Ecommerce in the US vs LATAM

There are three specific areas that differentiate e-commerce in Latin America from the US - consumer trust, market size, and forms of payment.

Consumer Trust

Consumer trust is the most important factor for a successful e-commerce business. In Latin America, building trust is challenging due to cultural mistrust and scams being prevalent. It is more expensive to bring in first-time buyers in Latin America than in the US. Brands spend more on customer acquisition costs thinking of customer cohort retention, which is necessary for increasing customer lifetime value and profitability. However, fulfillment of "what we promised" is the deal maker or breaker for the second and subsequent sales, and customer experience plays a vital role.“Was the product up to expectations?”?That heavily relies on having the appropriate downstream fulfillment chain. Fulfillment not being an end state but a process that starts from the moment the buyer clicks “pay” and lasts until the buyer either returns the merchandise or, hopefully, repurchases.?

In this sense, the big difference in my opinion would be that Latam is still plagued by very bad customer experience and not doing enough to ease the anxiety of it′s customers. This is why companies like Amazon and Walmart with excellent customer service are taking over the market by storm. The US is definitely doing a better job, perhaps could be related to their more litigious nature in which if you don′t meet expectations, a bad review won't be enough but matters could escalate very quickly.

LATAM Market VS the US

The rapid growth of the LatAm e-commerce market since the pandemic has awakened deep pockets to the region's potential. This segment's market will reach US$ 200 billion by the end of 2025, while it represented only US$ 58 billion in 2019, the last year before the pandemic.

Other regions have also grown their e-commerce markets. But here’s the secret: the e-commerce penetration in the region is still relatively low. It should reach only 11,7% by the end of 2023, while the US percentage was at 20,8% in 2021.

What about the coming years??According to Mordor Intelligence, the Latin American e-commerce market is the global leader in e-commerce growth and is expected to grow between 19 - 30% yearly between 2022 and 2027, surpassing the global average of 11%.

However in 2021, retail e-commerce sales in the United States exceeded 360 billion. This figure increased to 431.4 billion in 2022. And it's expected to grow even further to 511.8 billion in 2023, 604.5 billion in 2024 and 710.42 billion in 2025.

Forms of Payment

A big difference, specially in the Mexican region, is that many people don′t have bank account and work in the informal sector. Some years ago, before the pandemic, cash preference hit 90% levels in Mexico alone. By 2018, cash based payments reigned in LATAM by having almost a sixth of the total online transactions volume and occupying the third position in the e-commerce payments ranking. This spurred the creation of many different forms of payment for ecommerce companies to get creative in order for people to pay online.

As you can see in the graphic above,?in the last years, debit cards and digital wallets have outranked cash-based methods in LATAM’s e-commerce.?In 2021, for example, digital wallets reached the top 4 payments on e-commerce and we can expect a greater decrease of cash based payments use in the future.

In the US this is vastly different as cash payments represent at most 1% of the total transactions. Given there is simply more people in the banking system and and a greater emphasis on helping the customer through their journey has made it easier to pay.

Overall, Latin America's e-commerce market has a long way to go to catch up with the US, Europe, and China, but its growth rate is faster. If the growth rate is maintained, Latin America may surpass other regions in the near future.Yet the future belongs to e-commerce merchants who can achieve a mobile-friendly, good user interface and content that Latin American online buyers will trust.There is much to discuss and there will be many changes in the future in both regions and I can't wait to be a part of it!