Digital payments grow in LatAm on the heels of e-commerce

Latin America has been one of the most relegated regions in digitization, with online trade as a share of total retail second only to Africa.

Yet on the backdrop of the pandemic, e-commerce is catching up fast, and non-traditional alternatives such as instant payments or e-wallet transactions are gaining market share, a study by fintech unicorn Ebanx shows.

The company recently released its Beyond Borders 2022/2023 report, an overview of online trade and digital payments in Latin America.

Financial inclusion has accelerated in the past few years, starting from a low base. The study underscores the progress as more people were brought into the financial system.

But despite traditional products such as bank accounts and credit cards, Ebanx argues that non-traditional payments are growing by leaps and bounds on the back of the e-commerce surge.

The share of Latin Americans who have an account jumped from 39% to 73% between 2011 and 2021, while only 28% of people in LatAm have a credit card, Ebanx said. “Alternative payment methods are finding room to grow precisely in the gap between the number of accounts and the number of cards.”

According to the company, non-traditional payments amounted to 39% of total e-commerce volume in the region during 2022, a leap from 31% just two years ago, with peaks of 50% in Colombia and 44% in Brazil.

“Account-based transfers, Buy Now Pay Later, and digital wallets are on the rise in Latin America as new digital consumers gain access to e-commerce,” the report stated.

E-commerce doubles its share

Not long ago, account-based transfers were a negligible payment method in Latin America. Due to a poor user experience and low financial inclusion in the region, they represented only 4% of e-commerce sales in 2018, according to Americas Market Intelligence data.

Then came the pandemic and the implementation of user-friendly systems such as Pix in Brazil, which saw massive adoption and contributed to digitization reaching unprecedented levels in the region.

According to the report, account-based transfer systems such as Pix will reach 17% of all e-commerce trade in Latin America this year.

With a population of 650 million, Latin America harbors a significant potential clientele of digital buyers. Yet adoption in this part of the world has been traditionally lower than elsewhere.

Related:

• Pix breaks further ground in payments market
• How PIX became a LatAm payments phenomenon in just one year
• Why has Pix done so well while CoDi has struggled?

But the pandemic changed everything. According to data compiled by Statista, the share of e-commerce as a percentage of total retail sales in the region went rapidly from 4% in 2018 (only behind Africa with 1%) to 11% as of last year, more than doubling in size.

Despite that growth, there is still potential for a further catch-up. The region still lags behind developed countries, with 16% in Europe and almost 25% in North America and Asia.

Digital payments growing

To be sure, credit cards continue to hold the lion’s share of the market. At 51% of all e-commerce sales in Latin America as of 2022.

However, the number is down from 56% in 2019. Debit cards are at 10%, also on a downward trend.

The report by Ebanx states that account-based transfers are the top pick beyond credit cards, with the most significant growth tied to Pix and other methods, such as PSE in Colombia and Spei in Mexico. Next in line are digital wallet payments and cash-based settlements.

“New technology is increasing the use of alternative payment methods and enabling more digital ways to boost financial inclusion in the region,” Juliana Etcheverry, Director of Strategic Payments Partnerships at Ebanx, was quoted as saying.

“Through technology, APMs have become more convenient, cheaper, and easier to use. Overall, it’s a better experience.”

Argentina leading the way in e-wallets

According to Ebanx, Argentina leads the way regarding digital wallet payments in the region. The dominance of Mercado Pago, e-commerce giant Mercado Libre’s fintech arm, is still undisputed, and its digital wallet is practically ubiquitous in every smartphone.

Twenty-three percent share of Argentinian digital commerce is paid with e-wallets, the study found. Users rely on Mercado Pago’s virtual wallet to execute payments on the marketplace.

Although some competitors have risen in recent years, no one has yet been able to mirror Mercado Libre’s results.