In Payments

The payments industry in Latin America has undergone changes in the last 24 months, with consequences for face-to-face commerce, e-commerce, and sales models generally. Specifically, changes are being felt at the level of the consumer and the buyer’s journey, which, among other things, has led to companies rethinking their loyalty-marketing or retention programs.

Before we talk about new customer retention strategies in Latin America, it is worth mentioning the primary disruptors in digital purchases over the last couple of years. Lindsay Lehr, Head of Payments Practice at Americas Market Intelligence (AMI) points to some important facts.

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Cash replacement in Latin America

One of the most striking results of the pandemic—in terms of payments—has been the shift away from cash. Our latest analyses show that in 2022 just 46% of face-to-face sales are being paid for in cash. In 2020, this figure was 75%.

Lindsay Lehr
Head of Payments Practice
Americas Market Intelligence (AMI)

Lindsay Lehr

However, Lehr notes that the shift away from cash as a payment method is “vast, but uneven.” Preliminary AMI data suggest that in countries like Mexico and Peru, cash payment at face-to-face businesses is still leading, with a share of 74% and 62%, respectively. But in countries like Brazil and Chile, cash accounts for just 19% and 14% of face-to-face purchases, coinciding with the disruption of digital alternatives like Pix.

F2F Retail Purchase Volume by Payment Method, 2022 in Argentina, Brazil, Chile, Colombia, Mexico and Peru. Payment methods: credit card, wallets and QR codes, debit card and cash.

New payment methods: new ways of reaching consumers

Although cash, and credit and debit cards are still the predominant payment methods in Latin America, we are seeing an enormous diversification in alternative payment methods: users now have more options than ever before when it comes to paying.

“The new digital payments dynamic has increased competition in the use of e-wallets at the PoS (point of sale). There is also competition between payments with e-wallets, and payments with cash, credit cards, or debit cards. Businesses are actively looking for ways to offer their users diversity in payment methods.

Lindsay Lehr
Head of Payments Practice
Americas Market Intelligence (AMI)

Lindsay Lehr

AMI predicts that point-of-sale financing methods—in models such as Buy Now Pay Later (KueskiPay, Mercado Crédito, etc.)—will see double-digit growth in the next five years. AMI also forecasts that the use of digital accounts (such as Yape in Peru, or Pix in Brazil) will account for 15% of payments in brick-and-mortar commerce in Latin America, and 16% in e-commerce. This is without mentioning other disruptive methods, such as cryptocurrencies.

In Latin America, the displacement of cash does not only mean the growth of cards. For example, the volume share of purchases by credit card in 2021 was 53%, and in 2025 it is expected to be 38%, according to AMI.

AMI loyalty-marketing trends

Loyalty marketing is changing. Lindsay Lehr and the Americas Market Intelligence payments team have detected a few key trends:

Increased cashback. This type of reward is easy to understand, and may be the most economical way to incentivize loyalty in the use of debit or prepaid cards, especially for companies that do not have the budget to launch a sophisticated loyalty program.

Purchase gamification. Businesses or platforms create a scenario that has challenges and goals, where the buying experience simulates a video game. As the user levels up they receive more and better rewards, such as discounts or free products. Challenges may include purchasing at an allied business, using the card to pay for public transportation, etc.

Tengo is a payment app in Honduras that uses a points and rewards program to stimulate loyalty and use among its users.

Premium subscription models,which have shown higher engagement among digital users. Membership is often accompanied by benefits at allied businesses (such as complimentary streaming services or travel insurance).

Premium subscriptions drive engagement in digital ecosystems in Latin America. The graph shows the case of Nu, Walmart Pass and Mercado Libre.

Brand coins, points, or credits. Brands and businesses are developing their own virtual coins for exchanging goods and services, for example, Rappi credits, or Puntos Colombia. The use of these “coins” may be closed—limited to the use of an app or in-store—or open—a consortium of allied brands. This type of “money” helps consolidate the brand’s presence in consumers’ wallets and payment dynamics.

Disruption of crypto rewards. Users in Latin America are receiving cryptocurrency cashback rewards for using credit cards or prepaid cards. Pioneers of this new model include Lemon (Visa) and Nexo (Mastercard).

In Latin America, crypto cards leverage the power of cashback to drive use. The graph shows the case of Lemon, Nexo and Geminis, those are cards with cashback in Bitcoin and other cryptocurrencies.

Experience rewards seek to connect with the consumer on an emotional level. Consumers will associate that emotion directly with the brand.

Experiential Rewards Augment a Brand’s Presence. The graph shows the case of HugoFun (face-to-face meeting program), Rappi travel (credit program for travel) and Roblox (games in the metaverse).

Valuedynamx: the consumer as the center of everything

In a recent AMI Payments Coffee Chat, the AMI payments team had the chance to talk to Business Development VP Manuel Catedral, and Associate Marketing Director Laura Kelley, who are both from the company Valuedynamx, of the Collinson Group. Valuedynamx is an industry leader in solutions for loyalty, payments and reward platforms.

In essence, loyalty is the preferential treatment toward a brand, product or service, even when other similar — and sometimes, better — options exist. It’s about making brands more relevant, to more customers, more of the time, in order to create long-lasting relationships with and for our clients.

