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❇️ The Payments Practice at AMI has evolved into Payments and Commerce Market Intelligence (PCMI), a consultancy specializing in global payments. For the latest 2024 e-commerce data on Latin America, please visit their website here: Data Portrait of Latin America.

2018, e-commerce in Latin America totaled $109 billion[1]—this includes all facets of card-not-present transactions spanning Mexico, Central America, South America and the Caribbean, and including retail, travel and digital goods, domestic and cross-border e-commerce, and all payment methods. Growing at 20% annually, this $109 will reach $187 bn by 2021 (see Figure 1).

This global view of e-commerce enables merchants to truly gauge the appeal of Latin America’s ever-growing digital environment. What’s more—cross-border e-commerce[2] is growing more than double that of domestic e-commerce, at 42% annually through 2021. Attracted to international brands by price, variety, and security offered in the online shopping experience, Latin Americans are increasingly looking outside their region for myriad goods and services.

However, not all e-commerce is treated equally, and barriers exist that limit merchants’ ability to sell into Latin America, especially if they do not process their transactions locally. Because of the diversity of payment methods in each local market and the nuances in customer behavior and preferences, having a local payment strategy is crucial to accessing 100% of the addressable market.

Payment barriers limit cross-border commerce; local payment methods represent 68% of online spend

Structurally, Latin America differs from other world regions with respect to payment methods. On the whole, internationally-enabled credit cards make up only 32% of total e-commerce spend, meaning the bulk of the market represents locally-offered payment methods (see Figure 2).

Thus, to truly penetrate Latin American markets and take advantage of 20% annual growth, merchants must be connected to local card acquirers and alternative payment methods. The main considerations when developing such a strategy can be boiled down to three:

1. Credit card ownership is limited and not all cards can be used online

The World Bank reports that on average, only 19% of adults in Latin America own a credit card. Additionally, banks often apply restrictions to credit card use. In several markets, including Brazil, Argentina and Chile, around 70% of credit cards are not enabled for international use, meaning that cardholders cannot shop online at merchants outside their home country. This limits merchants’ ability to sell to Latin American cardholders.

Debit card penetration fares better in the region (42%) and is today the fastest-growing payment method within e-commerce. This is because in the past, most banks restricted debit cards for use in e-commerce, issuing them without a CVV code. Banks are now lifting this restriction, unlocking debit card usage for e-commerce, but still only a minority of debit cards in Latin America can be used internationally.

Finally, for merchants processing credit card transactions internationally, authorization rates rarely exceed 35% on average. This is because Latin American issuers often decline international transactions even if funds are available, for lack of sufficient data on the merchant and international acquirer/processor. Merchants who process cards through a local acquirer experience much improved rates, normally 75%-85%.

2. Cash and other alternative payment methods make up 22% of total e-commerce spend

Despite these restrictions on online card usage, there are 159 million online shoppers in the region, equaling 35% of the adult population; therefore, around 15% of online shoppers depend on non-card payment methods to buy online. These may include cash vouchers, such as Brazil’s famed boleto bancário and Mexico’s Oxxo payment network. In such instances, customers print out (or receive on their mobile device) a system-generated voucher, which they take to an affiliated bank or convenience store to pay in cash.

Although seemingly inconvenient, this method of payment is the best option for e-shoppers who do not have a credit card—which can include the affluent—are afraid of using their credit card online, or who simply prefer using cash.

Despite the advancing digital revolution in Latin America, cash is still deeply engrained in consumers’ everyday lives, accounting for an estimated 80% of brick-and-mortar retail purchases the region[3]. Digital platforms that operate in the physical world, such as Uber, have experienced great success accepting cash; in markets like Mexico and Peru, it represents about 50% of all Uber payments. Food delivery platforms experience something similar. Anecdotal evidence tells us that delivery platforms like for Glovo and PedidosYa, up to 70% of orders are paid for in cash.

Shoppers’ preference for alternative payment methods need not be a hurdle for international merchants, for the truth of the matter is, many Latin Americans prefer international sites to domestic ones, because of the price and product variety they offer. Merchants can leverage these preferences by connecting to local cash payment methods and ACH networks. Doing so expands merchants’ addressable market by 33%.

3. The payment method used depends greatly on the ticket amount

In daily life in Latin America, the credit card is not typically seen as a payment method; it is viewed as a tool to access financing. Cash and debit cards are used for most day-to-day purchases; credit is reserved for high ticket items that may need to be financed, especially if special promotions or no-interest financing deals are available. Interest-free installments are exceedingly popular in markets like Brazil, Argentina and Mexico, where banks work out special deals with merchants to offer financing to customers at the point of sale. In Brazil in 2018, 58% of retail e-commerce purchases were made using at least two installments (and up to 12)[4].

In Brazil in 2018, 58% of retail e-commerce purchases were made using at least 2 installments—and as many as 12.

E-commerce is no exception, and merchants who are connected to local card acquirers can offer installments to their customers. For low-ticket merchants, especially those whose products appeal to young people—online gaming, entertainment, mobility, etc.—debit card acceptance is becoming increasingly important.

3 Latin American e-shoppers and how to best serve them

These lessons become more concrete when we look at real-life e-commerce shoppers in Latin America. We interviewed three Latin American consumers to understand their e-commerce habits and help guide merchants on how to best reach them.

