Mark Stannard, Chief Business Officer of Boku writes for Payment Expert on Latin America’s growing role in Asia’s ecommerce market.
Looking back to the earliest days of the pandemic, as mandated stay-at-home orders in several countries forced retailers to close physical stores, it was clear that in order to survive and thrive in the ensuing uncertainty, eCommerce would be key to sustaining some of our most vital sectors and jobs.
Latin America was already fertile ground for eCommerce, but the pandemic spurred innovation out of necessity, creating a new environment where many local businesses could only survive with a strong online presence. The COVID-19 pandemic has introduced and cemented the use of eCommerce and digital ordering services for many consumers, accelerating the demand for digital financial products by many years.
While Asia remains the global leader in eCommerce by volume, Latin America has become the fastest-growing region in the world for eCommerce, finally ending Asia’s long-time hold on that distinction.
Retail eCommerce spend leaped as a result, jumping 36.7% in 2020 to $84.95 billion in sales according to SkyPostal, Latin America’s largest private mail and parcel deliverer. The trend is only accelerating, and Latin America has made itself the place to be for burgeoning eCommerce companies. Here we unpack the key drivers of this growing market and what merchants need to do to harness it.
What is driving this change?
Latin America’s eCommerce ecosystem is rapidly maturing with regional marketplace Mercado Libre making its mark. While many consumers are still underbanked and lack access to digital payment methods, this hasn’t stopped consumers from shopping online. Across Latin America, cash vouchers have been popular for decades, and today are bridging the gap between cash and ecommerce allowing Latin Americans to shop online and pay for their purchases in cash at authorised locations. As the COVID-19 pandemic has made physical cash and in-person transactions less possible and attractive, the future is certainly going to be more digital.
Another trend driving Latin Americans towards mobile payments are installment payments, which enable consumers to make interest-free payments over the course of months or even years. The “Buy Now, Pay Later” megatrend has been alive and well in Latin America for years. In Latin America installments are the rule, not the exception with 60% of ecommerce transactions using this method of financing. That has carried over to the online shopping experience as well – for any merchant doing business in Latin America they will need to add support for online instalment payments if they want to compete.
Mobile first experiences are becoming the norm too. While other markets may have higher mobile penetration, Latin Americans lead the way when it comes to shopping on mobile. In Mexico, smartphone usage is at an all-time high with more than half of Mexicans owning a smartphone and 70% having access to the internet. That paved the way for apps like WhatsApp to take hold in the region, the app is used throughout Latin America to text, shop and pay. Brazil is WhatsApp’s second-largest market globally, with 120 million users. Latin America is a region filled with mobile-first consumers, who can access financial services in the palm of their hands, further setting the stage for rapid adoption of mobile wallets.
Commerce goes mobile
Latin American consumers are flocking to eCommerce sites, but their online experience still lags behind, hobbled by slow and outdated modes of payment. Cash vouchers can take days to clear and they frequently involve high fees, which are paid by the consumer. It’s challenging for merchants to manage inventory and shipping while they wait for voucher payments to clear. It’s an even bigger challenge for merchants who sell digital goods, as consumers rightfully expect instant access. Merchants and fintechs alike need to better meet consumer expectations in Latin America. Consumers want their purchase experience to be frictionless, instantaneous, available anytime and anywhere, while using the payment and financing options of their choice.
Digital payments like mobile wallets and real-time payments schemes (like Pix in Brazil) tick all those boxes and stand ready to disrupt the cash voucher infrastructure. Mobile wallets enable consumers to top-up their balance just like they do with a voucher, but unlike vouchers they would have access to funds in real-time and be able to pay online instantly, to any merchant, just like a credit card.
The physical infrastructure that convenience stores deliver for cash vouchers is well ingrained, but the underlying technology should and is changing. Merchants who enhance the customer experience and focus on mobile commerce growth will be handsomely rewarded.
Merchants that accept digital payments stand to gain
Digital payments’ major benefit for merchants is that they deliver the frictionless user experience that maximizes sales conversion. That’s not the only benefit though. At Boku, we have seen instances in which mobile wallets can increase eCommerce transactions by 10x and new subscriber acquisition by 4x versus other payment methods.
Latin America is ripe for mobile payments to thrive in the region. While other regions prefer good old plastic cards, it’s never quite taken off in Latin America. Intertwine that with the explosive growth of the internet, a tech-savvy millennial population, and a pandemic reckoning and you have a situation ripe for mobile first payment solutions.
The stage is set for mobile wallets to gain a much wider embrace in Latin America and now is the ideal time for merchants to capitalise. By investing in and transforming the way they take payment, merchants can better engage with their customers and offer a more seamless experience. Merchants need to offer the types of payment that their customers prefer – and for Latin America, that looks set to be mobile wallets.