By Gustavo Ruiz, President, Latin America, Paysafe
In Latin America, alternative payment methods (APMs) are becoming increasingly popular. But why is this the case, and how can merchants tap into this opportunity—catering to millions of Latin American consumers to flourish now and in the future? Worldwide, consumers’ payment preferences are changing, driven by everything from their greater demands for convenience and security to their desires to have clearer cost controls while spending online.
To achieve these goals, consumers in Latin America have embraced APMs, diversifying how they spend their hard-earned money, using traditional means such as cash and direct debit but also real-time bank transfers, eCash and more. In response, merchants can benefit from offering broad payment ecosystems, empowering their customers to pay however they want, including using digital wallets such as Skrill. By providing this breadth of choice, merchants in the region can meet and exceed consumers’ expectations. But what should this payment mix look like?
Read more to discover how merchants can better serve Latin American consumers by offering a diverse payment mix.
An evolving payment landscape
As the payment landscape in Latin America has evolved, a boom has occurred over the last 10 years. With the record growth of e-commerce across the region and the adoption of digital payments, Latin America is now seeing a surge in the usage of APMs.
As reported in Paysafe’s “Lost in Transaction: Consumer Payment Trends 2023” research, in which we surveyed 14,500 consumers in Latin America, North America, Europe and the United Kingdom, Latin American respondents were the biggest adopters of alternative payments. The research found they were more likely than respondents in other countries to feel comfortable leaving the house without physical wallets, and they were also the most likely to believe mobile wallets would fully replace cash within the next 10 years.
Diving deeper into the findings, Peruvians were the heaviest users of mobile wallets, with 67 percent relying on them for everyday purchases. They were followed by Argentinians (66 percent), Brazilians (65 percent), Mexicans and Colombians (63 percent) and Chileans (56 percent).
A number of factors are contributing to these changing consumer payment habits. Continued innovation within the fintech (financial technology) sector, local regulatory developments and innovations, and accelerated digitalisation during the pandemic drove this growing dependence on new payment methods. As a result of these changes, businesses have quickly adopted new tools and digital alternatives to meet the changing needs of consumers. Notably, in Latin America, digital wallets, such as Skrill, have become increasingly popular, with more merchants adding them to their broad suites of payment choices to cater to wider audiences.
Latin America’s payment industry goes digital
The payment landscape in Latin America is experiencing a shift in consumer behaviour that is contributing to the growing adoption of several payment methods. Internet and smartphone use has grown steadily over the last 10 years, accelerating e-commerce. And besides consumer movements, regulators have also contributed. The two major regional digital-payment frameworks, CoDi in Mexico and Pix in Brazil, have incentivised faster, simpler and more secure digital payments. Instant payments were already present in Mexico, but CoDi significantly simplified and improved them, providing merchants and consumers with accessible and instant payment options. In Brazil, Pix has strongly encouraged consumers to go digital and challenged traditional payment methods. Digital wallets have benefited from this, creating opportunities for different customer experiences.
While the region still has room to grow in financial inclusion, both of these frameworks, along with Transferencias 3.0 in Argentina and others, have revolutionised accessibility to digital payments, benefiting considerable portions of the region’s population. This boom has prompted the creation of many solutions, such as payment gateways and various interbank initiatives.
Younger consumers are driving the adoption of APMs
More than half (58 percent) of the population in Latin America consists of young adults (18-29 years old) and middle-aged adults (30-44 years old). Overall, compared to Europe, North America and Asia-Pacific, this is a younger population, which is typically tech-savvy and more open to adopting new habits.
Notably, the International Monetary Fund (IMF) estimates that around three-quarters of Latin America’s 300 million digital-payment consumers and 30 million digital-banking customers were previously unbanked. Because the companies through which these customers have gained access to cards and other payment services are digital-first, they’ve essentially leapfrogged plastic and gone directly to mobile wallets. This isn’t necessarily the case across the board, however. While Brazil and Mexico have started their journeys to digitalisation, other countries in the region, such as Peru and Colombia, still have only 57 percent and 60 percent of their populations banked.
This means that while smartphone adoption is high and digital payments are possible, cash remains the main payment method in Latin America, with more than seven out of ten transactions being conducted with cash. This creates an opportunity for eCash, a digital cash solution that enables consumers to buy online and pay in cash at local retailers, stores and agents. The “Lost in Transaction: Consumer Payment Trends 2023” report found that eCash had grown across regions, but it was most popular in Latin America, particularly in Colombia and Brazil, where 50 percent and 38 percent of respondents, respectively, who used it in the previous 12 months stated it was their preferred payment method.
This is perhaps unsurprising, given Latin America’s long-standing tradition of voucher-based payment systems. Brazil’s Boleto Bancário and Mexico’s OXXO, for instance—both systems that enable consumers to scan barcodes in-store and pay in cash—have been around since the 1990s. For consumers looking to enjoy the security of cash while still embracing the shift to online transactions, eCash may be the answer.
Alternative payment methods are gaining popularity
When looking at digital transactions, such as peer-to-peer payments, real-time bank transfers have the highest value of all payment methods in Latin America. In terms of volume, cards (debit and credit) are the most popular non-cash method in the region.
For bank customers, digital-wallet use has been growing annually; it was cited as one of the preferred payment methods by 41 percent of respondents in our “Lost in Transaction” study, while real-time bank transfers were specified by 40 percent of those surveyed. There are several reasons for the popularity of digital wallets—one of which is that they provide reassurances of security by enabling consumers to pay online without sharing financial details.
How digital wallets add value
As the payment landscape in the region matures and digital payments become the preferred transaction method, merchants need a reliable payment partner in Latin America. Through solutions such as Skrill, e-commerce merchants in the region can thrive, gaining support to implement a large variety of existing alternative payment methods in Latin America.
By offering many different payment methods, merchants can deliver benefits to their customers and improve financial inclusion by enabling them to pay in their preferred ways. Not only that, but they can expand operations and offer their services and products to broader ranges of customers to drive success in the near and long terms.