Why installments increase e-commerce turnover in Argentina
E-commerce in Argentina
Argentina is one of the most attractive e-commerce prospects in Latin America because it combines three key features: it has a large population (around 44.49 million in 2018), one of the highest GDP of all LATAM countries (USD 518.48 billion in 2018) and a high internet penetration rate (82% in 2018).
In 2018, 90% of Argentinian adults with internet access (that's a whopping 32.8 million internet users) bought something online. Credit cards are the most common way for Argentinian customers to pay online. According to the Argentinian Center for e-Commerce (CACE), 78% of e-commerce transactions made in 2018 were paid with a credit card.
In terms of payment plan options, 53% of installments offered in 2018 were divided into 3-6 months. Furthermore, the average ticket price of e-commerce increased from USD 61.67 in 2017 to USD 68.78 in 2018, showing a growth rate of around 12%.
However, as most e-commerce merchants know, this does not mean guaranteed success. Every market requires a unique approach, and Argentina is no different.
Why are installments so important in Argentina?
International merchants familiar with Latin America will know that credit card installments are one of the most popular payment options. In fact, a recent survey conducted by CACE found that 70% of online retailers offered payments in installments. Why? Well, primarily because it allows customers to buy more expensive items which may otherwise be out of reach.
According to a recent study, installments may also push buyers to purchase more frequently or more expensive items. More than half of survey respondents stated that interest free installments would be a greater enticement to buying that a 10% discount. Better yet, 40% of high income e-commerce customers said they would increase their purchases by 10% if offered interest free payment installments.
Clearly, then, embracing installments is a way of increasing your sales conversion rates and the value of your sales in this growing market. But what do e-commerce merchants need to know?
So, how do installments work?
While credit card installments are clearly an essential way of driving sales, many international e-commerce merchants can still find them a daunting payment option to offer without help from experts in the LATAM online market. Consequently, discovering what installment plans each card brand has made with the issuing bank would be a highly time-consuming task. A partnership with a payment aggregator, for example, can help merchants in this process.
Having understood the logistics of installments themselves, it is important for international merchants to identify that the risk for non-payment lies with the issuing bank. In Argentina, no matter what the installment terms are, the full balance is transferred to the merchant once the first installment has been paid. This means that e-commerce merchants don't need to worry that offering installments of 12 months means waiting a year for the balance to be paid.
Most credit cards offer an interest-free deal to customers depending on the plan. This option can increase the size and frequency of online purchases. However, certain card brands or issuing banks will charge some interest on installments. As such, many merchants choose to price the interest costs into the sale price of an item. In this way, customers are still enticed by the interest-free installments, but merchants can indemnify themselves against paying interest themselves.
A changing market
It is important to note that the Argentinian e-commerce market is changing and growing. Credit card installments are essential to reach a significant percentage of potential buyers, but you should be aware that the rise of younger shoppers and new payment trends can influence the payment scenario over time.
The Argentinian retail e-commerce market saw a growth from USD 5.1 billion in 2016 to USD 5.9 billion in 2017. It has also seen an increase in the use of direct bank transfers and international cards. In light of this, e-commerce merchants must ensure they are prepared for the changing shopping habits of this important market. Payment aggregators, like BoaCompra, can manage not only local card transactions, but also bank transfers and cash payments. As such, they can help you unlock the potential in this growing market and ride the tides of changes in payment options.