By Allan Halcrow
According to observers, online sales are growing about 19 percent per year in the region and are expected to surpass $84.7 billion U.S. dollars in 2019.1 Also during 2019, 155.5 million people are expected to buy either goods or services online—an increase of almost 29 million customers in the last three years.2
Several factors are shaping that digital and mobile payment systems growth in Latin America.
For one thing, the Latin American economy has been largely cash-based. About two-thirds of people in the region prefer cash to credit.3 Many are limited to cash by necessity—according to the International Monetary Fund, 55 percent of the population does not have a bank account.4 So, 85 percent of transactions are handled in cash.5 Observers suggest that digital payments could open many opportunities to people previously dependent on cash.
Meanwhile, remittances from other parts of the world are vital to the economy and are growing. The World Bank reports that $88 billion was sent into the region in 2018—a 10 percent increase from the previous year.6 Digital payments promise to make all of those transactions easier, faster and less expensive.
Concurrently, the use of smartphones is growing exponentially. Already, smartphone penetration is 60 percent and is projected to reach 76 percent by 2025.7 It stood at just 10 percent as recently as 2012.8
Finally, observers make it clear that Latin America is not a cohesive market. Different currencies and regulations, varying rates of inflation and economic success, and other realities (many credit cards can only be used in the issuing country, for example), all make it challenging to do business across the region. Digital and mobile payment systems, they suggest, can help overcome some of those obstacles.
As digital payments take hold in the region, they are taking many forms. For example, mobile banks (sometimes called neobanks) offer some traditional banking services—such as money transfers and online payments—but without brick-and-mortar facilities. Some of these banks even offer traditional credit cards. Many of the region’s governments are easing banking regulations to help promote financial growth. Faced with new competition, 85 percent of traditional banks are considering financial technology (fintech) partners, and six percent are looking at acquiring digital competitors.9
Because many Latin Americans don’t have credit cards, bank transfers are popular in the region. In this model, people making online purchases are redirected to their online banking platform to complete the digital payment. Another alternative payment method is the process of generating a numeric code that consumers can use to make payments online (or offline). One example is the Peruvian company Pago Efectivo. When users choose that payment option, they get a code that can be used in some 40,000 places in Peru.10
Experts say that cash vouchers are among the most trusted digital payment options in the region.11 This model allows consumers to complete transactions online and then make a cash payment. These payments are usually made at a registered agency, which might be a supermarket or convenience store. Several of these options allow for installment payments, an entrenched reality in Latin America. Consumers are accustomed to making everyday purchases (including, for example, groceries) and paying for them in interest-free installments. They look for this flexibility in digital payments as well. In Brazil, for example, more than half of online purchases were paid in installments.12
Experts agree that businesses that embrace these digital payment options in Latin America could realize several potential benefits. Digital payments make it possible for the unbanked to purchase online, which can substantially expand a market. Also, fees associated with digital payments are generally less than those for credit cards. Finally, digital payments generally simplify bookkeeping and operations because data entry, invoicing, sending digital receipts, and inventory tracking can all be automated.
To take full advantage of these benefits businesses may want to pursue a focused and localized approach to earn consumer acceptance. They may also benefit by understanding and embracing the different digital payment cultures of each country in the region.
Digital payments—in a variety of forms—are reshaping the Latin American economy and offer growth potential for businesses that pay heed. To realize that potential, businesses may need to navigate multiple digital and mobile payment system models, along with the regulatory and cultural complexities of the region.
Allan Halcrow is a freelance writer concentrating in business, human resources, and diversity and inclusion. His is also the author of four books on management.