Building fraud strategies for LATAM's fragmented payments landscape

For merchants expanding into Latin America, fraud is rarely a single problem with a single fix. Diana Arizaleta Guzman, Senior Consultant at KAE, lays out why the region's fragmented payments landscape demands fraud strategies built by market and by payment method.

It is well documented that Latin America’s payments ecosystem is evolving at pace, with instant account-to-account (A2A) rails and digital wallets reshaping how consumers and businesses move money, while card usage continues to expand across key markets.

According to Worldpay’s Global Payments Report, A2A payments are estimated to have accounted for 23% of ecommerce and 14% of POS transaction value in Latin America in 2025, driven largely by systems like Brazil’s Pix and Argentina’s Transferencias 3.0. Although digital wallets account for a smaller share of payments in Latin America than globally (23% vs. 56% in ecommerce and 16% vs. 33% at POS), growth forecasts remain strong, with wallets expected to grow at 14% CAGR in ecommerce and 11% CAGR at POS between 2025 and 2030.

However, the rise of digital payments has also created a new fraud landscape. Instant A2A systems have now digitised large volumes of previously untraceable or semi-formal cash transactions, placing them under the umbrella of regulated payment providers, but often without fraud guardrails evolving at the same pace as adoption.

The result is a structural shift in the nature of fraud in the region. Where the industry has historically focused on technical compromise (stolen cards, breached credentials, account takeover) it is now increasingly dealing with socially engineered fraud. Messaging platforms such as WhatsApp are being used to orchestrate scams, while fraud-as-a-service models are lowering the barrier to entry for attackers and enabling campaigns to scale across markets.

In our view, this shift from technical exploits to social engineering is the most underappreciated change in the LATAM fraud landscape, and the one payment providers are currently least equipped for. The tools exist to detect a compromised card, but detecting a psychologically manipulated customer is a fundamentally different problem.

The data reflects the breadth of this challenge as card transactions and digital wallets account for the largest share of fraud losses in Latin America (24% and 22% respectively), followed by account transfers at 14%. Notably, scams alone represent over a quarter of total fraud losses in the region, underlining the growing importance of social engineering as a primary attack vector.

Why there is no single LATAM fraud problem

The underlying payment landscape in Latin America remains highly fragmented and so treating the region as a single market is increasingly untenable from both a payments and fraud perspective.

Payment preferences vary significantly by country. Brazil is dominated by A2A payments through Pix, alongside strong credit card usage in ecommerce. Argentina and Peru are characterised by widespread wallet adoption, while Chile remains heavily debit led. Mexico combines high card usage with persistent cash reliance at the point of sale, and Colombia sits in transition, with rapid growth in both wallets and A2A alongside a still-significant cash economy.

These differences translate directly into distinct fraud profiles – Chile recorded one of the largest year-on-year increases in fraudulent activity, rising by 148%, followed by Colombia (76%) and Costa Rica (58%). Argentina, meanwhile, reported the highest overall fraud rate in the region, ahead of the Dominican Republic and Colombia. While some of this variation reflects differences in detection and reporting maturity, it also highlights how fraud evolves differently depending on local market conditions, payment adoption patterns, and regulatory oversight. 

The picture is equally nuanced when looking at markets where fraud growth appears to be slowing. Argentina, Mexico, Brazil, Venezuela, Nicaragua, and Guatemala have all recorded declining growth rates in reported fraud, a trend often associated with stronger KYC requirements, tighter onboarding controls, and more active regulatory enforcement. At the same time, smaller markets across Central America and the Caribbean remain vulnerable to spillover effects from neighbouring fraud ecosystems, particularly as organised fraud networks increasingly operate across borders. 

None of this suggests that some markets are inherently ‘safe’ while others are ‘high risk.’ Rather, it illustrates why a standardised regional approach is increasingly difficult to justify. The fraud challenges facing a PSP in Brazil are materially different from those facing a wallet provider in Argentina or a card issuer in Chile.

Local payments, local fraud dynamics

As each Latin American market has different payment habits, infrastructure maturity levels, regulatory approaches, and unique fraud challenges, so too must fraud mitigation strategies be localised both by country and by payment method.

Brazil provides the clearest example. Pix transformed payments in the country in record time, but also accelerated APP fraud. The speed, convenience, and widespread adoption that made Pix successful also made it an attractive target for increasingly sophisticated fraud schemes.

Argentina presents a different challenge. Transferencias 3.0 accelerated interoperable QR-based payments and wallet usage, and now Mercado Pago and MODO operate at massive scale, meaning large portions of fraud prevention are effectively managed by private-sector players rather than public infrastructure operators.

