Latin America Is Becoming an eCommerce Paradise, but Companies Need a Guide

Still considered an emerging collection of economies, Latin America has nevertheless taken a lead in aspects of the digital transformation of payments, in some ways pulling ahead of developed nations including the United States in areas like instant and real-time payments.

That’s meaningful to residents of the 33 countries that comprise Latin America, as well as eCommerce players inside and outside the region as they seek more cost-efficient ways to drive online sales with faster settlement, making trade into and out of the region alluring for growth in 2023.

Noting that Latin America represents a total addressable market of over 600 million consumers that generate close to $6 trillion in gross domestic product in the aggregate, Daniel Passarelli, Latam managing director at payments platform Worldline, told PYMNTS’ Karen Webster that for the digital transformation of payments, two of the world’s most advanced systems are already operational in Latin America.

“Since the launch in 2021 in Brazil, PIX has now over 140 million users,” Passarelli said, referring to the Brazilian central bank’s PIX near-real-time payment system.

PIX is now branching out with the introduction of Guaranteed PIX, an installment credit product much like buy now, pay later (BNPL), and PIX International, a forthcoming permutation for use outside of Brazil. As Passarelli described it, people are now using PIX to pay for ice cream on the beach or a TV for the house, although its primary use is still peer-to-peer transfers.

The upshot is about adoption, and that payments innovation in this underbanked continent is in many ways outpacing developed nations. That has major implications for cross-border eCommerce players looking for growth in a year that may end up marred by a global recession.

But Passarelli sounded a note of caution.

“It’s not only mandatory to deeply understand the market conditions and challenges, but also to be supported by local partners that are used to playing in the region,” he said. “We have a common saying in Portuguese which means, ‘Brazil is not for beginners.’ I can guarantee that this is also the reality” in other Latin American markets.

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Navigating a Land of Instant Payment Schemes

Passarelli said Brazil’s central bank is a key “protagonist” in the push for digital transformation in payments, but the movement is also being driven by “demanding consumers wanting to have access to those kinds of payment methods. For a company like Worldline, it’s mandatory to enable our global merchants to have access to such a relevant instant payment solution.”

PIX isn’t alone. Listing a litany of similar digital payment schemes dawning across Latin America, Passarelli said: “In Colombia, they have their own system called PSC, their instant payment solution. It became the most used payment method in eCommerce, with close to 35% of all online purchases in the country. In Chile, they have Webpay, and in Mexico [they have] SPEI.”

“Those countries have been pushing instant payment growth in Latin America,” he added. “I truly believe that instant payments like PIX are the future of the payments industry in Latin America,” especially given the fast money mobility and higher approval rates they offer.

It’s well-established that payment localization leads to higher approvals and more conversions, and Passarelli warned ambitious eCommerce firms that “just trying to replicate a model that works in different regions wouldn’t work here at all. I’m totally able to confirm that because I already suffered the pain of building two different startups in Brazil, and … I totally failed.”

That’s understandable. Citing a report on regulatory complexity in 190 different economies, he noted that Brazil is ranked 109 and Mexico at 54. The lower the ranking, the greater the red tape. And those two nations currently command about 70% of Latin American eCommerce.

It shows the work is still needed, and how adroit regional partners like Worldline can clear a path.

“We understand the local barriers and challenges in Latin America,” he said. “Therefore, part of our value proposition to global merchants that want to expand operations to Latin America is what we call the cross-border remittance solution that enables our merchants, our clients, to transact locally in Latin America with no local entity.”

“To have access to the whole range of local payment methods with higher approval rates compared to the traditional cross-border model is a pretty convenient solution that unlocks new markets for our global merchants,” he added.

Worldline’s single application programming interface (API) is the superpower behind that.

See also: Latam’s Booming Digital Economy Gets Lift From New Payments Models

APMs, APIs and the Future of Latam eCommerce

More companies outside of Latin America are leaning on Worldline as a trusted partner to expand more easily and profitably in a region where their products have a market, he said. But they have no skills in navigating the complexities of a region of contradictions, where 30 million people have internet access and smartphones, but large numbers remain unbanked.

“Through a global platform, through one single API that we offer to our global merchants, what we allow our merchants [to do] is to transact locally in local currency, for instance, BRL in Brazil,” he said. “We can convert from BRL to another currency such as the euro. Through [a foreign exchange (FX)] partner in the region, we are able to settle our merchants abroad in Latin America.”

This sidesteps the bureaucracy and local tax regulations while enabling more alternative payment methods (APMs), which he characterized as “totally mandatory in the region.”

“Alternative payment methods, defined as anything other than credit and debit cards, is around 39% of the digital commerce volume in Latin America,” he said. “In Brazil, APM is even higher. It’s 44%.”

“We have installments, which is a key component of the consumer buying experience as they increase spending power,” he added. “So, there are some components and some challenges that all merchants [entering] the region should be aware of,” and they won’t want to go it alone.