Despite the region’s growing appetite for e-commerce, an alarming number of cards in LATAM continue to face domestic limitations.
This is according to a recent study by BoaCompra, the fintech branch of the South American company PagSeguro.
Conducted in collaboration with Americas Market Intelligence (AMI), the study included interviews with cross-border merchants and local players in LATAM, including retail, video and music streaming, gaming, travel and B2B digital goods providers.
The study presents current data on the fast-changing online market of LATAM, a region with ripe opportunities for companies operating in the digital scenario — especially now, with the increasing penetration of digital banks, the region’s digitisation process being even more accelerated by the pandemic, and a recovering economy post-Covid.
A common trend that’s prevalent through the findings is the understanding that digitisation is here to stay. With an average of 77 per cent both in internet penetration and in people who own a smartphone, shopping and doing several other daily personal and professional activities online is the preference of an increasing number of Latin Americans.
In this context, businesses of any sector are finding the region to be an attractive destination for international expansion. Industries such as retail and digital goods saw an exponential rise in sales during the pandemic, with the study showing that 61 per cent of the population in the evaluated countries made online purchases in 2020 and, in 2021, the number rose to 67 per cent.
With more frequency, more product variety, and a higher average ticket, AMI expects LATAM’s e-commerce market to grow at a CAGR of 25 per cent, reaching $646billion in 2025.
To tap into all this market potential, adhering to the expectations of the client is fundamental. In regards to offshore merchants selling in LATAM, this includes their need to accept local payments and local currencies.
According to the study, while credit cards are still the most used payment method in the region, totalling 46 per cent of sales in 2021, an alarming 78 per cent of the cards used in the region continue to suffer domestic-only limitations.
In Brazil, for example, the rate of domestic-only credit card payments reaches 70 per cent. Almost all merchants interviewed during research agree that being able to offer local card payment options is a game-changer, since it increases approval rates, improves the client experience, and allows merchants to provide local practices such as instalment payments, which represent half of all online sales paid by credit cards, depending on the segment and purchase size.
Another major trend in LATAM is the increasing preference for mobile banking and digital payment methods, such as Brazil’s Pix (the electronic and instant payment method offered by the Brazilian Central Bank). This pushes forward financial inclusion and innovation in the region, changing the traditional payment landscape considerably and making it even more interesting for foreign companies to sell there.
Navigating this complex financial scenario makes operating in LATAM difficult for foreign companies without a local entity, which highlights the need for counting on a local partner with expertise in the region’s financial landscape.