Merchants need more than cards to capture digital pay in Latin America
Despite wide cultural and economic variation in Latin America, consumers are buying and paying online online at increasing numbers and creating huge opportunities. But it’s a bit more complicated than simply opening up shop.
The addressable opportunities are far from uniform, as seen by e-commerce growth rates. The median rate of B2C e-commerce growth is 22.9%, yet there are outliers: Argentina at 46.9% and Chile at 28.2%.
Despite regional differences, there are a couple of common demographic and payment trends across Latin America. First among them is the rapid growth of the middle class. Over half the world’s population, some 3.8 billion people, is now middle class or wealthier. This “marks the start of a new era of a middle-class majority”, according to the Brookings Institution, a public policy organization.
This is significant for e-commerce retailers, as the middle-class drives demand in the global economy. Private household consumption accounts for about half of global demand. Two-thirds of this comes from the middle class, who have more disposable income to spend on retail and tourism. They are also able to weather economic setbacks, such as illness or a spell of unemployment, without falling into poverty.
A second common theme across all Latin American countries is the low rate of banked consumers. Bank penetration in Uruguay, Brazil and Chile is between 64% and 74%. That is to say, one-in-three to one-in-four adults in these countries do not have a bank account. In Peru and Colombia, less than half the population (43-46%) is banked.
E-commerce retailers who only accept international credit cards and other bank account-based payment methods stand to lose sales.
By offering local payment methods, acquirers and their online merchants can tap into whole markets of new consumers. For example, around 58% of point-of-sale payments in Latin America in 2018 were made in cash, according to the Worldpay Global Payments Report 2018. Meanwhile, 17% of e-commerce payments were cash, according to PPRO's research.
The e-cash check-out process is more involved but meets the needs of the un/underbanked. Customers select a cash-based payment method, such as Boleto Barcário (Brazil), Efecty (Colombia), Pago Fácil (Argentina) or Redpagos (Uruguay).
They receive a code to identify their payment and take this to a participating retailer, often a convenience store locally, to pay in cash over the counter. Once the payment is confirmed to the merchant, the goods are shipped or the customers is account updated (in the case of a service, like a utility bill).
Latin America also has a strong tradition of local credit brands and private label store cards, such as Cencosud (Argentina), CMR Falabella (Chile), Elo and HiperCard (Brazil). However, as more people shop online and e-commerce accounts for a greater proportion of total retail spend, e-wallets, debit cards and bank transfers will make up a larger share of online payments.
Payment habits have developed over time and are formed by various cultural, political, economic and technological factors. They are strongly personal, differing between people and certainly between countries. And, like all businesses, e-commerce retailers need to meet the needs and wants of their customers, not try to re-invent them.
Retailers must be cognizant of local demographic and payment differences. And take a focused and localized approach to not only product, price, promotion, positioning, but also payments.
After all, payments sit at the intersection of commerce and finance, between browsing and buying. They play a central role in driving simpler, smarter and more customized experiences.
Yet, it is a catch-22 for merchants. Greater payment customization on the front-end creates greater complexity on the back-end. So, the right payment infrastructure is essential to driving customer-centric commerce. While acquirers and payment service providers differentiate their offering through the front-end customer experience, the need for local payment expertise and a centralized, value-adding payments hub has never been greater.