Apart from cash vouchers, local credit card schemes are a commonly used payment method in Latin American e-commerce, making up 62% of online payments.
These local card payments come with their own nuances that differentiate themselves from many traditional methods. A main reason for this was the difficult economic stretch in LATAM throughout the 1970s and 1980s. The region was under a period of transition away from military occupancy and government-run banks towards privatization.
This change led to high inflation rates, devalued currencies and a consolidation of the banking industry. Many state-owned banks folded or were absorbed by private banks. This triggered small credit limits and wider restrictions like disabling international purchases.
Because of these factors and lower credit card limits, many high-priced items became difficult to purchase for LATAM consumers. Thus, many merchants moved to offer installments to avoid the constraints of card limits, as well as combat low wages.
These can range from your standard installment to extreme cases of 48-month credit installments in Chile for common goods like a week’s worth of groceries. Lengthy installments on typical purchases may seem unnecessary for U.S. merchants but are essential to how many LATAM consumers pay. It should also be noted that because most LATAM card payments occur domestically, there became no need to incur costly fees for international cards like Visa or Mastercard.
So, in 2011, leading Brazil issuers partnered on a joint local card scheme, Elo, which now holds a significant market share. U.S. retailers need to offer access to these specific local card schemes, or risk missing out on a majority of the LATAM market.
So, it’s clear: Offering the preferred payment method is essential to converting customers in LATAM. But the diversity of each country’s market makes this easier said than done. For example, in the U.S. or EU, it is a simple process to connect to a card acquirer, and while it's improving in Brazil, this process is still fairly slow and unaccommodating for foreign merchants. Another example can be seen in Peru, where connecting with consumers is tougher because just 43% of the population is banked and only 12% have a credit card.
Further, in Latin America, merchants must be domiciled in order to reach the market’s consumers. This means establishing entities in the countries where they are looking to offer their products and services. Each market has its own rules, regulations and technical nuances that make increasing sales a difficult undertaking.
A combination of these factors can make entry into this region difficult for merchants, but not impossible. With the right payment partner and local expertise, retailers will start to see increased sales in this region. LATAM consumers want to shop with global merchants, but only if they are able to meet their payment needs. This could mean offering preferred local payment methods in the region. The opportunity is clear as payment innovations in the region will only continue to connect LATAM to the rest of the world. The question is, will merchants be ready to take advantage?
