To Win Consumers In Mexico, eCommerce Companies Play The Cash Game

Cash is the preferred method of payment across Mexico’s economy. In fact, cold hard cash is so vastly preferred that even the nation’s eCommerce market — typically the domain of digital payments — is not immune to this reality.

Last year, retail giant Amazon reportedly took the top spot among retailers in Mexico’s quickly growing online sales industry with $502.2 million in sales, nearly double that reported the previous year. Other retailers are also reporting an uptick in online shopping in the region. Argentinian payment processor MercadoLibre saw a 90 percent spike in online sales last year, taking in $489.2 million. Meanwhile, Walmart’s Mexican brand, Walmart de Mexico, reported $258.9 million in online sales of its own.

But with 90 percent of Mexico’s population preferring to make payments using physical currency, it has become vital for these eCommerce players to adapt to consumer preferences or risk alienating a sizable share of the population.

Introducing cash payments in a largely digital business model can be challenging, but eCommerce players are increasingly stepping up to the plate. They’re doing so by enabling customers to pay with cash and pick their goods up at various brick-and-mortar locations.

To gain more insight into Mexico’s cash usage and how it influences the country’s growing eCommerce market, PYMNTS recently spoke with Georgina Lara Sánchez, payments regional manager for Linio México, and Christian León, country manager for Mexico at MercadoPago, the payment processing division of Argentinian eCommerce platform MercadoLibre. Both noted the need to weave cash into consumers’ purchasing experiences, even if the transaction is digital.

Helping the underbanked shop online

Bolstering Mexico’s cash presence is its large under- and unbanked population. Roughly three-quarters of its adults lack a bank account and, for eCommerce companies, this means cash must be an available payment option for online shoppers.

Recognizing that cash acceptance is vital to doing eCommerce business in Mexico, both Linio and MercadoPago have introduced solutions that allow customers to pay for online purchases using physical currency. Both have enabled cash as a payment option and allow consumers to pick up and pay for their orders at nearby partner locations — like banks, pharmacies and convenience store chains such as OXXO and 7-Eleven.

While it may be more convenient for eCommerce companies to conduct business using credit cards and digital payment methods that quickly deliver money, Sánchez noted that incorporating cash remains a necessity.

“With credit cards, it’s very easy to complete a purchase that same minute,” she said. “[But] cash payments is a strategy that we need, and we know we need it.”

León agreed with the sentiment, emphasizing that accepting cash is crucial for eTailers to find their footing in Mexico’s economy.

“Cash is an option that we offer to include people that do not have a physical card or a credit card,” he said. “At the end of the day, what we are doing is [working] to include more [potential customers].”

The cash conundrum

But while the potential of growing the industry is obviously alluring, Sánchez noted that catering to a population that relies on cash can also carry risks.

When a consumer opts to pay for an online order using cash, she said, the merchant must set the product aside and wait for the payment to be delivered. If the customer changes his mind about the order and decides not to pay for it, or forgets that he ordered it, the merchant could miss the opportunity to sell the product to another shopper and may lose a potential sale.

“It’s like window shopping where you don’t have to commit your money,” Sánchez said.

Both Linio and MercadoLibre offer prepaid options to ensure cash shoppers fulfill their payments. Buyers can make cash payments at nearby locations before having their packages shipped directly to their homes, meaning cash and products are not present at the same time and location. The prepaid arrangement works to validate the payment process and protects both the buyer and the seller.

Sánchez noted that Linio offers both prepaid and cash on demand (COD) options for home deliveries. It also provides frequent communication about the delivery to the customer, including an estimated arrival time to avoid missed deliveries. This level of engagement encourages the customers to follow through on their purchases.

“For COD, the customer has to commit to be [home] and to pay with the exact amount,” Sánchez said. “It’s important to communicate to customers before they place the order that we’ll be in your house and you need to have the money available and wait for us.”

How cash factors into Mexico’s eCommerce future

Sánchez acknowledged that offering a wide range of cash payment options has been helpful in extending Linio’s eCommerce services and has encouraged new customers in the nation to take a chance on shopping online for the first time.

Many of these first-time online shoppers reside in Mexico’s rural areas, communities in which cash usage is higher than in urban centers and smartphone technology is only just beginning to take off. Meanwhile, in more populated urban areas, Linio is beginning to see an uptick in use of payment options like PayPal and mobile wallet services, in addition to strong cash usage.

While eCommerce in Mexico is still young, Sánchez believes it may encourage Mexican citizens to overcome their hesitations with newer payment options like credit cards and debit cards as it continues to grow.

“As eCommerce gets more traction in Mexico and becomes more popular, consumers will gain better understanding of how to pay and not fear it as much,” she said.

But a major paradigm shift toward payment options like credit cards will not happen overnight. In the meantime, MercadoLibre plans to expand its network of physical locations where cash payments for online purchases are accepted, according to León.

This type of investment will encourage more people to participate in Mexico’s growing eCommerce market. If these new online shoppers want to make their payments using cash, though, eCommerce companies will be under pressure to continue to enable the payment method.

“In the end, what we are doing here is to include more people,” León said. “We are trying to democratize eCommerce, and for that it’s important to offer cash payments.”