Chile has a stronger debit-card usage, shifting priorities toward higher authentication standards, enhanced card security, and tighter account protection, while simultaneously preparing for the rapid rise of wallets and instant transfers already seen in neighbouring markets.

Mexico combines strong card usage with rising digital wallet prevalence, requiring payment providers to address risks in both rails. Colombia, meanwhile, sits in transition: cash remains highly relevant, but rapid A2A and wallet adoption are increasing exposure to APP fraud.

Other markets such as Ecuador, Paraguay, Uruguay, Venezuela, the Dominican Republic, and several Central American nations remain comparatively underreported in large-scale fraud research, yet many are experiencing the same underlying dynamics i.e. accelerated fintech growth, increasing alternative payments methods usage, and uneven fraud governance frameworks.

The implication of all this is clear, and you may be ahead of me already, but there is no such thing as a single ‘LATAM fraud strategy.’ Effective approaches must be localised and not just at a regional level, but by country and by payment method.

Fighting fraud requires an ecosystem response

Against this backdrop, the response to fraud is also evolving. Increasingly, it is becoming a shared responsibility across the ecosystem and Brazil’s Pix framework demonstrates what a more coordinated model can look like. The Central Bank plays an active role not only in operating the infrastructure, but in shaping fraud prevention mechanisms through transaction monitoring requirements, device controls, reimbursement frameworks, and intelligence sharing between participants. Measures such as transaction limits for new devices and the Special Return Mechanism (MED) reflect a system-level approach to fraud mitigation.

Other markets are taking different paths. Argentina relies more heavily on private-sector coordination, with fraud controls embedded at the platform level, supported by central bank guidance on authentication, monitoring, and data sharing. Chile has strengthened authentication requirements in response to rising fraud volumes, including AI-enabled attack techniques, although implementation remains decentralised. Mexico and Colombia show clear regulatory intent, but in both cases the pace of market evolution continues to challenge the development of consistent governance frameworks.

Across the region, private-sector investment in fraud prevention is increasing. Payment providers are deploying machine learning models, real-time transaction monitoring, and enhanced authentication mechanisms such as multi-factor authentication and 3D Secure.

At the same time, the scope of fraud prevention is expanding beyond payments. Telecom operators, messaging platforms, and identity providers are becoming critical actors. As scams increasingly originate outside the payment flow – via spoofed calls, compromised messaging accounts, or synthetic identities – fraud prevention is shifting from a transaction-level problem to a broader question of digital trust.

Trust will become the next competitive advantage

Looking ahead, several themes are likely to define the next phase of fraud management in Latin America.

• Localisation will become a baseline requirement, rather than a differentiator, and providers will need market-specific fraud models that reflect local payment behaviours, regulatory environments, and fraud typologies.
• APP fraud will continue to grow in importance, but it will not exist in isolation. First-party fraud, identity theft, and synthetic identity attacks will remain highly relevant, particularly in fast-growing fintech ecosystems where onboarding volumes are high.
• Artificial intelligence will reshape both sides of the landscape. The same technologies enabling more convincing and scalable scams will also enhance detection capabilities, from behavioural analytics to real-time risk scoring. 
• Fraud prevention will also become increasingly commercial. Merchants are already evaluating payment partners not only on acceptance rates and pricing, but on their ability to reduce fraud losses and manage disputes. 
• Ultimately, trust will become central to adoption. Instant payments and digital wallets depend on user confidence, and markets that fail to establish strong protections risk undermining long-term growth.

For payment providers currently operating – or hoping to operate – in Latin America, this represents a shift in mindset. Fraud prevention is now a product, a customer experience, and a strategic capability. In our view, the providers that succeed over the next five years are unlikely to be those with the lowest fees or the highest acceptance rates alone. They will be those that can build and sustain trust – market by market, payment method by payment method – in an environment where both payments and fraud continue to evolve.

About the author

Diana has deep expertise across financial services, banking, and payments, with a particular focus on the LATAM payments landscape. She has delivered market landscaping, competitive intelligence, and customer insights projects across the UK, US, and Latin America, helping clients navigate regional complexities and identify growth opportunities. Originally from Venezuela, Diana brings valuable local perspective and cultural understanding to her work across Spanish-speaking markets.

 

 

About KAE

KAE helps banks, payment companies, and fintechs around the world make data-backed marketing, product, and strategy decisions by uncovering deep customer, market, and competitor insights. For over 30 years they have provided market-leading businesses with the customer and market intelligence needed to shape and execute go-to-market strategies, develop products and experiences, optimise pricing and communications, and build effective sales and partnership ecosystems.