Argentina: Digital wallet loans cost double bank loans due to high interest rates

The rise of fintech in Argentina has transformed how people access credit, with digital wallets now lending to a substantial portion of the population. Four out of ten individuals reportedly borrow through these platforms, opening financial doors for those previously excluded from traditional banking systems. However, this accessibility comes with a significant caveat: the cost of these loans can be substantially higher, with effective annual rates sometimes exceeding 1000% and doubling the expense compared to bank loans.

Fintech companies explain that these higher rates are often applied to users with no credit history, reflecting the perceived risk of default. They also cite factors such as taxes and the absence of the "free funding" that traditional banks enjoy. Mariano Biocca, executive director of the Argentine Fintech Chamber, noted that high personal loan rates are a systemic issue in Argentina, influenced by factors like the shallow financial system, scarcity of long-term savings in pesos, and economic volatility.

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The interest rates on personal loans are high across the entire financial system today. The refinancing of bank credit card balances, for example, has an effective annual financial cost of around 140% on average in the main entities and, in some cases, exceeds 200%. This responds to multiple factors, including the low depth of the Argentine financial system, the scarcity of long-term savings in pesos, the increase in defaults, and economic volatility.

Mercado Pago, a prominent digital wallet, has faced scrutiny. Legislator Gabriel Solano denounced the company for "usury." Mercado Pago clarified that its annual nominal rates, ranging from 48% to 249%, are determined by individual risk profiles. They emphasize that users with a good payment history and lower risk benefit from competitive rates, with credit limits increasing and rates decreasing as trust is built.

Ualá, another digital wallet backed by a bank, offers personal loans with nominal annual rates between 62% and 170%. However, when taxes and other associated costs are factored in, the total effective cost can escalate significantly, mirroring the concerns raised about the overall expense of borrowing through digital platforms.

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The TNA offered by Mercado Pago is determined based on the individual risk profile and improves as the user builds history and demonstrates good payment behavior. For users with good behavior and low risk, we are very competitive with rates compared to traditional banking. If it's someone we don't know yet, we offer a minimum initial line (from $5800) with a rate that reflects that risk scenario; but when the user demonstrates healthy payment behavior, their conditions automatically improve: the limit expands and the rate decreases.