Latin America has become an extremely attractive market for cross-border e-commerce. Online shopping is growing increasingly popular across the board because it enables price comparisons and easy access to enticing offers. Even in times of economic duress, such as the slump in Brazil, there are opportunities for intrepid retailers.
While this may sound encouraging, global merchants seeking to do business in Latin America face a wide variety of challenges that could cause painful failure. Obstacles abound, including the large population of unbanked Latin Americans, the relatively low number of cardholders, red tape and regulations, steep import taxes and high currency conversion rates, and problematic logistics affecting deliveries.
E-commerce Growth in Latin America
There is no doubt that e-commerce in Latin America is on the rise: According to BI Intelligence, even the economic slump in Brazil has not stopped e-commerce growth there, with a 5% increase in the first half of 2016. Online sales are expected to jump there to $40.8 billion in 2019.
Argentina experienced 60% growth in e-commerce during the first six months of 2016 as compared to the same period in 2015. As the second-largest market, e-commerce sales are expected to reach $8.3 million in that country in 2019. Mexico is projected to increase online sales 106.9% by 2018 from $2.9 billion in 2015. Other Latin American countries are also experiencing spurts: Chile registered 42% e-commerce growth between 2013 and 2016, while Colombia reported a 50% growth during the same period.
So online sales certainly appeal to the local Latin American populations, but how can buyers make payments? Many customers lack classic payment means like a bank account, debit cards or credit cards, so alternative methods must be put in place.
Alternative Payment Methods
Payments are inevitably localized in Latin America, with each country developing preferred methods for its own population. Brazilian merchants, for example, offer boleto bancário (or a bank slip) from EBANX, which is a local e-commerce payment provider. The boleto bancário is a printable, bar-coded invoice that is regulated by the Central Bank of Brazil and can be paid by consumers online or offline. The risk of chargeback is eliminated and EBANX provides weekly settlements to merchants.
An added issue is that in Brazil only 20% of credit cards are enabled for international purchases by the issuing bank. In practical terms, this means that 80% of Visa or MasterCard credit cardholders are unable to make purchases with merchants based outside of Brazil.
In Mexico and Argentina a popular payment method is cash on delivery (COD), due to consumer skepticism relating to product quality and the actual delivery. In Argentina, most buyers pay cash using payment service providers (PSPs) such as PayU Latam, PagoFacil and RapiPago. In Mexico, PayPal was the top online payment method in 2016, followed by debit and credit cards. In Chile, the most popular payment methods are bank cards and bank transfers, as well as offline payments performed through Servipag.
Due to the large number of unbanked Latin Americans, mobile phones are expected to become a preferred payment method. Smartphone penetration in the region was 45% in 2016 and a 12% annual growth rate is expected through 2019.
Due to the large number of unbanked Latin Americans, mobile phones are expected to become a preferred payment method across the board. Users can deposit money into an account stored on their cell phones or use prepaid cards to pay bills and carry out transactions. Smart phone penetration in the region was 45% in 2016 and a 12% annual growth rate is expected through 2019.”
Working Around the Payment Problems
Regional challenges like problematic logistics, taxes, red tape, regulations, and cross-border snafus can be very off-putting, making retailers reluctant to undertake unfamiliar risks. Sometimes the best solution is to let someone else do the work for you.
Some U.S. merchants avoid the mire of direct sales by using a cross-border marketplace. Sellers list their products, receive the orders, send the items to the marketplace’s logistics center, and get paid directly in U.S. dollars.
Another way to handle payments in Latin America is to process payments locally without establishing an actual presence in the region. Payment companies like dLocal and PayU act as the merchant of record for transactions. They collect and remit funds on behalf of the merchant in local currencies. Rather than handling the sale of goods, this kind of international remittance can save the merchant from paying income and other taxes.
Laying the Proper Foundations
The rule of thumb when entering new regions is to take the time to become thoroughly acquainted with the native terrain. This is especially true when dealing with multiple countries whose markets and demands may differ significantly.
A pivotal aspect of e-commerce in any location is payments. Whether you choose to use an advanced payments platform to gain full control of your payment processes at every site, a payment service provider to handle local payments for you in different markets, or a marketplace that pays you directly (or maybe even a combination of some of these solutions), be sure to study local needs and behaviors, and only then determine the right path to choose in order to succeed.
Zooz provides a payments platform designed to help merchants maximize their payments performance.Favorite