LatAm continues to enjoy a strong appetite for alternative payments

Alternative Payment Methods (APM) are becoming increasingly common in Latin America (LatAm) as digital commerce continues to grow.

When making payments, consumers in LatAm are increasingly choosing the alternative option; according to a new study from Brazilian fintech EBANX.

The study, titled ‘Beyond Borders 2022/2023‘ delves into the most current payment trends emerging from the region, as well as how these trends are transforming the digital commerce landscape.

Findings show that by the end of 2022, APMs now retain a 39 percent share of total digital trade volume. The value of this share is described in the study to be worth around 400 billion dollars.

The study also notes that while APMs are increasing, the use of credit and debit cards continues to fall over the past four years.

As the data indicates, the three LatAm countries that use APMs the most for digital commerce are Colombia, El Salvador and Brazil. In these countries, APM has reached peaks of 50 per cent, 49 per cent and 44 per cent respectively.

Diversity and digitalisation

The region’s increase in APMs can be strongly attributed to increases in digitization and financial inclusion.

Consequently, between 2011 and 2021, the percentage of Hispanics with a bank account increased from 39 percent to 73 percent. But only 28 percent have a credit card. It is here in the gap between these two statistics that APMs have found a unique opportunity.

The rapidly growing alternative payment landscape in LatAm is being shaped by diversity and increasing accessibility. This is evident with account-based transfers, such as Pix in Brazil and PSE in Colombia; e-wallets, such as Ualá in Argentina; cash-based payments, such as OXXO in Mexico; buy now pay later (BNPL) solutions, such as Sistecredito in Colombia and others.

Alternative payments with real-time verification are booming

Among the most common APMs in the region’s digital commerce, account-based transfers have proven to be a real success story.

Consequently, the last analysis is from Americas Market Intelligence (AMI) shows that these transfers have roughly doubled in volume over the past five years, growing at an 86 percent CAGR since 2018.

LatAm remittances are forecast to top $68 billion in volume by the end of this year. Columbia is expected to have the largest share with 30 percent of the total digital trade volume. Brazil follows Columbia with 24 percent, followed by Guatemala with 11 percent and Chile and Bolivia with 10 percent each. And by 2025, the total payment volume for account-based transfers is expected to reach $121 billion.

Technology is coming to a head

Two major players are credited with the growing momentum of LatAm’s account-based transfers. These include Pix in Brazil and PSE in Colombia.

Developed by Central Bank of Brazil, Pix represents around a fifth of all online purchases in Brazil made this year. APM has been used as a global benchmark for other regions seeking fast, secure, reliable and instant transactions.

Meanwhile, PSE became the most used payment method in Colombia’s e-commerce sector in 2021, accounting for nearly 35 percent of all online purchases in the country. PSE is even ahead of credit cards, which have a share of 30 percent. By 2022, the instant payment created by Colombia’s clearinghouse should reach $9.3 billion in total online sales.

Other smaller account-based transfer solutions are starting to gain traction in LatAm’s e-commerce landscape. These include SPEI in Mexico, Sinpe Móvil in Costa Rica, Simple in Bolivia and Pagos al Instante in the Dominican Republic.

E-wallets

Another APM that relies on real-time verification that is becoming increasingly popular in LatAm digital commerce is e-wallets. Usage is expected to grow by around 20 percent per year until 2025 across the region’s digital commerce landscape.

This growth is particularly driven by an increase in LatAm’s demand for digital services. Within the same time frame, AMI estimates e-wallets’ payment volume will exceed $70 billion, or approximately 10 percent share of the entire LatAm digital commerce market.

Argentina and El Salvador currently lead penetration, with a 23 percent share of their respective digital commerce markets paid with e-wallets. They are followed by neighbors Bolivia (14 percent), Peru (13 percent) and Uruguay (12 percent).

Similarly, Brazil and Mexico appear to be the least responsive to e-wallets with 11 and eight percent respectively.

The rapid growth of these real-time verification APMs is driven by a change in consumer behavior. Shoppers have come to expect instant payments, and their preferences won’t change.

“For now, I can’t imagine thinking about a payment method without the immediate mindset,” comments Juliana Etcheverrydirector of strategic payment partnerships at EBANX.

“Customers expect their payment options to match their immediate lifestyle. They want the ability to send or receive money instantly. Not in days, but in minutes or seconds.

“We are attracted to having our needs resolved immediately,” concludes Etcheverry.

BNPL finds its way in LatAm

The EBANX study indicates that another APM that is gaining ground in LatAm is BNPL.

This certainly follows a global trend that estimates this type of payment could reach $400 billion in volume by 2026 worldwide.

Evidence continues to suggest that APM continues to gain traction in LatAm. In LatAm’s two largest economies, Brazil and Mexico, BNPL grew by 80 and 82 percent respectively in 2022. However, neither manages to surpass Colombia’s 208 percent increase in BNPL services.

Mexico and Colombia have the largest shares of BNPL in Latin America. For e-commerce volume, each achieved $1.2 billion and $1.1 billion, respectively. Similarly, Brazil reached 1.2 billion dollars in sales volume. Nevertheless, Brazil represents a smaller share of the total e-commerce volume in the country.

In addition, EBANX consultants see an opportunity for BNPL in LatAm through understanding the target group. Consumers who do not have a credit card or sufficient credit limit, but who want to pay for their purchases in instalments.

Furthermore for Erika Daguani, EBANX VP for Product, better experiences will have an impact for BNPL in LatAm. “The key aspect is accessibility; it’s giving credit in an easy way to the right people who are good payers but have difficulty proving their points.”