A glimmer of good news for Latin American economies (LATAM) during the COVID-19 pandemic is the incredible boom in e-commerce. According to eMarketer Insider Intelligence, LATAM experienced the fastest growth in e-commerce worldwide in 2020, taking the number one position ahead of Asia-Pacific.
While growth in 2020 may have been driven by lockdowns and social distancing, it’s an indication of what’s to come in a new digital age. The increase and customization of local payment methods for e-commerce could further accelerate the growth of Latin American economies.
To see what we mean by Local Payment Methods (LPMs), let’s explore the region’s dynamic payments landscape.
Buy global. Pay on the spot.
Aside from vouchers, local credit card systems are one of the dominant forms of payment across LATAM. Local cards represent 58% of all online transactions in LATAM. These credit cards such as Elo or Hipercard – or even locally issued MasterCard and Visa cards – are linked to local and regional financial networks and cannot be used to make payments on international websites or anywhere in the world. outside of their country of origin.
Other LPMs are built around installment payments. In LATAM, this option requires the customer that the total price of his purchase be available within the limit of his credit card, but the merchant agrees to debit the card in several installments.
The LATAM Buy Now Pay Later methods are an agreement between the consumer and the merchant; in fact, a cash payment over time. In contrast, in the United States, systems like Klarna and Afterpay fund the transaction, and the consumer makes monthly payments for the service – in effect, a loan.
Installment payments are a familiar and popular way for LATAM consumers to pay, even for small purchases. As proof, 60% of e-commerce purchases are paid in several installments according to EBANX.
Another LPM used for e-commerce is OXXO in Mexico. OXXO is a coupon payment option that takes advantage of the ubiquity of over 21,000 OXXO convenience stores, enabling unbanked and security-conscious consumers to finance their online purchases.
In Argentina, Rapipago and Pago FÃ¡cil allow offline payments for online purchases through their extensive network of physical outlets.
Growing demand for digital purchases and peer-to-peer payments is driving the creation of new LPMs to enable instant processing. For example, Brazil’s PIX was created by the Central Bank of Brazil to enable instant, real-time payments, 24/7, without the need for a debit card, credit card, or bank account. On trial since 2019, the system was officially launched in November 2020 with the participation of 980 financial institutions, 20 million users expected in its first year and transaction costs reduced between 10 and 40%. This is considered to be a major accelerator for trade of all kinds.
As with all aspects of culture, financial behavior is shaped by the habits and preferences of the local population. Vendors who host the LPM infrastructure can enable online transactions in familiar ways that further fuel this channel. By satisfying these niches, the needs of local consumers, LPMs are also part of the global trend towards greater personalization of the online shopping experience.
As local payment methods adapt to e-commerce – allowing transactions across a range of methods on a single payment platform – LATAM consumers will have better access to global goods and services. With LPMs designed to meet the needs of local niche consumers, demand will only increase as personalization continues to guide today’s lifestyle. The more means there are to pay, the faster business can accelerate: LPMs are the engine of future economic growth.
Steve Villegas is the Vice President of Payment Partnerships at PPRO.