As consumer behavior and economies change, it’s natural that new forms of payments arise. One of the biggest trends in worldwide payment habits is Buy Now, Pay Later, also known as BNPL. However, this short-term financing model – which moved USD 100 billion around the world in 2020 – hasn’t gained much traction in Latin America. Why?
While BNPL represented 2.1% of global ecommerce in 2020 and is expected to grow to 4.2% by 2024, the numbers are much less representative in Latin America. According to BoaCompra’s Digital Renaissance in Latin America white paper, BNPL summed up only 1% of total ecommerce in the region in 2021, and should reach 3% by 2025. It is present in Latin America, but at a much smaller fraction than in other regions.
But let’s first understand why Buy Now, Pay Later is rising around the globe.
The practice of buying now and paying later is nothing new, dating back to the 19th century, with accounting journals and other paper-based methods. It evolved over the years and in Latin America, it has always been popular. With financing through payment books and credit card instalments, customers in the region are accustomed to breaking up purchases and paying for them in a period from a few months to two years.
Buy Now, Pay Later differs from other similar payment methods mainly because of a few factors: the use of artificial intelligence (AI) and data analysis, and the fact that it does not require a credit card or even a bank account.
AI allows BNPL to approve (or decline) in a matter of seconds, and analysis is conducted by the merchant – not by a financial institution, as in other types of financing. Furthermore, by not requiring a credit card, even unbanked consumers have access to higher-value goods. If the consumer does have a credit card, they may also prefer to use BNPL if their credit limit is low.
Buy Now, Pay Later is a payment method that can considerably impact purchasing power, opening up businesses to a wider consumer base with data intelligence, security, and the reliability of BNPL technology. Monthly payments can be made through a bank transfer or a digital transfer, and instalments usually go up to 48 months while the merchant receives the entire amount up front.
Paying in instalments is much more common in Latin America than in the US or in Europe. As Latin American countries are by and large still emerging countries, with a high rate of marginalised people, inequality, and lack of access to financial services and consumption, instalments are a way of increasing access and allowing consumers to buy items and services that would otherwise be unattainable.
Credit card instalments are a popular option, but inaccessible to many. Either due to a low – or no – credit limit or to the lack of a bank account, Buy Now, Pay Later is an alternative for people who wouldn’t have access to the possibility of breaking up expensive purchases through these channels, however, the adoption is slow across the region due to prevailing payment norms.
It’s not surprising that the Latin American country with the highest share of Buy Now, Pay Later for ecommerce is Brazil. Brazil is the region’s giant, the biggest market both in terms of people and sales volume, a country where online sales grow exponentially year by year – and with 69% of citizens that do not own a credit card. In 2021, BNPL represented 1.5% of all ecommerce, with expectations of reaching 3.8% by 2025.
Brazil’s numbers are similar to worldwide BNPL rates, but much higher than the rest of Latin America: Mexico also has a 1.5% 2021 rate, expected to also grow to 3.8% by 2025, and some other Latin American markets – Argentina, Chile, Colombia, and Peru – have virtually zero penetration of Buy Now, Pay Later in ecommerce. Check out the exact percentage of BNPL in 2021 and predictions for 2025 from BoaCompra’s white paper.
Buy Now, Pay Later in Latin America, percentages of ecommerce sales in 2021 and predictions for 2025
This lack of market share is not only due to credit card instalment penetration, but also to different payment habits as a whole. In Colombia, for example, the most common form of ecommerce payment is bank transfers (40% of the total volume), much higher than Latin America’s average of 13% – and in most other countries, credit cards are the preferred payment method.
The key for merchants is understanding that while there are worldwide payment trends, each country has its own habits, and Latin America has many nuances. Expecting Latin American consumers, a substantial 256 million online buyers, to pay in the same way as consumers from the US or Europe would be misaligned with consumer expectations and behaviour.
The Latin American region has incredible potential for international merchants, and partnering with an expert in the region to understand the full complexity of the payment landscape is critical for success.
Leading Enterprise Sales and Business Development for BoaCompra by PagSeguro’s North American market, Carol Ann brings over 15 years’ experience as a Sales leader in Global Payments and SaaS, specialising in Strategic Enterprise Sales, Go-To-Market Strategies, Business Developmentm and Global Sales Management.
BoaCompra by PagSeguro is a local payments platform that enables worldwide merchants to accept local payments in LATAM or send payouts to Brazil. A one-stop payment solution that offers local processing in local currency with local or international set-up in 17 LATAM countries, BoaCompra is part of PagSeguro, one of the biggest fintech companies in LATAM and a disruptive provider of financial technology solutions driven by robust infrastructure.
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