Latin America is poised to be a future “El Dorado” for e-merchants. While the region's share of global GDP is still below 10 percent, attractive growth rates and rising standards of living in the major Latin American economies are encouraging e-commerce and new services development.
Merchants wanting to enter these markets do face significant challenges, however, not the least of which is adapting to the region's unique and extremely fragmented payment landscape.
So before you embark on your Latin American e-commerce venture, here are the top 7 things you should know about getting paid.
Credit cards will only take you so far
For most e-merchants, international credit card networks are the go-to payment solution. It is an approach that is working well in markets like Europe and North America, where the vast majority of consumers has credit cards and is accustomed to using them for online shopping.
In Latin America, on the other hand, only one in three consumers owns a credit card. And even the credit card-holding minority might not be able to purchase from international websites like yours: in countries like Brazil, Argentina and Chile, credit cards are often only enabled for domestic use.
If credit card payment is the only option you offer Latin American buyers, you are effectively addressing only a small subset of your potential customers. Enabling local payment methods as a complement to credit cards is a must.
Cash is king
It might seem baffling, but it is true: In many Latin American countries, around 20% of total e-commerce volume is paid in cash.
How does it work? Upon check-out, the online store generates an invoice or voucher, typically with a barcode. The shopper prints the invoice and pays it in cash at a local network agent, such as a convenience store. The network confirms payment to the merchant, who can then deliver the goods.
Cash payments are part of the Latin American culture, as they are often used for paying bills like electricity, water, rent and government taxes. From a merchant point of view, they represent an opportunity to reach a larger audience, as cash payments appeal primarily to non-card holders and generally do not cannibalize credit card payments.
The idea may take some getting used to for merchants from other latitudes, but enabling cash-based payments for your Latin American shoppers can be easy and affordable — if you team up with the right payment partner.
Latin Americans love installments
Spreading payment for a purchase over multiple installments is an extremely common practice in Latin America, offline and online. It is especially true for high-ticket items like travel, but in some countries, consumers may also opt to pay in installments for everyday purchases such as clothing and even groceries. Around 60% of e-commerce purchases in Brazil and 40% in Mexico are paid using installment plans.
Installments help increase local purchasing power and allow merchants to sell to a broader audience. After enabling installments, we have seen certain merchants almost double the average ticket value and total volume of sales.
In order to enable installments you will need a local acquirer — or a payment partner with local experience that can connect you to all the relevant acquirers.
A local-language site is fundamental
It sounds obvious, but apparently it is not: your e-store must be adapted to local languages and shopping preferences. We have seen merchants starting to process in Brazil with a website in English, with predictable results: low conversion rates, high cart abandonment rates, and very frustrated merchants.
Spanish is the region's “lingua franca”, but to sell in Brazil you need a website in Portuguese. There are also small differences in the language used in different Spanish-speaking countries.
Design your checkout and payment process in a way consumers will be familiar with for each different country, including prices in local currency, checkout flow and required customer information.
Taxes are taxing
Latin American countries, and especially Brazil, have some of the world's most complex tax regimes. Indirect taxes also make up a considerable portion of most countries' tax revenues, and compliance is scrutinized accordingly.
Of course, laws and regulations are also different from one country to the next.
Thankfully, there are alternatives to managing confusing and ever-changing tax rules on your own. Worldline offers a streamlined and legally compliant business model where a local partner acts as the Merchant of Record, collecting payments on your behalf and ensuring local tax compliance in every country where you operate.
Go to market with solid knowledge
Latin America is distinctly different from North America and Europe in so many ways: purchasing power, buyer segments, preferred payment methods and most efficient marketing channels, to name but a few. Local holidays and events are also different, not to mention that the meteorological seasons in the southern hemisphere are the opposite of those in the north!
Before you make the decision to enter Latin America (or any new market, for that matter), it is fundamental to have a go-to-market strategy which builds on a solid understanding of every aspect of local customer behavior.
Local entities are not compulsory
Cross-border trading represents less than 20% of total e-commerce volume in all major Latin American countries. What's more, 70% of all e-commerce spend is made using a local payment method, and this spend is inaccessible to merchants who are not processing payments locally.
Does this mean success in Latin America will depend on your opening a local entity? Not necessarily. For some merchants, it does make sense, but it is a costly and difficult enterprise. And if you partner with Worldline, you do not have to.
Thanks to our innovative Money Remittance model, you can continue to trade cross-border with all the benefits of domestic processing. It enables you to connect to all the relevant local acquirers via one single, integrated interface, so that you can easily process local payments without even having a local bank account.
To learn more about optimizing your payment strategy for successful e-commerce expansion in Latin America, download "The smart e-merchant's guide to unlocking profit in Latin America".