Financial inclusion in Latin America: what does it mean for e-commerce?

Modern Latin America is home to over 600 million people across 20 nations. It has experienced colonisation, revolution, boom and bust, and today is one of the world’s most economically and culturally diverse regions.

Financial inclusion has been a priority for Latin American policy makers for the last five years, with governments across the region working to offer low-fee bank accounts, improve access to credit and encourage the development of mobile and e-banking in rural regions. The World Bank has said it’s aiming for universal access to financial services by 2020.

Successes

Banks accounts are a major step in this journey, and a key success thus far. The percentage of the Latin American population with a bank account has gone from 39% to over 50% in just the last five years.

Progress has been made in other areas, too. According to the IMF, the number of people with access to credit in Latin America more than doubled between 2003 and 2013. Recent reports show that 22% of the region’s population now has at least one credit card which, although it lags behind regions like Europe and North America, remains higher than the global average. These credit cards, however, are mostly local cards and cannot be used for cross-border purchases. If a merchant wants to sell into these countries, he needs to accept these local payment options in his web shop’s check out.

Challenges

While the proportion of the population with internet access is growing, inaccessible terrain means it’s difficult to connect broadband to some areas. This limits the potential for desktop transactions, which currently have a significantly higher conversion rate for e-commerce transactions than mobile devices.

The lack of credit card penetration is another challenge. Although this isn’t unique to Latin America (worldwide card penetration is just 18%), it still limits the growth potential of e-commerce. As a result, most countries in the region have developed local alternative payment methods such as local payment cards, cash payments, and bank transfer payment methods for online purchases.

Cash payments account for almost a quarter of all online purchases in Latin America. It usually involves the buyer printing a bill and taking it to a participating retailer, such as a shop, post office or bank. Once the buyer has paid the bill, the retailer logs the payment and the item is dispatched.

Implications for e-commerce

Currently, e-commerce makes up 0.8% of Latin America’s total GDP ($37.4bn) and is growing at an estimated 22.9% per year. Online sales don’t make up as large a portion of total GDP as regions like Europe (2.5%, $523bn) or North America (2.6%, $562bn), but Latin America still has around 300 million internet users – 135 million of whom shop online.

The growing popularity of mobile internet services (driven in part by poor penetration of fixed-line broadband), signals growing potential for mobile payment services. Over 400 million people in Latin America now own a mobile phone, and there has been significant regional investment in 3G services.

The market for e-wallets has also become increasingly competitive, now accounting for around 6% of the payment market in Latin America. Businesses are also exploring Bitcoin, with Ripio (ex-BitPagos) securing $1.9m in funding to promote financial inclusion in Latin America using the cryptocurrency. Their CEO Sebastian Serrano spoke to TechCrunch in January, revealing Ripio’s active user base had increased by 40 in December 2016.

To learn more about how e-commerce in Latin America could be relevant to your business, download PPRO’s Payments & E-commerce Report Latin America 2016.

Article produced in association with PPRO

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