The State of Cross-border Payments in LATAM
With the transition of Latin America into the online world comes the growing usage of online payment systems with cross-border payments being a growing share. Latter help people pay for goods and services ordered in a neighboring country or even overseas, which mainly helps to facilitate a thriving trade network to strengthen the regional economy.
The adoption of alternative payment solutions has been accelerated
The LATAM Cross-Border Summit – a conference yearly held by all big players in the tech- and payment-industry – focuses on the upcoming challenges and ways to implement such systems to the benefit of all parties involved. The list of attendees names the who-is-who: AliExpress, Visa, MasterCard, Amazon, Microsoft and others, and it shows that now all eyes are on this region for an evolving payment landscape. A remarkable commitment has been made by Softbank, a Japanese strategic holding company focusing on transformative technology, that created a 5 bn. USD fund for LATAM to further the advancement of payment system technologies.
Just 10 years ago major players such as Visa and MasterCard dominated the cross-border payments market in Latin America and the Caribbean with Fintechs only just starting their endeavor to conquer the region. Latin Americans depend largely on the Brazilian real due to the currency being used by the population of the biggest country in the region. Brazil can be described as the Latin American trade window to the world and therefore is the most important market for cross-border payments in the region.
During the last years, the market penetration of e-commerce in LATAM has grown to just about 3% each in Mexico and Brazil, while other countries in the region show even lower numbers. In comparison, the US sits at 15% and China at 22%. Although there is significant progress in that regard, the low numbers show a huge potential to be harvested in the coming years, especially for LATAM that is about to catch up quickly. Currently, LATAM accounts for 0.2 tn. USD in revenue of global payments. EMEA sits at 0.4 tn., North America at 0.5 and Asia Pacific is the biggest region with 0.9 tn. USD. LATAM, while still being the smallest force, shows the biggest growth besides APAC. In terms of cross-border payments, LATAM accounted for 5% of all transactions. The region can be characterized as credit-card- and liquidity-driven, according to the 2020 McKinsey Global Payments Report.
Mobile payments on the rise
A BNY Mellon report breaks down the current usage distribution of different payment solutions in LATAM: 4% of the banked population uses direct debit, 8% cash on delivery, 10% e-wallets, 13% bank transfer, 47% cards and 18% other forms. Overall there is a 54% non-card-based usage. The development progress from 2012 is notable: 43% alternative payments 8 years ago and 59% in 2017. The last number even outperforms the usage profile in EMEA where there is only a 54% non-card-based usage. Through this profile we see the ongoing shift towards mobile based payment systems.
Although cash usage will continue to play an important role in everyday payments, mobile wallets such as PLIN and Yape acquired over a million users since the end of 2019. The pandemic has clearly accelerated the adoption of such services. Additionally, it has been observed that 62% of Brazilians use their smartphone for international orders, so the potential of a growing number of users in the coming years is huge.
Overall the mobile financial service sector has seen big growth within the last 12 months, mainly due to the Covid-pandemic. Many banks have accelerated their efforts towards offering mobile banking and mobile network operators pushed for new partnerships to cover more consumers. Two milestones in that regard have been achieved by Télefonica which now works together with MasterCard, and the 2nd one being the America Movil partnership with Citibank.
It becomes apparent that progress has undoubtedly been made, but so far no major step has been taken towards making mobile payments suitable for the masses. A likely hindrance for the slow progress in that matter is the splintered regulation landscape in Latin America, with the result of a diverse set of processes and practices being implemented by financial service providers, so that micro-ecosystems for payment solutions evolved, maintained by all the bigger finance and telecommunications companies.
Another worrying circumstance is Latin America’s banking infrastructure. It was not created with mass global payments in mind. The local service providers face difficulties implementing cross-border payments. As all over the world, organizations that want to make international payments to and from their customers want to ensure that their transactions are carried out in the most secure and efficient way.
PayRetailers has been active to implement many mobile-based services such as the newly launched PIX Uno in Brazil and the biggest payment suite for cross-border payments available.
Contact us to learn more about your possibilities when partnering with us.