Fintechs Utilize High-Yield Accounts to Attract Banked Customers in Latin America

In response to soaring inflation rates and the need for better returns on savings, fintech companies in Latin America have adopted a new approach to entice highly banked customers, according to David Feliba, Fintech Nexus. These innovative financial technology firms are now offering high-yield interest rates on deposits, contrasting with the region’s volatile currencies and minimal returns provided by traditional banks. This strategy aims to capitalize on the demand for more lucrative accounts and attract a substantial customer base.

Nubank, a prominent Brazilian digital bank, recently expanded its operations into Mexico, introducing a savings account product as a vital component of its expansion strategy. Within just one month of its launch, the bank reported that a million customers had already opened accounts. A significant driver of this rapid adoption is the neobank’s alluring offer of a 9% annual interest rate on savings, which stands out as one of the highest rates in the market.

Challenger banks across Latin America are focusing on high-yield virtual accounts to lure customers away from traditional banks. In a high single-digit inflation environment, they believe clients will appreciate the added value offered by more lucrative accounts. For example, Nubank’s General Manager in Mexico, Iván Canales, highlighted that a considerable portion of Mexican adults do not utilize formal financial products, leaving their money idle without any return on deposits. To cater to this segment, Nubank introduced its high-yield savings account.

As inflation returns to Latin American countries, fintech companies are adjusting their strategies to attract new clients. Nubank’s 9% interest rate far surpasses the current inflation rate, which hovers around 5%, making it an attractive option for safeguarding purchasing power. Sebastián Camiser, a fintech advisor and professor at Universidad Austral, emphasized that in a context where currencies are losing value, such alternatives are essential for customers seeking to preserve their funds.

While many fintech CEOs advocate for serving the underbanked, their primary customer base often comprises tech-savvy, young individuals already operating within the formal financial sector. These digitally-banked customers are highly sought after as they handle a significant volume of financial operations. A recent study in Brazil revealed that 30% of credit card users were also clients of digital banks, illustrating the appeal of these modern financial services to the younger population.

Argentina, grappling with an inflation rate above 100% per year, demonstrates the need for effective investment products. Fintech company Mercado Pago addressed this concern by offering high-yield savings accounts that automatically invest customer savings into low-risk mutual funds, yielding roughly 80% annually. Although other alternatives may provide higher rates closer to inflation, Mercado Pago stands out by simplifying the process and allowing customers to make withdrawals at any time, even on weekends and outside of business hours.

Fintechs in Latin America are leveraging high-yield accounts as a powerful strategy to attract banked customers in the region. By offering attractive interest rates and innovative features, these companies aim to change the traditional banking landscape and cater to the needs of digitally-banked individuals. As inflation continues to impact the region, the competition for offering more competitive real interest rates is expected to intensify. Nonetheless, fintechs have proven their ability to provide accessible and convenient financial solutions, driving the transformation of the Latin American financial industry.