Cross-border trade in LATAM – embracing the digital transformation

Cecilia González, Professor and Mentor at Universidad ORT Uruguay: 'Cross-border transactions did not behave the same way as domestic ones, and there were many blocks on the road to a full digital jump.'

Context 

Almost two years have passed since we started hearing about a new virus that, at least at the beginning, was totally alien for some regions in the world, like LATAM. Leaving aside the negative impact that it brought globally, the pandemic has also opened many opportunities in South America, and it will continue to deliver new lessons for all of us. 

Being a payments sales executive in Uruguay by 2019 was not an easy task. When trying to sell a payments platform for online retailers and other businesses, there was a much bigger problem to be faced: they weren’t ready to discuss payments because they weren’t even ready to be an online shop. The most common perception amongst merchants was that there was no need for online selling. Being a small country, very traditional and sceptical about the usage of online payment methods and with expensive delivery costs, thinking about running an online business was totally overwhelming. So the conversation was more about evangelising and educating digital citizens. 

But then, COVID-19 arrived and pushed the entire ecosystem forward. Not even in their wildest dreams would local players have envisioned the rush they went through to survive. Other countries in LATAM, like Argentina, Chile, or Brazil, were ahead of Uruguay in terms of ecommerce development but they dealt with other challenges. 

Key trends and developments 

In any case, the paradigm changed for merchants across LATAM: some had to initiate their journey towards online selling, others had to improve their online solutions, and the ones that were more mature in the subject saw a great jump in their sales. Also, thanks to the ‘global shelf’ of social media, some retailers even closed their physical stores as we, consumers, peek and choose everything online, and then just ask for our goods to be delivered or picked up – we no longer check the products in-store to see if there’s anything that we want or need. 

But cross-border transactions did not behave the same way as domestic ones, and although ecommerce and digital solutions saw a great opportunity in the COVID-19 context, there were many blocks on the road to a full digital jump. 

Following some preliminary data, we know that international transport was one of the biggest challenges faced, especially air transport. Additionally, LATAM went through tough bottlenecks at border operations, an issue shared with other regions in the world that held back international digital trade. These complications make cross-border trade even harder, in a region where last-mile was already very expensive. 

LATAM is also known for its inequitable internet access within the same country (where it remains of low quality and expensive in many cases), low financial inclusion, and obsolete regulations. In terms of international trade, LATAM was the most affected region during the COVID-19 pandemic, with huge contractions in imports and exports. Postal shipments have been affected too, but express shipments were the exception to this decline in trade flows. 

Uncertainty about the future provoked a contraction in the number of online consumers. However, the main reason for this downfall in international trade was represented by the hot waters that maritime transport had to navigate. The number of passenger flights also decreased, and many airport calls were cancelled, with no future date to resume the service. On the other hand, digital services showed a spike in consumption, particularly the gaming vertical, followed by miscellaneous web surfing and social networks. 

Regarding payment methods, there was also a surge in the whole ecosystem, which became more democratic. A huge revelation was the usage of e-wallets, which allowed users to perform most of their everyday transactions from the comfort and safety of their homes: pay bills, top up their mobiles, send money P2P, and more. Companies also understood the business opportunity here, and they rushed to build financial platforms to provide these services. 

Within the payments space and specifically through mobile wallets, there are two other major trends worth mentioning: credit lines and social assistance for those who saw themselves in vulnerable situations because of the pandemic. Particularly in Uruguay, the government, together with public and private institutions, assembled a solution to digitise subsidies, a disruptive way to provide care and deal with COVID-19 social liabilities. 

Hold-ups slowing down the digital transformation 

For the past year and a half, digital transformation across almost every sector has been accelerated by COVID-19, and containment measures helped boost ecommerce and digital trade in LATAM. However, as we mentioned previously, some hold-ups slowed the pace for this transformation or, even worse, became challenges. 

For the sake of development and business continuity, several governments understood the necessity for action, and they built a framework to promote digital trade, in consonance with other governments as well: information and guidance were offered to micro, small, and medium-sized companies, public resources were allocated in the digital sector, and actions regarding logistics were also in place to help cross-border trade stay afloat. 

To finally crack the code of digital transformation and take advantage of it to overcome COVID-19, there are several areas where governments, academics, companies, and the entire society can contribute, and tight cooperation is needed. All these stakeholders should take action in at least one of the following recommendations, building a solid digital agenda for the next years. 

Understand how consumption habits changed. Whether because of necessity or desire, consumers switched their buying and paying preferences. 

Create and sustain a national policy on trade and logistics. Promote local and cross-border trade through national organisms (i.e. customs offices). 

Identify and minimise barriers, especially for the smallest companies. This would also benefit the most vulnerable segment of consumers. 

Educate digital citizens by fostering digitalisation at every level. In Geoffrey Moore’s words, be an ‘early adopter’ on new technologies and regulations. Lay on these new trends to support your goals of digitalisation. 

LATAM has always been a region of social and economic imbalance, and COVID-19 has emphasised this polarisation. However, it has brought about more consciousness and democratisation, and it is time to embrace technology as a way to not only survive, but finally stand out. 

This editorial was first published in our Cross-Border Payments and Ecommerce Report 2021–2022, which taps into the fast-growing cross-border market and provides a comprehensive overview of trends and developments that are pivotal in this space, being the ultimate source of information for ecommerce businesses interested in expanding globally. 

About Cecilia González 

Cecilia holds a bachelor’s degree in International Studies, and she has worked in international business development for more than ten years, focusing on payments and ecommerce. She is a Professor and Mentor at Universidad ORT Uruguay, currently undertaking a postgraduate degree in Data Analytics. 

About Universidad ORT Uruguay 

ORT is one of the most prestigious universities in Uruguay, focused on contributing to the development of the country through research and quality education. The university offers more than 75 degrees at postgraduate, graduate, and technical levels in many areas. It has also pioneered education through new technologies and degrees.