Fueled by alternative payments, online retail is still running strong in Latin America

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This is Payments & Beyond, a biweekly newsletter that will bring together news, data, reports, and insights on what's happening in the payments industry and digital commerce globally, taking a closer look at the world's fastest-growing verticals such as streaming, online games, creator's economy, SaaS & cloud, and retail.

Fueled by alternative payments, online retail is still running strong in Latin America?

In the last three years, we've seen digital commerce flourish in Latin America, turning the region into the fastest-growing market for verticals such as SaaS/Cloud and Digital Ads. But, in a landscape where new industries (at least in the region) are skyrocketing, online retail, the largest and most established vertical in digital commerce in Latin America, continues to grow strongly – in 2022, it was expected to expand 43%, according to data from Americas Market Intelligence (AMI) featured at EBANX 's Beyond Borders study.?

This is really awesome. First, because online retail is mainly made up of small and medium-sized businesses. This means more business, more jobs, and more diversity for consumers. "In general, retail has a bigger potential supply, because it has more merchants to become digitized. It's an industry with a huge plurality," said Lindsay Lehr , Payments Practice Director at AMI. And, second, because, besides being the fastest-growing digital vertical in more mature markets like Brazil, Peru, and Argentina, retail is also pushing e-commerce adoption in Bolivia, El Salvador, Paraguay, and the Dominican Republic.?

The same plurality is reflected in how consumers pay for purchases: retail holds the largest share of Alternative Payment Methods (APMs) in Latin American digital commerce, with 45% of online purchases being made with APMs, while the average for the overall digital commerce market was at 37%.

When it comes to which alternative payment is most popular in online retail, we have a plural landscape again: account-based transfers have a 16% share, considering Brazil's Pix; cash-based payments, such as vouchers or the so-called boleto, account for a 13% share, and wallets, 11% share.?

As Latin America is a big and diverse region from several aspects, for sure there are some differences in customers’ preferences across LatAm's online retail. In Brazil, for instance, Pix (25%) and boleto (22%) are the most common alternative payments; in Colombia, the instant transfer PSE has a 37% share; and in Argentina, where Mercado Libre (and its proprietary e-wallet Mercado Pago ) reigns on online retail, digital wallets account for 35% of the sales.?

This broad variety of payments is a sign of maturity from the industry, with many retailers investing in their own financial solutions and driving the adoption of digital wallets and other closed-loop payment options in order to capture the consumer.?

And yet… there's still a lot of room for growth

Despite its massive volume, online sales still represent only a small fraction of total retail purchases in Latin America. According to Insider Intelligence , the e-commerce share for retail sales is now at 12%, compared to 15% in North America and Europe, and 28% in Asia. But, to have an idea of how fast this industry is growing, let's remember that in 2019, before the pandemic, retail e-commerce represented just 4.9% of the region's total retail sales, as read at Beyond Borders.?

This means there is a lot of room (and appetite) for growth. According to forecasts by AMI, online retail sales should grow by 26% per year through 2025 in the region, reaching USD 360 billion in sales. And, said Lehr, most of this growth will come from small and medium-sized businesses starting to sell online.?

In this scenario, payments are a kind of antidote against digital commerce deceleration, representing the success or the failure of an online retailer. A recent survey with online shoppers in Brazil, for example, shows that 17% of them have abandoned their shopping carts because the website or app didn’t offer a payment method they would like to use. This is why APMs are important to keep retail growth in Latin America.

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To keep an eye on: Brazilian consumers' habits are towards digital, Elo report

In the last 12 months, the Brazilian consumer's preference for online purchases jumped 26%. The data is from a recent report [in Portuguese] released by Cart?o Elo , a card issuer with more than 43 million active cards in Brazil.?

The report also shows that Brazilians with lower income spend an average of BRL 59 per online purchase, while the middle class and the richer people (based on Elo cards with higher limits) spend an average of BRL 199 per purchase.?

The range of products and services that Brazilians access online is wide, from travel and tourism to ride-hailing apps. Online transactions for mobility, in fact, represent 40% of the total volume of transactions made by Elo in the last 12 months. On the other hand, because they are generally of a lower value, they represent only 7% of the transacted value through digital purchases.

Another highlight is the upturn in the travel sector. According to Elo, the value transacted by this industry grew 48% in the last 12 months.?

85% of Elo customers used their credit card as a payment method for travel purchases. This Brazilian consumer preference for credit cards is largely due to the possibility of paying in installments for high-value purchases and is a strong trend. In addition, the preference for digital channels has also grown, with a 99% increase in online travel spending versus a 10% increase in in-person sales channels.?

The recovery of the travel sector, and especially online travel, is a trend seen throughout Latin America, as we also showed here .?

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Data and some food for thought

Up to 303 million creators worldwide

According to a recent study by Adobe , the number of content creators worldwide is already up to 303 million, of which half joined the creator economy in the last three years.?

As a young industry, it is difficult to measure the creators' economy exact size, how much it will grow and value, and how its workers will perform in the coming years. Insider Intelligence points out that, although brand sponsorships will remain the main revenue source for creators in 2023, many of them plan to be more than influencers , but create their own brands.?

In any case, one thing seems clear: the creators' economy has a long growth path ahead of it, following the expansion of digital commerce worldwide. And well, payments is an important foundation for this industry to accelerate.

WhatsApp payments to businesses in Brazil

Last Thursday (March 2nd) the Central Bank of Brazil approved payments to companies via the messaging application WhatsApp (from Meta) in the country, where it has more than 147 million users ( Statista ), adding to the already existing local P2P feature in the payment system. Once it is live, the feature will require users to register a debit, credit or pre-paid card. This new P2B payment option could potentially help leverage the use of debit cards in the digital commerce in Brazil, as this news story from ESTAD?O [in Portuguese] shows. Debit cards currently account for 1% of the country's total online sales volume, according to data from AMI in Beyond Borders study , whereas account-based transfers (the instant payment Pix included) represent 24% of the volume, and digital wallets, 11%.

Alphabet's spin off

Speaking of the creator economy – but not only, since it kind of operates at the intersection of content creation, video streaming, and gaming –, should Alphabet's YouTube company become a spin-off from its parent company? According to this analysis published in The Economist , it could be a really big deal for the platform , which could worth more than Netflix, considering its ad sales and subscription revenues.?

Online shopping gamification

Turning the shopping experience into a game (the so-called gamification) as a way of boosting purchases is a popular strategy in the gigantic Chinese digital commerce market. Now, Temu, the US-based sister company of China's Pinduoduo, is leveraging the same strategy in the United States very successfully – in six months, Temu's app was downloaded 24 million times – as this article from the Rest of World shows.?

That's all, folks, see ya!