By Marius Costin, Head of EMEA High Velocity Merchants & US Sales at PayU
Technological innovation was already at pace in Latin America prior to the Covid-19 pandemic, but the coronavirus accelerated digitalisation across the region, fostering innovation and breaking down barriers to financial inclusion. Against this backdrop, the region has seen an ecommerce boom, growing access to credit, and shifting payment preferences. Technological investment has had a significant impact in the region, transforming Latin America into a hub of innovation, highlighting payment preferences and trends that every merchant should be aware of.
The e and mcommerce boom
The introduction of social distancing measures across most of Latin America sparked an ecommerce and subsequent mobile commerce boom. Merchants across the region have since developed an online offering, migrating their sales strategies to the digital model to meet customer demand. In the same time, the assurance of secure digital payments has undoubtedly contributed to the rise in online commerce popularity in most Latin American markets. Last year, PayU data predicted that the value of the Latin American ecommerce market would reach $187billion by the end of 2021, with the region positioned as a great opportunity for international merchants to expand to. The ecommerce boom has also further accelerated the popularity of mobile commerce in the region, as smart-phone savvy citizens are now transacting more via their smartphones. For example, Mexico is now second only to South Korea for using mobile devices to buy online, with 15% of all ecommerce sales taking place on mobile phones. As more merchants expand into Latin America and tap into the ecommerce boom, mobile and online shopping is a trend that we expect to see continue in the New Year and beyond.
Changing payment preferences
As new payment methods were introduced across Latin America, new payment trends have also started to emerge. That being said, those that remain cash reliant have also been taken into consideration, with the availability of hybrid options that have grown in popularity. For example, in Peru merchants can sell to customers via a variety of payment methods including local credit cards as well as the PagoEfectivo scheme, a popular method allowing customers to pay for online orders using cash. Cash-based methods such as Boleto Bancário are also popular, enabling merchants to attract, engage and convert Brazilian customers who do not own credit cards. In other markets however, digital payments have been adopted at record speed. Research has found that more than half of global consumers avoid retailers that do not offer electronic payment options and 68% are particularly interested in shopping with merchants that provide the latest payment methods. With new financial services supporting the unserved and underserved in Latin America, credit is now also growing in popularity. With such diversity of services, we will continue to see great variation in payment preferences in different Latin American markets.
A generational divide?
The past year has been a great opportunity to identify generational differences in terms of payment trends. The success of fintech in Mexico and Brazil for example has largely been down to both countries’ younger generations that have adopted digital payments and ecommerce with speed. Indeed, 18–24-year-olds are increasingly using their smartphones to transact online, creating even greater retail opportunities for global merchants. In fact, the number of Gen Z P2P mobile payment users globally will more than double from 20.5 million in 2021 to 41.1 million by 2025. Older generations have been slower to adopt digital payments, which is not unique in Latin America, but is a trend that has been recognised around the world. Generational differences will continue to emerge in Latin America, and payment platforms will continue to explore how they can tap into the underserved older generations to offer financial services that cater to them and encourage economic inclusion.
The rise of retail events
The growing popularity of retail events is another trend we are seeing across Latin America. For example, since imposing one of the tightest coronavirus lockdowns in Latin America, Colombia introduced a series of tax-free shopping days, with PayU processing over $184 million worth of online transactions in the country. The success of retail dates in Latin America demonstrates the ecommerce power of the region, and to maintain momentum, versions of Black Friday and Cyber Monday now take place on a variety of scales across the region. Moreover, research has found that transactions with Visa cards in Latin America and the Caribbean during Black Friday and Cyber Monday grew by 48% compared to the same day in 2020, marking a sign of economic recovery since the pandemic took place. As more customers embrace retail events across the region, we will continue to see more dates introduced in the retail calendar to maintain the popularity of ecommerce across the region.
As international merchants continue to expand into Latin American markets, technological innovation in the region will continue to take place, and with this we will continue to see new payment and retail trends emerge. Whether merchants look to engage the Latin American consumer with fast, secure and frictionless buying journeys or decide to tap into the underserved populations by offering hybrid payment options, Latin America will continue to be a hub of innovation. It is a region which should be monitored carefully to see how emerging markets respond to payments technology and ever-changing customer behaviour, whether the same developments could foster financial inclusion elsewhere around the world or provide valuable industry lessons.
