South American payment providers flock to cryptos

Cryptocurrencies might be a relatively new economic development, but they’ve already experienced some tumultuous boom and bust periods in key markets over the course of the last few years. Merchant uptake has varied wildly in developed economies, leading plenty of financial institutions to doubt the long-term viability of digital currencies. Yet all those in doubt would do well to take a look at the phenomenal ground cryptos are making in the South American republic of Chile.

More than 5,000 local merchants across the sprawling, mountainous nation now accept blockchain-supported currencies like Bitcoin, Ethereum and Stellar Lumens. That surge in uptake is largely due to a new partnership launched in 2018 between payment platform Flow and digital currency exchange Cryptomkt. Commission rates of 0.9% and integrations with services like WebPay have already attracted a consumer base of more than 20,000 active users – and that’s just one crypto platform.

Unlike many larger economies, Chile’s welcoming crypto landscape has been carefully and meticulously cultivated by the government to address unique economic hurdles that have been holding the country back for generations.

Chile’s first bitcoin exchange, SurBTC, was launched in 2015 with full government backing and partial funding via the its Production Development Corporation (CORFO) incubator. Government regulators stepped into the project early on with regular auditing and anti-laundering monitoring services – although it’s worth pointing out that, like in many countries, the market is still almost entirely unregulated in Chile.

Chilean central bank president Mario Marcel expressed a desire earlier this year to create a loose regulatory framework capable of stimulating continued, but carefully monitored, growth across the sector. Yet in the meantime, it appears Chilean regulators are embracing the freedoms that accompany blockchain.

In March, the government’s energy regulatory agency doubled down on its backing after announcing plans to use ledger technology to authenticate national grid information – while the country’s Financial Stability Board and Court of Appeals recently slapped Chile’s traditional bricks-and-mortar banks on the wrist for banning their services to cryptocurrency exchanges. Judges called the move unconstitutional and demanded services to crypto-backed accounts be reinstated.

The government’s incessant support for cryptocurrencies by and large stems from a painful self-awareness in the country’s lack of banking infrastructure. According to The World Bank, almost 30% of Chilean adults don’t have access to a traditional bank account, and less than 60% own a debit card. Costs of maintenance, access to rural areas and mistrust are constantly cited as major factors when the unbanked are surveyed.

Yet pair that demand for reliable and accessible financial technology with smartphone penetration of almost 80%, and it makes perfect sense governments across South America should actively encourage start-ups to rollout new cryptocurrency solutions. Almost a fifth of Chileans are now using mobile money accounts to make transactions – and in March, Venezuela launched the continent’s first-ever government issued cryptocurrency in the ‘Petro’, which is backed by Venezuelan oil production. Meanwhile, Argentinian regulators recently approved a rollout of 200 bitcoin ATMs and crypto trading in Brazil has increased the size of its P2P lending activity by 450%.

Like other developed economies, South American lawmakers and central bankers are still struggling to figure out how they can allow cryptocurrencies to prosper without exposing economies to needless risk and volatility. Yet by investing in government-backed cryptocurrencies, partnering with industry to implement effective audit regimes and allowing start-ups to fill natural gaps in infrastructure, countries like Chile certainly appear to be leading the way towards finding that crucial balance.

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