Buy Now Pay Later (BNPL) is a microcredit system for retail (physical and online) customers that is characterized by ensuring a quick, smooth experience without having to go through a lot of red tape. Instalments can be paid using traditional payment methods such as credit or debit cards, although, in Brazil, alternative payment methods like Boleto or Pix are often used.
The BNPL model has been featured in various press headlines in recent months. They have hailed it as an exceptional payment model, with successful examples in the United States and Australia. They have also highlighted the limitations of BNPL and the losses the industry has experienced around the world. In the research area of Americas Market Intelligence (AMI) we have sensed skepticism regarding the implementation of BNPL in Latin America. “Evidently, the BNPL model is in the top of mind, but we get asked daily about whether it is a sustainable model for the region,” says Lindsay Lehr, head of our payments division.
Because of this, the AMI payments team—in one of its recent AMI Payments Coffee Chat—decided to address the topic of Buy Now Pay Later in LatAm. Present at the chat was Lucas Iván Gonzalez, Chief Strategy Officer of Koin, a digital payments company pioneering the BNPL model in Latin America.
Below are the highlights of this conversation.
AMI Payments Coffee Chats for Latin America
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BNPL market opportunities in Latin America
According to Gonzalez, the BNPL industry is seeing significant year-on-year, and even month-on-month, growth in Latin America. In fact, “we [at Koin] expect the BNPL model in Latin America to reach a market volume equivalent to US$69 billion by 2028.”
Gonzalez points to three key aspects in the success of the BNPL model in LatAm.
1. Latin America is one of the fastest growing e-commerce economies in the world
In countries like Australia and the United States, the BNPL model was very disruptive because of how easy and smooth it is to obtain loans, and because of a millennial population that prefers these types of payment methods to traditional ones.
However, Latin America also has its advantages:
- In 2021, e-commerce in Latin America reached a volume of US$289 billion, according to preliminary analyses by AMI. Growth between 2020 and 2021 was 38%.
- For 2022, AMI’s preliminary projections show e-commerce sales volume equivalent to US$381 billion.
- Lastly, Latin America is among the regions with the highest level of smartphone adoption: upwards of 70% in 2022, and our projections put it above 80% in 2025.
2. Latin Americans prefer to pay by installments
In Brazil, nearly 79% of consumers prefer to pay by installments when using their credit card, according to transaction data from AMI. In Argentina, this percentage is 46%. And in Colombia, 65% of credit-card purchases are spread over installments, according to our data. Nevertheless, many find it difficult to obtain a credit card. Gonzalez notes the disruptive potential of BNPL in Latin America beyond its purely cultural aspects. Both inflation (which is growing by double digits in countries like Argentina) and the average wage (significantly lower than in countries like the United States) are key factors that make payment by installments a necessity for people in Latin American.
3. Traditional banking’s coverage of the Latin American population is quite limited
Gonzalez points out that “access to credit in Latin America is really low—we’re talking about credit penetration of between 10% and 15%. In addition, credit limits are also very low. In Brazil, for example, the average credit card limit is 300 dollars.” In other words, in addition to a non-banked population of 238 million, the population that is banked has limited financing opportunities. In addition, Gonzalez says that fewer than 20% of Latin Americans have a credit card, or credit available (they are over their limit).
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Koin, a company looking to democratize the purchase of goods and services
Koin is a fintech company that specializes in digital payments and inclusive, innovative financial products, which, according to Lucas Iván Gonzalez, are pioneers in Latin America for BNPL. “Our goal is to improve people’s lives by democratizing access to goods and services,” he says.
Koin has been in operation for 4–5 years, specifically in the Brazilian market, and plans to start operating in Mexico in August 2022. The company also expects to launch its BNPL system in Colombia by late 2022 or early 2023 with Movii, one of the country’s biggest digital wallets.
Strategy for impact of the BNPL model in Latin America
During the AMI Payments Coffee Chat, Gonzalez explained the strategy Koin has used to offer an effective BNPL system in Brazil. This strategy could well serve as a model for other regions.
“When you think about Latin America, it is important to come up with flexible solutions that serve offline and online markets alike,” says Gonzalez. It is worth noting that in Brazil most retail sales occur in brick-and-mortar stores. However, AMI data show that in 2021 e-commerce captured at least 15% of the country’s retail market. For Gonzalez, this flexibility of online or offline shopping is an invitation to “adapt to the consumer’s preferred payment models.”
Koin currently offers two payment systems with BNPL, both with the possibility of paying by installments through Pix or Boleto. In the first system, the consumer can pay off the credit in one to four interest-free installments. In the second system—which is also different to the traditional BNPL model around the world—the consumer can pay off the credit in 1–24 installments at an interest rate tied to each installment, to be able to “finance high-cost products in industries like travel, furniture, and education.”
Right now, Koin has a B2B strategy, where it reaches the customer at the checkout, through alliances with retailers. However, the company is developing new and innovative B2C services, such as virtual credit cards and the Koin Marketplace, to reach users directly.
User experience in the Koin BNPL model
With Koin, the user only has to choose Koin as a payment method at the checkout. Koin immediately offers a payment method that includes the interest rate—which may be zero or above, depending on the model it has with the retailer—and the maximum number of installments. The user can accept or decline the offer. If they accept, a payment contract between the user and Koin will be generated, and will receive their monthly installments by email. Meanwhile, the retailer will receive direct payment for the product from Koin.
Put simply, this would be a loan-style agreement for the customer that is:
- Affordable: There is an affordable interest rate.
- Simple: It is not necessary to leave the web page or app to complete the transaction.
- Secure and Transparent: All it asks for are a few essential details.
This creates more purchasing power for the consumer by offering credit without credit cards or the need for a bank account.
Benefits for businesses that accept BNPL as a method of payment through Koin
Gonzalez explains that “in our BNPL model we take all the risk (of both credit and fraud), so there is no chargeback for the business, unlike with other payment methods.” This has many other benefits for businesses:
- New customers. It offers an additional payment alternative
- Risk-free. Koin assumes the credit and fraud risks of the loan.
- Increased conversion rates, as it facilitates approval of payments rejected by other methods.
- An increase of up to 35% in the average ticket.
Download the AMI Payments Coffee Chat Presentation
We also invite you to register for AMI Payments Coffee Chats to get the latest first-hand news on the payments sector in Latin America.
Moving beyond chats
Contact us if you would like detailed research on Buy Now Pay Later in Latin America or specific markets. Americas Market Intelligence can design and conduct a personalized study focusing on solutions that enable your company to minimize risks and increase its chances of success in the region.
In addition to BNPL, our market intelligence team can help you with research on a range of relevant payments-sector topics in Latin America, such as cryptocurrencies, instant and interoperable digital payments, e-commerce, mobile wallets, open banking, and much more.