Using Fintech in Colombia — Cash is King

Update Dec 20, 2016:

Came across an interesting Bloomberg piece about trends in cash usage across 7 developed economies. Even in countries where fintech, mobile wallets, and bitcoin dominate the headlines, consumer behavior points to cash.

I’m still a huge believer in the potential for fintech, particularly for industries overdue for disruption like insurance, wealth management, and real estate financing.

Personally, I too follow the trend of using cash for small purchases (ease of use) and credit card for bigger purchases (points/rewards) without really knowing why. I definitely believe there’s a culturally ingratiated allure for using cash although I haven’t figured out what just yet.

Original Post Sept 20, 2016:

For a bit of late summer fun, I took a vacation with a long-time friend to Colombia. Because… why not? With great flight deals on JetBlue and positive reviews from friends, I pretty easily justified a quick jaunt down to South America. The trip opened my eyes to a new culture, a new approach to daily life, and a new language — thankfully, my friend and I had proficient Spanish skills because English is exceedingly rare in Colombia. However, I also unexpectedly received exposure to the state of fintech in Colombia.

In Colombia, cash is king. I paid for nearly every purchase with Colombian pesos and, as best I could tell, so did everybody else. From taxis to street merchants to eating to tours, cash was overwhelmingly the payment option of choice for both consumers and merchants. We did run into a few shops and restaurants that accepted Visa (MasterCard acceptance was pretty rare). Even in speaking with international backpackers (Brits, Germans, Australians, etc), it came across that America is unique in its growing reliance on technology for payments (Uber, Venmo, PayPal, ApplePay, etc).

In evaluating the progress of Colombian fintech, I don’t think lack of tech can explain the cash-heavy ecosystem. I saw countless smartphones and WiFi connectivity was as, if not more, ubiquitous as in the States. The infrastructure exists for Colombia to follow fintech startups into the realm of cash-free. So the question I kept asking was “why aren’t people using Venmo/Uber/ApplePay instead of cash?” At this point, it’s not about building the technology but rather changing consumer behavior to adopt a new behavior. We could dive far into the realm of behavioral psychology here, but the bottom line is that I believe motivating consumer behavior change is where the business opportunity lies in international fintech. For instance, businesses could offer rewards to both merchants and consumers for moving away from cash. Startups could leverage social influencers to begin the movement. Governments could offer tax breaks or subsidies. The first thing I realized from this trip is that Colombia, and potentially other emerging markets of the world, is not that far behind the US in terms of fintech capacity but lags in terms of consumer adoption.

The second big fintech lesson from my Colombia trip emerged when both my friend and I realized we didn’t know our credit card PINs. Who actually uses a PIN with a credit card in the US? I haven’t been to ATM in months. So fastforward to Colombia where we forgot to reset our PINs and can’t withdraw cash from the ATMs there as a result. In a cash-dependent society, this makes simple activities, such as getting to the airport, a challenge. Luckily, we borrowed money from an Aussie/New Zealand travelling couple to get us through a couple days until we found a path. That path was Xoom. It did not occur to me to use a remittance platform to send cash to myself but that’s essentially what we did. We sent cash from a BoA US account to Bancolombia to be picked up by ourselves. And it worked brilliantly. While I still think there are value-add opportunities in the remittance space (e.g. ensuring the money is used correctly after sending it), the process of digitally sending cash internationally has been efficiently solved already. Xoom had our transfer complete in less than an hour and ready to pick up at the nearest bank branch. While it would not be my first recommendation to a traveler for how to get additional cash (probably still easier to use an ATM), Xoom unexpectedly came to the rescue and gave me some first-hand experience in the world of digital remittance technology.

Overall, I loved getting exposure to such a different culture and society. Both the Colombian population and the other travelers we met had a more relaxed and easygoing worldview than I typically see here in DC. And while I was not planning on thinking about fintech while there, the opportunities for financial development caught my interest in Colombia. I’m already looking forward to the next international fintech experience.

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