The fact that the Latin American e-commerce market is one of the fastest growing in the world is hardly news to anyone. Gross domestic product in the LatAm region exceeded $15 trillion in 2019. Growth in e-commerce is expected to be 19% over the next five years. This is significantly more than the global average of 11%.
In addition, physical stores are seldom found in many regions outside the major cities, which is why many people make use of online purchases, including via the mobile channel. This offers enormous opportunities for retailers looking for lucrative cross-border business.
To capitalize on these opportunities, following are seven tips for U.S. retailers to help them be most successful with their e-commerce and m-commerce efforts in Latin America
1. Heterogeneous market
A “one size fits all” strategy will not work in Latin America. This is particularly true with regards to payment methods. Only using PayPal and credit cards to catch customers is not a viable option. In many countries, there are local payment methods which are completely unknown in the U.S. and that specifically address the precise needs of the local consumer groups. In many South American countries, for example, the number of citizens without a bank account is significantly higher than in the U.S.
As such, there are solutions that enable cash payments to be made at special collection points even for online orders. If you don’t include this kind of option in your online or mobile store, you’re excluding a target group with a high purchasing power.
Since 60% of LatAm consumers browse the web via the mobile channel, local digital wallets become increasingly more important for seamless mobile payments in the region. Consumers may load their wallets with cash or add credit cards and bank accounts, which will make it easier to shop and spend money.
The significance of the credit card in e-commerce and m-commerce, however, is also different from its importance in the U.S. One reason: high fraud rates. Card-based payments are therefore only possible to a limited extent, and many banks, for example, do not allow debit cards for online payments.
2. Local acquirers
Companies planning their LatAm business should definitely work with a local acquirer bank. Otherwise, significant transaction fees could be incurred which have a negative impact on profits. Cross-border transactions can therefore quickly become very expensive. Up to 20% of the sum is lost to banks when retailers want to bring the money to the U.S.
Furthermore, working with local acquirers will enable your business to offer purchases in installments, which is most common to complete purchases in LatAm — over 60% of e-commerce is currently transacted via installments. The vast majority of domestic-issued credit cards are not enabled for international purchases on e-commerce websites. Taking this into consideration, working with local partners will not only decrease your costs for cross-border payments but also drastically increase your conversion rate.
3. Beware of the language trap
If the copy in a retailer’s online or mobile store is not adapted to the local conversational etiquette, this could quickly have a negative impact on customer trust. What appears to be an unimportant detail should not be underestimated, as Portuguese Portuguese, for example, differs significantly from Brazilian Portuguese.
The situation is similar with Spanish. Local online shoppers can be put off if they are approached incorrectly, which can ultimately lead to a bounce. A well formulated web and mobile presence with optimized communication can therefore have considerable positive effects.
4. Trust and security
Trust is also important in other areas. Brazilians, for example, love free shipping. If a retailer can’t provide this service, it will quickly be substituted for one that will. Another thing to keep in mind: due to the comparatively high fraud rates, seals of quality such as the trust emblem of the Brazilian E-Commerce Association are very important.
5. Young buyers
Compared to the U.S., the average age of the population in Latin America is relatively low. 41% is under age 25. Only 17% are 55 or older. As a result, e-commerce and m-commerce are advancing rapidly and the advertising opportunities through social media are enormous.
The Brazilian market is similar to China, as Brazilians have a high affinity for new technologies just like customers in China. Accordingly, mobile is a significant growth market.
6. Start small
Retailers who take their first steps in Latin America should start small. It is often advisable, especially for smaller companies, to use one of the large online marketplaces and enter the market with just a few products. This makes it possible to explore the potential without going “all in.”
7. Cross-border orders
If everything works out, you can increase your investment tenfold, regardless of whether you are a small, medium-sized or large company. One of the reasons for this is that LatAm customers often find it worthwhile to purchase goods online instead of buying them locally.
This is especially the case in Brazil, where customers are generally open to buy products from foreign companies because they pay astronomical taxes on many products in-store. An iPhone, for example, costs around $2,000 there. Added to this is the dealer margin. An import from the U.S. is therefore often the better option.
By adding value-added services such as free shipping and free returns, you may increase customer loyalty and satisfaction as well as create a real USP for your business in LatAm.
Taking into account the aforementioned tips can help retailers as they expand their online and mobile efforts into Latin America. The opportunity to achieve profitable turnover is there – with a well thought-out and planned approach.
Cover image: iStock
Ralf is the co-founder and CEO of international Payment Service Provider Computop. He is responsible for international expansion and strategic planning at the company.