By Fernando Estevez Vazquez, LATAM Payments Expert
You’ve already heard of WeChat and Alipay in China, Sepa Transfers in Europe, Multibanco in Portugal or Ideal in the Netherlands as unique payment methods that exist in one country only. This is more evident in Latin America where there are several cash options, credit and debit cards, wallets and other payment methods that are unique in each country.
With a low level of bank and card penetration, most credit cards are not able to process international payments in LATAM. This is a problem that can be enhanced in certain countries like Brazil where most cards aren’t allowed to transact internationally. In addition, Brazilian e-shoppers have several additional costs to their purchases (IOF, 6.38%) and no local currency exchange rate fees are offered.
A similar scenario can be spotted in Argentina, Uruguay, Colombia and Chile. There are also local credit card schemes that simply will not accept some international processors like Éxito in Colombia, or Carnet in Mexico, Cabal and Naranja in Argentina, or Oca in Uruguay. For very specific realities, different solutions are needed.
When cards aren’t just cards
In countries like Brazil, Argentina, Chile or Uruguay, for example, paying in installments is embedded into online credit and debit card options, allowing you to pay your purchase fully and directly through the financing done via your bank. For high priced purchases this is definitely a great tool to allow people to finance their purchases.
In the realm of unbanked consumers, cash is King (or Prince)
Estimates indicate that 50 to 70% of the population is unbanked, which represents something between 300 to 400 Million. So, cash is a must if you want to convert in LATAM! Boleto in Brazil, Oxxo and 7-Eleven in Mexico, Rapipago and Pagofacil in Argentina, Multicaja and Servipag in Chile or Abitab and Redpagos in Uruguay or Efecty and Via Baloto in Colombia or PagoEfectivo in Peru are some of payment solutions in Latin America that will help your business increase sales.
These payments are born out of necessity. They allow unbanked consumers to make purchases and pay for services typically paid via bank account (utility bills, etc.). For a culture where cash is how you get your salaries (+50% in Brazil are paid in cash) most of times, money is a sign of trust. So, offering options of cross-border payments will not only allow unbanked population to make purchases, but also it will be an entry point for e-commerce for those who still rather pay in cash for their first purchase. This is not just a payment option, it’s a tool to attract consumers and conquer their loyalty.
What about banks?
As banking penetration grows, we see more bank accounts based on payments coming up in LATAM. Safetypay is probably the best example for online payments and deposits. In Mexico, Spei is an unique system that allows you to pay by using your bank account, a fast and safe way, and in Chile Servipag and Khipu enable bank accounts to make online payments.
With more disruptive scope we have Nubank, a digital bank with great success in Brazil, or Izettle recently acquired by PayPal and operating in Mexico, as well as PagSeguro with its Moderninha. Hence, we see room for these new digital newcomers as soon as these companies have proven it can be done successfully.
Are digital wallets popular?
PayPal has already started local operations in Brazil and Mexico, it also partnered with Multicaja in Chile allowing Chilean users to load funds into their PayPal wallet using cash. So, we will see more movement on their side. PagSeguro in Brazil has been extremely successful not just on the online space, but also offline. And of course, MercadoPago with its big base of users from MercadoLibre is also a considerable player in the territory.
Got mobile?! Not yet
Despite being an extremely young population hungry for technology and a growing infrastructure, there hasn’t been any mobile payment system which has gained enough traction in the LATAM territory. Even with the popularity of smartphones, there is still a lot to do in this sector. Some companies like YellowPepper or Bim are examples of the work done on the mobile front.
Thoughts about the future in e-commerce in Latin America
Any company that wants to succeed in LATAM, whether via a wallet, a mobile application, or any other system, must contemplate having local payments in its operation. Considering the growing numbers of smartphone usage and internet access, a smartphone App/Local wallet might be an effective way to concentrate all options. However, it’s more likely to bet on the improvement and expansions of current systems with additional features to increase engagement.
As an example, PagSeguro has complemented its digital payments with an offline component by offering its credit card POS (Moderninha & Minizinha). Oxxo has a new system called Oxxo Pay which improves the user experience from the regular Oxxo payment, and is preparing to enter the credit card processing world in Mexico. Multicaja is working on becoming the second acquirer for Chile right behind Transbank.
LATAM continues being a very dynamic market with plenty of room for growth. More and more big players have set their eyes on this market and development on the e-commerce and online world is expected to continue for years to come.