Worldwide expansion is the dream of any aspirational business, and one market that has the potential to be a goldmine for businesses is that of Latin America (LatAm) with over 200 million people in Brazil and 120 million in Mexico alone. However, the LatAm market is notoriously challenging to expand into successfully due to the vast range of regulations and preferred payment methods in the region – so how can an expanding business successfully conquer it and reap the rewards? One proven way is through partnerships with payment localisation services.
Understanding LatAm payment preferences
Traditionally, companies would simply look to translate their materials but this is often to quick to fail. Why?. Customers will only purchase from an international merchant if their payment preferences are accounted for and in LatAm, unlike the European market, credit and debit cards are not the #1 choice for most customers. Though each country is very different, generally, the payment preferences can be divided into two schools: bank transfers and digital cash payments.
Digital cash is popular in LatAm due to the unbanked nature of the region. A study by Beyond Borders in 2021 found that in Mexico, OXXO, a widespread cash-voucher that can be paid in more than 17,000 stores across the country, was the third most relevant payment the year prior. In Colombia, cash vouchers grew up by 17 per cent, and in Brazil, they totalled 15 per cent of the market’s volume.
These traditional and widespread local payment methods also grew in international eCommerce: back in Brazil, 68 per cent of consumers mentioned boleto bancário as their preferred payment method for cross-border purchases, according to a survey conducted by Beyond Borders 2020/2021. Nationally however, Brazil’s most popular payment method was bank transfers, with 60 per cent of the population using a bank transfer service called PIX.
Implementing payment localisation services
While PIX is currently popular in Brazil, other countries without such high rates of adoption mean that long term, companies face “losing a out on a big chunk of your consumers that will ultimately lead to less conversions,” said Jose Marti, Head of Global Sales at PayRetailers.
In order to get the most out of each country, companies would have to tediously work out the unique, popular payment methods in each country individually, work out the regulations surrounding the country, and then create a platform that could accommodate for all of these changes. Alternatively, merchants could use payments localisation services.
Describing the benefits, Marti said, “Each country operates like a different planet. We’re talking about a region that has over ten different currencies so each one of the markets has adopted its own version of PIX – a bank transfer service – for its residents: like SPEI in Mexico or PSC in Columbia. This is where the importance of having a platform like PayRetailers comes in as you’re tapping into all these different forms forms of payments that your consumers use in Latin America, through a single integration.”
Expansion into the region is often daunting due to the large number of country specific regulations that can often get overlooked accidentally. An example of this is in Ecuador: the country has a five per cent tax on any foreign exchange. Not many people are aware of this, but merchants must make sure they are registered correctly and paying the tax or risk getting in trouble. The benefit of a payments localisation service is this weight of this stress is taken off the shoulders of the merchants: they simply need to focus on delivering a product and the payments localisation service will ensure they are compliant with country specific regulations.
Ensuring Financial Inclusion
One of the many benefits of a payment localisation service is the outreach it provides. Looking at PayRetailers as an example, the company provides 250 alternative payment options in 12 different LatAm countries, acting as the single point of contact for 90 per cent of the payments sector. International merchants working with PayRetailers are able to have greater outreach to a typically underserved population, offering their services in a local and preferred way. There was a 37 per cent increase in online transactions in 2021, around $85billion, and experts have projected this to double by 2025. This in large parts due to online payment methods created for under or unbanked citizens, but means there is a huge market for merchants, if they have a means of processing local payment methods.
OXXO, boleto bancário, and 711 are all examples of payment methods created for the underbanked: those who have been unable to create a traditional bank account and as a result solely deal in cash. Upon buying something online with one of these services, the customer will be given a code to take to a physical location where they will then pay in cash, in turn triggering an API call to PayRetailers saying the user has paid. What this means? That someone who would have typically have been excluded from online services due to not have a digital bank account that could be charged, is now able to still make digital transactions, benefitting both the user and the merchant they’re buying from. Living in a cash society has not restricted them and they have still been given an opportunity to buy something online. “In Mexico alone, we have over 20 different forms of cash online solutions to make sure that everyone can participate,” said Marti.
Cryptocurrency: Friend or foe?
LatAm has been a driving force for promoting cryptocurrency legislation. El Salvador’s announcement of making Bitcoin legal tender, followed by both Brazil and Peru’s talks of following suit has made international news. However, not everyone in the region is in favour. Bolivia has completely banned digital currencies, meaning merchants with a crypto offering cannot benefit from that market. Whilst many believe the introduction of cryptocurrencies offers an uninflated price for goods, as one Bitcoin in LatAm is the same as one Bitcoin in Europe, the volatility has left countries wary.
A payment localisations service recognises the volatile nature of cryptocurrencies but takes the burden of each countries views on digital currencies, upon itself, meaning the merchant does not need to worry about it. Instead, the local partner has access to their own legal teams, compliance teams, and people working on country-specific products within each market, seeing these new payment options come in, including crypto. Should a country pass crypto-friendly regulation, the merchant will automatically become one of the first to integrate cryptocurrency options because of the dedicated local team in the region who study its market and regulations.
Though cryptocurrencies have the potential to act as an equilibrium for users across the globe, their volatile state and lack of regulation means they will unlikely be used as a replacement for fiat currencies any time soon. In the meantime, the best way to establish a foothold in the booming market that is LatAm is by using a payment localisation service, creating multiple avenues to previously unattainable consumers.