revenues generated by B2B cross-border payments in Latin America is estimated to be between $25 and $133 billion, expected to grow at an annual compounded growth rate (CAGR) of 11% over the next 10 years, reaching total transactional volume of $1,368 billion.

III: Modern Payment Rails & the Technology Behind Them

The global development of payment rails for cross-border transactions has evolved significantly over the last few years, revolutionizing how funds move internationally. Traditional bank transfers, powered by the SWIFT network since the 1970s, set the foundation standards for secure interbank communication. Similarly, during those same years, payment cards supported by networks like Visa and Mastercard expanded accessibility and convenience for international transactions. While these technologies run on robust regulatory and compliant ecosystems, the high costs and sometimes inefficiencies of the players utilizing these technologies have opened the door for new solutions to emerge. In the 2010s, borderless and decentralized cryptocurrencies were introduced to payment solutions, promising faster and potentially cheaper transfers. Each of these payment rails brings unique value to the exchange of funds, addressing diverse needs for the stakeholders involved in the exchange.

Key Trends in Cross-Border Payments

Real Time Payments and the Role of Regulators

When considering the broad payments industry, the main trend observed across Latin America over the last couple of years has been the digitization of banking services and the proliferation of real-time payments (RTP). Enhancing efficiency and convenience, domestic RTP networks have revolutionized the way people pay for goods and services. These advancements are mainly driven by innovative technology created with the direct support of regulators to enable and implement the transformations.

Particularly for Latin America, the innovation with the biggest impact is Pix in Brazil. This RTP system — implemented by the Brazilian Central Bank in 2020 — has revolutionized the country’s payments and financial services landscape by enabling real-time payments 24/7 and facilitating access for millions of users. It has significantly disrupted traditional payment methods, processing over 5 billion transactions monthly — this is around 20% transactions more than all credit, debit, and prepaid cards transactions combined — and becoming the most used payment method in Brazil.There is hope in the industry that cross-border payments could follow RTP’s lead. For instance, consider SEPA/EPI in the EU, or the integration of UPI and Pay Now between India and Singapore, amongst the many other pilots underway to open global corridors to RTP.

This complex process has many stakeholders, but there are two worth highlighting: regulators and technology innovators.

Central Banks have been the key regulatory bodies developing frameworks to integrate foreign payments ecosystems. Having to deal with stakeholders’ pressures, geopolitical tensions, and the rapid transformation of the industry, they have enabled this process to run, maintaining the required security and compliance standards and partnering with key players in the ecosystem that are in charge of executing these transactions. The other key component enabling these processes is the development of more complex and robust technologies behind the messaging formats and standards for cross-border payments orders. In particular, the standard ISO20022 is revolutionizing the global financial messaging system. To simplify this as much as possible, this standard provides interoperability and simplifies existing messages across financial institutions, enabling richer data exchanges, new capabilities, and fewer errors. It’s expected that the adoption of ISO20022 throughout the correspondent banking domain will be complete by 2025, and it will become the de facto standard for global cross-border payments, enhancing existing rails and advancing the overall service of cross-border payments. This is a clear signal that the industry is moving together towards the commoditization of payments.

User Experience Level Trends

Fintech companies and incumbent players are developing new payment solutions rapidly. The flexibility to compete over fees and FX spread is still there, but as it shrinks, incumbent players will need to develop an ecosystem with services beyond the payments themselves. An elevated user experience is becoming the industry standard; value-added services such as banking, fraud prevention, loans, insurance, platforms, service payments, and credit scoring. will become more and more critical to increasing revenue streams and end users’ loyalty. It’s also in these value-added services where the biggest opportunities for the development of artificial intelligence lie, complementing payments with fraud detection enhancements, payment flows optimization, personalized financial services, loyalty programs and more. Leveraging AI, fintech companies can offer more complex, tailored, and robust payment solutions.

Fintech companies usually enter the financial services industry by delivering services directly to users or through white label products to existing players. At the same time, they tend to either start by offering payment services and then solving existing pain points for the users as an additional revenue stream (e.g., VAS, FX hedging, loans, etc.) or the other way around.

The Crypto Caveat

Some innovators are attempting to solve historical frictions of the cross-border payments industry by harnessing newer technologies that still have not been considered fully compliant in some countries and come with some restrictions to operate in others. By utilizing blockchain technology and cryptocurrencies (e.g., stablecoins), stakeholders could experience increased security, transparency, and efficiency because of the tamper-proof ledger, traceability, and lack of intermediaries versus traditional alternatives.

Even though this method is promising and considerably cheaper, there are still regulatory challenges and standardizations that need to be completed in order to make stablecoin cross-border payments more broadly available.

Considering these trends and the available payment approaches discussed above, there are some new players in the ecosystem acting as “orchestrators” of these different payment approaches. These players aspire to develop proxies that send specific transactions to the best available rail to create operational efficiencies for the payment provider and improve the user experience, orchestrating “rails” by both offering multiple payment methods to the end user and utilizing different technologies to send the payment orders and clear the transfers of money.

What’s Next?

As venture capitalists, we’re constantly hypothesizing how the future will unfold based on how past systems and habits and present technologies collide. In part two of this series coming later this week, we’ll dig into three hypotheses on what we think could happen in the coming decade to redefine how the cross-border payments industry operates. Stay tuned!

DISCLAIMER: This content is provided for informational purposes only, and should not be relied upon as legal, business, investment, or tax advice. You should consult your own advisers as to those matters. This blog may link to other websites and certain information contained herein has been obtained from third-party sources. While taken from sources believed to be reliable, Quona Capital Management has not independently verified such information and makes no representations about the enduring accuracy of the information or its appropriateness for a given situation. References to any companies, securities, or assets are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Furthermore, this content may not under any circumstances be relied upon when making a decision to invest in any fund or investment vehicle managed by Quona Capital Management. Any charts and graphs provided are for informational purposes solely and should not be relied upon when making any investment decision. Any projections, estimates, forecasts, targets, prospects and/or opinions expressed in this blog are subject to change without notice and may differ or be contrary to opinions expressed by others. Please email compliance@quona.com for additional information.

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Quona Capital
Quona Capital

Written by Quona Capital

Quona Capital is a venture firm specializing in financial technology for inclusion in emerging markets. Learn more at quona.com.