Deep Dive: How Payment Providers Can Make the Most of the Latin American Cross-Border Payments Opportunities

eCommerce has made important gains in Latin America during the pandemic, with one report projecting that eCommerce sales in this region will exceed $270 billion by the end of the year.

Another study predicted that the number of digital shoppers will rise to 77 million in Mexico alone by 2025, up from 50 million this year.

Online shopping and payments are well on their way to ubiquity throughout Latin America, creating intriguing possibilities for merchants and payment providers in the region.

Financial entities in Latin America are responding to demand by setting up infrastructure and tools for swifter, more convenient online payments, extending shopping opportunities to markets outside their native countries. Cross-border shopping is just beginning to pick up in the region, but the increasing access to virtual banking and payments solutions could lead to significant expansion.

One March report found that more than 45% of Mexican consumers shopped across borders, suggesting there is a considerable growth opportunity for local eCommerce brands to extend their reach. A growing number of Mexican consumers also are expressing comfort with shopping internationally even if it takes a while for them to receive their purchases. Fifty percent of Mexican consumers in one survey said they did not mind waiting up to 15 days for their goods to arrive.

The following Deep Dive examines the growth of cross-border payments in Latin America and the challenges that stand in the way of their development. It also describes how payment providers can take advantage of this cross-border opportunity and why they must keep a close eye on both emerging regulatory standards and consumers’ local payment behaviors to do so.

Laying the Cross-Border Groundwork

Latin America’s skyrocketing use of online payments and digital financial tools offers key opportunities for businesses and payment providers looking to establish themselves in the region’s emerging cross-border ecosystem. Brick-and-mortar storefront closures at the start of the pandemic catapulted regional adoption of online shopping channels, with Latin America becoming the second-fastest-growing eCommerce market worldwide, projected to outpace the U.S., Europe and parts of Asia, according to a January report.

As consumers across Latin America turned to eCommerce channels for more of their daily purchases, they also began experimenting with new, digital-first payment methods. Latin America has long been a cash stronghold, and cash still accounts for 20% to 30% of all eCommerce transactions across the market through a complex variety of local voucher and payment networks. Use of plastic credit and debit cards, QR code tools and mobile wallets, however, has been advancing steadily throughout the past two years and is poised for further growth. Fifty-six percent of Latin American eCommerce purchases were made with credit cards in 2020, for example, while 14% of these purchases tapped debit cards. Other reports indicate that the popularity of mobile-optimized payment methods that include QR codes for both eCommerce and in-store transactions is growing, with 66% of Latin American consumers saying they anticipate using these methods in the next year.

The migration to eCommerce and online payment solutions still is in progress but already has drastically changed the Latin American payments landscape. As consumers’ trust in digital shopping rises, so does their interest in online retailers outside their native markets, offering payment firms an opening to establish a cross-border foothold in the region. Payment players must pay careful attention to consumers’ specific payment needs across these markets, however, as a successful cross-border payments strategy for the region will require a decidedly localized approach.

The Cross-Border Infrastructure Challenge

eCommerce still is solidifying in Latin America. One report found that 86% of the region’s transactions in this channel will be made domestically by the end of the year, with the rest being cross-border purchases. Many consumers in the region also still cling to local payment methods when they do shop online, making it essential for cross-border payment providers and financial entities to consider consumers’ preferences and needs within each market.

One of the key features of various markets in the region is the relatively low penetration of traditional banking, which accounts in part for the durability of cash and local payment transfer methods. eCommerce brands can increase conversion by adopting local payment preferences to gain consumers’ trust. Financial entities also must consider the regulations governing cross-border payments in each market and closely follow the standards and safeguards for their use.

The time is ripe for both businesses and payment providers to break ground on an emerging digital cross-border payments ecosystem in Latin America. Payment providers and merchants that understand local markets and their consumers will be in the best position to make the most of this unprecedented opportunity to gain customers’ lasting loyalty.