Rapid Digitization Brings Lucrative New Markets Into LatAm’s Connected Economy

When they write the book on pandemic success stories, Latin America will need its own separate edition, as few regions paint the great digital shift in such dramatic contrasts.

Before COVID-19, Latin America overall was cash-dependent, internet speeds were slow, and digital payments unusual. It’s a very different picture today inside this region of about 660 million consumers, and merchants are adjusting fast.

In a PYMNTS interview, Ebanx Vice President of Global Merchant Success Paulo Shargorodsky discussed the forces that are speeding digital developments in the LatAm region in 2022.

“It has been a cash society for a long time. Then during COVID, everybody locked themselves at home,” Shargorodsky said. “It forced two things. One, I think the traditional banks had to be more innovative and provide those digital payment opportunities for the population, and two, the population forced themselves outside their comfort zone of just using cash.”

With two years to try it out, people there got more comfortable with digital payments and “feel a little more comfortable with digital wallets,” including PIX in Brazil and Mercado Pago throughout the region. This goes hand in hand with the expansion of eCommerce, which gives a glimpse of the potential extant in this massive market.

According to The Global Merchants’ Guide To Latin America, produced in collaboration with Ebanx, online shopping has caught on quickly in the region during the pandemic. But payment preferences in Latin America vary widely from country to country. eCommerce adoption is rising, with market penetration growing in Brazil especially by the end of 2021, but many Latin Americans still prefer — or, in the case of the unbanked, depend on — cash to make their digital purchases.

Get the report: The Global Merchants’ Guide To Latin America

Motivated by Mobile

Driving forces for the uptake of digital payments in LatAm are smartphone penetration and a growing use of debit cards, along with digital-first alternative payment methods.

Between 2020 to 2021 digital wallet use jumped roughly 40%, Shargorodsky said, and debit card use rose over the same period. Smartphones proved key to the digital expansion, as is improving connectivity coming in many forms, from streaming services to retail stores digitizing their offerings. Many services that used to require a physical presence now don’t, and the same applies to buying basic goods and accessing entertainment.

“Companies that were more brick-and-mortar digitalized their services because of COVID, they see a big boost in sales from doing so, and they want to continue,” he said.

See also: eCommerce in Latin America Showing Hypergrowth

Sell Globally, Act Locally

With Latin America now organizing itself into an even more connected digital market, brands from consumer goods to streaming entertainment must get the dialects right to engage. That’s especially important for payments, although localization touches on other aspects.

Merchants from other geographies with designs on the huge LatAm market must partner locally if they want to take advantage of both eCommerce and in-store regional trends.

“If you’re not processing with a local provider, you’re probably using an international acquirer,” he said. In so doing, “you’re just targeting a very small segment of the population that have access to international cards. Once you partner with somebody like Ebanx, then you’re offering the same payment methods that any other local provider would be able to offer.”

Inclusion for the unbanked is a major issue for Latin America, and a silver lining to the pandemic, as more of the unbanked are now participating in digital payments and all it unlocks.

“We have a lot more access to digital payments for, I would say, the base of the pyramid of the population,” Shargorodsky said. “These digital payment companies are providing the initial step for financial inclusion, and I think it’s going to continue.”

See also: Exquisito Perú on Serving Latin American Travelers’ Growing Digital Payment Needs