High levels of internet penetration in Latin America are helping e-commerce grow at an incredible pace. Still, the region is fraught with difficulty for international merchants looking to take advantage of exciting opportunities. Evolving regulatory frameworks, such as maximum chargeback rates limits of 1%, are some of the many challenges international merchants face when expanding to the region.
In the upcoming months we will discuss each subject individually to give you a better overview of doing e-commerce in LATAM.
Research conducted by Ipsos MORI for PayPal shows that just over a third of online merchants based in the US offer their products and services for sale internationally (36%), with Canada being by far the strongest foreign market, accounting for 41% of international e-commerce revenues. Europe was the busiest region outside North America, representing a quarter (25%) of foreign revenues.
By contrast, Latin America accounts for just 12% of US providers’ international e-commerce revenues, meaning they make almost four times more selling to Canada’s 32 million internet users than they do from over 378 million potential online customers located beyond their southern borders.
But why do international merchants struggle to access such potential?
A small part of the answer lies in these being less mature e-commerce markets. Half of the population is unbanked, making it difficult for e-commerce merchants to sell their products online and 70% of these e-commerce transactions are only possible through locally issued cards. However, e-commerce consumption is expanding at a great pace in places likes Brazil, Argentina, Mexico and Colombia.
Worth $57 billion in 2016, Statista expects Latin America’s e-commerce market to exceed $90 billion by the end of 2020, a great opportunity for international merchants.
We can identify three types of challenges that merchants face when expanding to the region:
- Access to local payment methods
- Financial services and payment features
1. Access to local payment methods
The first major hurdle to overcome is that of access to local payment methods, something that most merchants selling into Latin America don’t fully appreciate.
PayPal’s research shows that 58% of US merchants operating internationally offer just one price in one currency for all markets. This is a significant problem in Latin America as less than a third of shoppers have access to international cards that can process foreign currencies. Two in every three cross-border transactions have to be abandoned at the check-out stage because payment cannot be completed.
To overcome this challenge it is vital vendors offer popular local payment methods. 70% of e-commerce transactions in the region are completed using cards that process only in local currencies, or through a range of alternative methods such as Boleto Bancário in Brazil, a voucher system that allows cash to be used for making payments online. Simply making local payment methods available can deliver a threefold revenue increase from consumers in Latin America.
2. Financial Services and Payment features
In order to process locally issued cards, merchants need to partner up with payment service providers (PSPs) that are directly connected to local acquirers. This will provide them with access local payment methods and a range of unique payment processing features that can help with fraud management.
For example, friendly fraud is very common in the region and chargeback alerts are a very valuable tool for e-commerce merchants in Latin America. They avoid costly, time-consuming processes by providing merchants with the opportunity to react to a potential chargeback before a cardholder submits a dispute. Acquirers can assess whether a transaction has high-risk of becoming a chargeback and notify the merchant immediately. Merchants then have the option to refund transactions before they are disputed and reduce their chargeback rates.
The third major challenge associated selling e-commerce services into Latin America is that of regulation. There are at least six different regulatory landscapes that merchants need to understand and navigate with differing and complex tax arrangements.
Concerns about fraud risk and compliance with a range of local market regulations mean many merchants continue to focus their international social media and search engine optimization activities towards Canada and Europe, locations they are more familiar with and in which they feel more comfortable operating.
But by focusing only on more established, slower growth locations, many e-commerce merchants seek only to expand in the most saturated and competitive markets, and are experiencing diminishing returns from their international efforts as a result.
What is the impact of going local?
The Latin American e-commerce market is growing rapidly and there is significant demand from consumers there to buy US products and services online. Barriers such as access to local payment methods, potential payment fraud and complex regulatory requirements can be overcome relatively easily by partnering with an organization such as allpago.
allpago provides access to relevant local payment methods alongside industry-leading levels of security and integrated risk management systems to help merchants improve conversion rates, boost revenues and run compliant e-commerce operations in Latin America.
When switching from international to local processing, merchants can expect to improve authorization rates by up to 60% for initial payments and 25% for recurring payments in Brazil. In Mexico, we’ve seen merchants improve authorization rates by 26% for initial payments and 87% for recurring payments. Find out more about doing business in Latin America by clicking HERE.
allpago (www.allpago.com) is a leading payment service provider for Latin America, enabling e-commerce merchants and payment providers to accept all relevant local payment methods through a single platform and API. allpago’s state-of-the-art technology and regulatory knowledge are used by merchants including Art.com, BMW, Getty Images, McAfee, Paylogic, Symantec and Teamviewer to maximize conversion rates and ensure compliant transactions with customers in Latin America, and as a ‘last mile’ payment interface by leading payment companies around the world such as Zuora, ACI Worldwide and Wirecard.
Gartner featured allpago as the only Latin American Provider in the global “Market Guide for Digital Payment Gateways and Payment Service Providers 2016.” allpago is headquartered in Berlin with regional offices in São Paulo, Mexico City, Bogota, Buenos Aires and San Francisco.