Meet Guillermo

City of residence: Buenos Aires, Argentina

Age: 36

Profession: Equipment technician

Type of smartphone owned: iPhone XS

Fun facts: Makes ~10 e-commerce purchases per month; travels internationally at least once per year; owns an apartment which he rents on Airbnb

Lindsay: Guille, what payment method do you use most often in your everyday life?

Guillermo: I use my debit card for almost everything – supermarket, gasoline, everyday purchases. I use cash for the smallest purchases, mostly at cafes and small restaurants and taxis. I only use my credit card when it’s an expensive purchase and I need to finance it. Also, I have several credit cards because the banks give you very low credit limits – sometimes only $500. That’s why being able to buy with installments is so important.

Lindsay:  What about when shopping online?

Guillermo: I almost always use my credit card, out of habit. Lots of online stores don’t accept my Argentinean debit card, especially international stores. It would be nice to use my debit card for smaller purchases, like Netflix, so as not to tie up my credit line on my credit card.

For food delivery on PedidosYa or Glovo I almost always pay in cash. This is just a habit; I’d be happy to pay with a card.

Lindsay: Do you often buy from international stores?

Yes, I’ve made more than 300 purchases on eBay over the years and I buy frequently from Amazon and AliExpress. These global brands are trustworthy and have products that are not available in Argentina. The main problem, though, is that lots of times the transaction gets declined, even if I have funds available. I have to call my bank to get it approved. This happens when I’m traveling overseas too.

Ways to best serve online shoppers like Guillermo:

1. Process cards locally to avoid false declines and improve authorization rates
2. Offer installments for high-ticket purchases (>$50 USD)
3. Accept debit cards
4. Accept cash payments for goods and services delivered in a physical environment

Meet Javier

City of residence: Lima, Peru

Age: 36

Profession: Business management

Type of smartphone owned: Huawei Mate 10 Pro

Fun facts: Makes ~5 e-commerce purchases per month, including movie tickets, electronics, food delivery, and Netflix

Lindsay: Javier, what payment method do you use most often in your everyday life?

Javier: Debit card. I don’t want to pay interest, and I prefer to pay for things immediately as opposed to at the end of the month. This helps me manage monthly expenses. I avoid carrying cash because of security reasons. Paying with debit is generally safer.

Lindsay:  What about when shopping online?

Javier: I would like to use my debit card more, but most online stores don’t accept debit cards. I use PayPal when it is available, because I believe it to be very secure. If these options are not available, I use credit card, which is about 70% of the time.

I pay cash for food delivery and courier services. This is simply habit. Also, if I am buying online from a local store for the first time, I will choose cash-on-delivery, until I become comfortable with that merchant.

Lindsay: Do you often buy from international stores?

Yes, now and then from eBay and occasionally brands like Reebok. I like these brands because they provide security—you always know where your order is and their customer support is very good. If you need to return an item, they accept it no questions asked and the refund is immediate. They provide much better service and peace of mind than stores in Peru.

Ways to best serve online shoppers like Javier:

1. Accept debit cards
2. Make the customer feel safe and secure with a user-friendly payment experience and shipping tracking numbers, as well as safe, guaranteed returns
3. Accept cash payment for goods and services deliver in a physical environment

Meet Margarita

City of residence: Bogotá, Colombia

Age: 27

Profession: Medical student

Type of smartphone owned: iPhone 7

Fun facts: Makes 3-5 e-commerce purchases per month, including clothing, airline tickets, food/grocery delivery and Netflix

Lindsay: Margarita, what payment method do you use most often in your everyday life?

Margarita: 50% credit card and 50% cash. I’m not used to using the debit card to make purchases – I only use it to take out cash at the ATM.

Lindsay:  What about when shopping online?

Margarita: Credit card only. Other payment methods are less convenient.

Lindsay: Do you often buy from international stores?

Yes, mostly clothing from Amazon. It is fast, secure and has good customer service. I shop at some other international stores too and have always had a good experience.

Ways to best serve online shoppers like Margarita:
1. This shopper does not face major payment challenges. To increase loyalty, it’s recommended that merchants provide a high-quality, secure shopping experience.

Both transactional and anecdotal evidence shows that Latin Americans lust after international brands and are increasingly aware of the options available to them on the international market. Global merchants are viewed as more secure, offer a better delivery experience and superior customer service. Yet, the local payment infrastructure often restricts them from accessing the global marketplace, and international merchants are unaware of the strategies that can get them closer to the Latin American consumer. AMI data show that Latin America is the fastest-growing e-commerce market in the world, thanks to rapid cross-border growth; merchants who meet consumers where they are with respect to payment will pull ahead of the curve.

This article is a result of a thought leadership partnership between Americas Market Intelligence and EBANX. It was originally published on the Latin American Business Stories site from EBANX, where you’ll find posts on tech developments, business trends, market analysis and more.

[1]AMI analysis based on local public domain sources and in-depth interviews with industry players.
[2]Defined as purchase intent at a merchant located physically and legally outside the buyer’s home country
[3]Americas Market Intelligence, 2019. “Latin America is losing the war on cash.”
[4]Ebit, 2019: Webshoppers 39th Edition.

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