Manuel Catedral
VP Business Development, Americas
Valuedynamx

“It’s about being relevant to the consumer”

According to Catedral, it is even more important to create sustainability, which he defines as “a lasting preference of our clients for our unique value propositions.” Consumers are changing and so are their preferences, which is why brands need to continually be listening to them.

Valuedynamx has detected some consumer preferences over the past year. According to research:

  • In 2021, the increase in spending was highest among millennials (17%) and high-budget consumers (16%).

  • Consumers are above all buying goods rather than services or experiences. Current spending on goods has been higher than before the pandemic, whereas the purchasing of services has fallen by two percentage points. Valuedynamx predicts this behavior will continue until more people feel comfortable in crowds or at public events.

  • Against predictions, the e-commerce boom has not replaced shopping at brick-and-mortar stores.

  • Spending at brick-and-mortar stores is recovering, with 8% annual growth as of March 2022, compared to 5% annual growth at the beginning of 2021.

Loyalty is being lost, and this seems to be the norm

Consumers, particularly younger generations, millennials and gen Z, are no longer sticking to a single brand: they look for the one that seems most convincing at the time of purchase. Valuedynamx’s Manuel Catedral cites data from a McKinsey survey: the percentage of respondents that chose to buy from a different brand increased by 13 points between 2020 and 2022 (from 33% to 46%). Similarly, in 2022, 37% of respondents chose to buy at a different store, website, or chain store than usual, compared to 28% who chose to do the same in 2020 (a 9% increase).

“This trend in choosing a brand of convenience is also seen in banking,” says AMI’s Lindsay Lehr: “Users are savvy enough to have more than one wallet on their cell phone to access multiple loyalty benefits. Similarly, if they have a bad experience, they can move their money from one digital account to another in a matter of seconds.”

Brand switching is a challenge for building loyalty. In 2022, 46% of consumers said they had bought products from a different brand and 37% chose a different website or store than usual, according to a McKinsey study.

To be competitive, explains Manuel Catedral, it is necessary to offer a customized value proposition: “We have seen younger generations develop an affinity toward brands that share their values and stir their feelings; brands capable of offering them exactly what they need.” “Sustainability” should therefore be a differentiating aspect: brands must be capable of adapting to the customer’s dynamic behavior.

It is important to prioritize the omni-channel experience

Brands and businesses need to aim for a “seamless” (read quick and easy) buying experience that integrates digital and physical channels alike. According to the McKinsey survey, 75% of respondents in 2022 have had some kind of omni-channel activity in the last three to six months, such as ordering online and collecting at a brick-and-mortar store. By contrast, just 5% of consumers have purely online activities, and 20% have purely physical ones.

This means that innovation, especially at the technological level, is a brand differential for acquiring or winning back consumers. In turn, Catedral says, there is challenge in terms of retention: loyalty programs, points, and shopping experiences managed through a single integrated tracking platform, which is what Valuedynamx is aiming at.

Omnichannel Fast-Tracked. Seamless experience in both online and offline channels is becoming table stakes for brands and retailers. Omnichannel shopping is becoming the norm.

Loyalty lies in the experience

“The buying experience has become more important than ever,” says Laura Kelley, Valuedynamx’s Associate Marketing Director, as she shares an interesting Zendesk data point: In Mexico and Brazil, more than 60% of respondents said their buying experience is much more important now than it was a year ago.

This raises a key question: how do we provide the right experience, at the right time, to the right person?

The simple answer is: consumer data. “At Valuedynamx we put the consumer center stage, in order to choose the right strategies based on data analysis,” Kelley explains.

Valuedynamx: Consumer data at the center. By using the data that you have about your consumers, you can pull the right levers to drive brand loyalty.

Valuedynamx: “dynamic value exchange”

Valuedynamx provides the platform and the technology solutions to develop value propositions supported by data analytics. This includes real-time data and KPI analysis according to the specific needs of each company, based on a philosophy of value exchange with their clients.

The result is a loyalty program with options to accumulate points or miles, card-linked offers, and extensive options for redeeming rewards, all of this customized as per the specific needs of the type of company in question, such as financial institutions, payment facilitators, retailers, etc.

In short, at Valuedynamx we make brands more relevant to more customers, more of the time. We have a global footprint that allows us to connect businesses, clients and consumers through technology and strategic alliances.

Manuel Catedral
VP Business Development, Americas
Valuedynamx

Download the presentation of our chat with Valuedynamx

Post-pandemic models of loyalty

We also invite you to register for our AMI Payments Coffee Chats, weekly meetings with expert guests where we discuss the latest advances related to payments in Latin America. Click to register.

Moving Beyond the Data

At Americas Market Intelligence, we design and conduct personalized research focused on solutions that enable your company to minimize risks and increase its chances of success in the region.

Our market intelligence team can help you with research on a range of topics relevant to the payments industry in Latin America, including loyalty marketing. We also have experts in cryptocurrency, instant and interoperable digital paymentse-commerce, mobile wallets, open banking, and much more.

Contact us for more information.


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