Hit hard by the pandemic, LATAM went through major changes in online sales during 2020–2021, and now new opportunities are arising. This article elaborates on how foreign merchants can benefit from LATAM’s innovative, fast-paced ecommerce scenario and the role payments play in that.
For outside lookers, it might come as a surprise to notice how innovative and fast-paced Latin America is when it comes to digitalisation, especially when we’re talking about ecommerce. Already a habit for many citizens of the region long before the pandemic hit, COVID-19 restrictions and the need for social distancing led many other LATAM consumers to turn to online shopping. Thus, the segment grew significantly during 2020 and 2021 and is now preparing for a post-pandemic reality where online shopping is a daily routine for most industries.
Retail and digital goods were already rising steadily, but the pandemic accelerated this process: between 2019 and 2020, the sectors grew respectively by 44% and 50% in total sales volumes in Brazil alone, according to BoaCompra’s white paper ‘Brazilian E-commerce and Payouts in 2021: A deep dive into Brazil’s e-commerce and payout landscape’. In 2020, retail reached USD 42 billion in sales, while digital goods went up to USD 53 billion.
Digital goods growth was driven mainly by entertainment (mostly streaming and online gaming) and online education, which became high necessities for people needing to do both work and leisure from home. Meanwhile, another trend that drove ecommerce in the last few years was the expansion of the product types Latin Americans buy online. After all, the pandemic brought new needs to our homes, increasing the demand for exercise, healthcare, groceries, home office ecommerce options, and much more.
However, you’re mistaken if you think this pandemic trend should stop once people can resume their normal routines. Latin Americans are used to doing pretty much anything online like previously stated, and social distancing increased the variety of products and services offered digitally tenfold. Anything can be ordered, purchased, or hired with a few clicks, and this will only grow faster and faster – Latin America’s ecommerce market should grow at a CAGR of 31%, reaching USD 611 billion by 2024, according to Americas Market Intelligence (AMI), which conducted BoaCompra’s white paper.
The data is clear: LATAM’s digitalisation is not a passing trend.
This consumer base is so eager to find innovative ecommerce practices with competitive pricing and vast product variety that they are willing to shop internationally. It’s true that cross-border sales fell considerably during the highest points of the pandemic since Latin American national currencies were fluctuating a lot, and businesses suffered from supply chain issues.
While benefits and opportunities from the pandemic period should continue, the challenges will of course subside – after dropping by 13% in 2020, cross-border ecommerce in Brazil is expected to make a speedy recovery and even grow faster than domestic sales. AMI predicts domestic ecommerce will keep growing at a 30% rate in the next few years, with cross-border sellers going even further and reaching a 33% growth rate.
Brazil is the biggest and most innovative market in the region, often leading the way for LATAM trends, so the same cross-border ecommerce growth can be expected in other countries as well.
Disruptive sellers from the US and China are behind most of this success, highlighting the fact that Latin Americans will buy from anywhere in the world when merchants provide what they are looking for. Besides competitive pricing and product variety, this includes a smooth shopping experience, from purchasing to delivery. Here, payment methods play a significant role.
We interviewed several merchants from all sectors that use BoaCompra’s solutions for the white paper, and almost all of them share the same opinion: offering local payment methods and local currencies when selling to Latin America is a game-changer. Remember the currency fluctuation mentioned before? It makes shoppers wary of the final price they will actually pay for a product or service bought from abroad since their national currency could devalue (thus increasing the final price) by the time the credit card bill payment is due.
Paying more than expected for an international purchase is a common occurrence for Latin Americans, which explains why they prefer to buy from a merchant that sells in their local currency. This transparency and certainty about how much they will actually pay makes consumers much more prone to finalising the purchase and to buying again from you.
When it comes to local payment methods, Latin America is a complex, vast, contradictory landscape. While traditional methods are still widespread, each country is undergoing its own financial innovation process, with Brazil leading the way with solutions such as instant payment method Pix, already used by 60% of the country’s banked citizens and showing a 41% monthly growth in transaction volumes since its launch in November 2020.
However, merchants aiming to reach the full consumer base of the region should also know that domestic-only credit cards accounted for 33% of ecommerce sales in 2021 and should rise to 37% by 2024, while internationally enabled credit cards represented only 23% in 2021, a market share which is expected to fall to 22% until 2024. Besides, paying in instalments is a preference for most Latin Americans, representing 30%–60% of online sales, depending on the segment and purchase size.
Cross-border merchants can find in Latin America, not only in the leading markets Brazil and Mexico but in the whole region, plenty of opportunities for taking ecommerce sales to the next level. Sellers that understand the expectations, necessities, and peculiarities of these high-consuming, digital-savvy clients can jump in on the major evolution ecommerce will go through in the region now and in the next few years. This can be achieved by counting on a local partner to open up the local payment methods landscape and process transactions smoothly, securely, and fast.
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 Alain Delcourt
Alain Delcourt is Managing Director at BoaCompra, a PagSeguro company. He has 20 years of expertise in ecommerce, payments, and digital goods distribution in Latin America. Prior to BoaCompra, Alain co-founded several ventures, which turned him into a versatile executive known for building multicultural teams and highly collaborative work environments.
About BoaCompra
With over 17 years of experience, BoaCompra is a cross-border payment platform that enables worldwide merchants to access Latin America by accepting local payment methods and local currency, with no need for a local entity. It also allows single/mass payouts to Brazilians in local currency instantly with no banking fees. BoaCompra is part of PagSeguro, a disruptive fintech company driven by robust and consolidated infrastructure and capital.
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