Now that banks in Latin America have fully explored the growth opportunities among the region’s middle- and upper-income segments, most consumers in these groups who want banking services have them. But that still leaves a big opportunity in the region’s lower-income segments, which remain underpenetrated. People in these brackets have a strong need for consumer finance products because without credit they can’t afford most goods, not to mention emergency items such as medicine. In Brazil, the region’s most developed market for consumer finance, current accounts have achieved at least 80 percent penetration in the higher-income segments, compared with only about 30 percent in the lower-income ones (Exhibit 1). In other Latin American countries, the difference is even greater.

Lower-income consumers in Latin America are a demanding market, however. The region’s traditional retail-bank model is not well suited to capturing a sizable share of it, given the relatively high distribution costs—maintaining branches and offering personal attention—and the intimidating environment bank branches can present for lower-income consumers. Retail banks also face adverse economics in serving these segments: acquisition costs can be $100 to $150...