Latin America is a continent of contrasts. The region comprises countries whose per capita GDP compares favorably with mid-ranking European nations, but also those whose citizens are among the poorest and most vulnerable globally.
Consumers are buying online in increasing numbers as logistics improve and home delivery becomes more widespread. However, the addressable opportunities are far from uniform, as borne out by ecommerce growth rates. The median rate of B2C ecommerce growth is 22-25%, yet there are outliers: Brazil at 10% and Peru and Argentina at 41% and 52% respectively.
The growing middle class
Despite regional differences, there are a couple of common demographic and payment trends across Latin America. Firstly, the growth of the middle class. Over half the world’s population, some 3.8 billion people, is now middle class or wealthier. This “marks the start of a new era of a middle-class majority”, according to the Brookings Institution, a public policy organisation.
This is significant for ecommerce retailers as the middle class drive demand in the global economy. Private household consumption accounts for about half of global demand. Two-thirds of this comes from the middle class, who buy consumer durables and take holidays. They are also able to weather economic shocks, such as illness or a spell of unemployment, without falling back into extreme poverty.
The rich spend more per person, but are too few in number to drive the global economy. Whereas the poor are numerous, yet vulnerable and have too little income to spend. To be profitable, ecommerce retailers must appeal to the growing middle class with their products but also their prices, customer experience and logistics.
Payment habits in Latin America
A second common theme in Latin America is the low rate of banked consumers. Bank penetration in Uruguay, Brazil and Chile is between 64% and 74%, according to World Bank Findex data. That is to say, one-in-three to one-in-four adults in these countries does not have a bank account. In Peru and Colombia less than half the population (43-46%) is banked.
Ecommerce retailers who only accept bank account-based payment methods or global card brands stand to lose sales. Only by offering local payment methods can acquirers and their merchants reach the whole market. For example, around 58% of point-of-sale payments in Latin America in 2018 were made in cash, according to the Worldpay Global Payments Report 2018. Meanwhile cash accounts for a good one-fifth of ecommerce payments, according to PPRO’s own research.
The e-cash check-out process is more involved but meets the needs of the un/underbanked. Customers select a cash-based payment method, such as Boleto Barcário (Brazil), Efecty (Colombia), Pago Fácil (Argentina) or Redpagos (Uruguay). They receive a barcode or unique reference number to identify their payment and take this to a participating retailer, often a convenience store locally, to pay in cash over the counter. Once the payment is confirmed to the merchant, the goods are shipped or the customer’s account updated in the case of a service.
Latin America also has a strong tradition of local credit brands and private label store cards, such as Cencosud (Argentina), CMR Falabella (Chile), Elo and HiperCard (Brazil). However, as more people shop online and ecommerce accounts for a greater proportion of total retail spend, e-wallets, debit cards and bank transfers will make up a larger share of online payments.
How to make payments easier
Payment habits are strongly national. They have developed over time and are formed by various cultural, political, economic and technological factors. They are also strongly personal, differing between people within and between countries. Ecommerce retailers should not look to re-invent customers.
They must be cognisant of local demographic and payment differences. And take a focused and localised approach to product, price, promotion, positioning but also payments. After all, payments sit at the intersection between commerce and finance, between browsing and buying. They play a central role in driving simpler, smarter and more customised experiences.
Yet it is a catch-22 for merchants. Greater payment customisation on the front-end creates greater complexity on the back-end. So, the right payments infrastructure is essential to driving customer-centric commerce. While acquirers and payment service providers differentiate their offering through the front-end customer experience, the need for local payment expertise and a centralised, value-adding payments hub has never been greater.
About Javier Vallaure
Javier Vallaure is the head of PPRO operations in LATAM, overseeing all the teams and processes required to provide the best local-payment platform in the region. Before the acquisition by PPRO, Javier was Co-Founder and Chief Operations Officer at allpago. He was one of the driving forces behind the company’s expansion throughout Latin America.
About PPRO
PPRO enables integrated electronic payment processing on a global scale spanning the entire payments value chain from acquiring through processing, collection and settlement. PPRO acts as a B2B payments hub, connecting PSPs and other merchant aggregators, such as acquirers and processors, with local payment methods. In mid-2019, PPRO acquired allpago, the pre-eminent provider of payment and gateway services in Latin America, covering 90% of the market.
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