To better manage the coronavirus-driven e-commerce boom in Latin America, cross-border processors are increasing digital alternatives for shoppers who pay cash for their online purchases.
The aim is to ease the forced closure of cash payment points and ensure that online merchants do not lose sales to customers who prefer cash.
Due to the large number of unbanked Latin American consumers and concerns about online safety, the use of cash for online shopping is well established in the region. Consumers who cannot or do not want to use cards, digital wallets, or bank transfers can shop online with bar-coded paper vouchers that they print and take to cash payment points such as convenience stores, lottery agents and bank branches. Cash payment networks include Boleto Bancário in Brazil (bank ticket), ServiPag in Chile, Oxxo in Mexico, PagoEfectivo in Peru, and RapiPago and PagoFacil in Argentina.
During the pandemic, many cash payment points used by these networks are closed. Argentina’s lockdown includes most stores accepting RapiPago and PagoFacil, and closures in Brazil and Mexico affect Boleto and Oxxo payments, respectively. Additionally, consumers may be reluctant to handle cash or even visit open payment points.
As overall online shopping volumes increase during the lockdown, the drive is to digitize cash-preferring consumers. Market research firm Kantar reports that online shopping rates rose 387% in Latin America at the end of April compared to the week before the shutdowns began, with Mexico registering a 500% increase and Brazil 60%. Latin American alternative payment processor SecurityPay saw digital payments grow from 70% of its pre-COVID-19 e-commerce volumes to 90% in early May, while unique active users of MercadoLibre, Latin America’s largest electronic marketplace, increased 31% in year-on-year change in the first quarter of 2020 to reach 43.2 million.
Latin Americans typically buy from foreign e-commerce merchants, which use cross-border processors such as dLocal, Ebanx, PagBrasil, and Rapyd to provide buyers with local payment options, including cash. According to eMarketer, 23.1 million Brazilians made cross-border purchases in 2018.
Cross-border processors are working with online merchants to encourage the use of methods such as digital wallets, prepaid cards, and bank transfers, so as not to lose the potential purchasing power of unbanked and privileged cash customers. In Brazil alone, there are 45 million unbanked adults and 71% of the population prefers to pay cash for daily purchases. Additionally, consumers banking in Brazil may be reluctant to use digital methods such as credit cards or online bank transfers due to security concerns.
“About 70% of Boleto Bancário users have bank accounts,” said Erika Daguani, B2B Product Manager at Ebanx. “Although Boleto purchases can be paid for using digital banking services, many banking consumers prefer to pay cash with Boleto for fear of using their cards online.”
dLocal has a strong focus on cash replacement and facilitates various digital payment options. “We are using our knowledge on the ground in Latin America to adjust merchant payment flows to mitigate losses from cash transactions,” said Rodrigo Sánchez Prandi, vice president of products at dLocal.
In Chile, dLocal works with ServiPag, a cash payment network used by the 40% of Chileans who prefer not to use a credit card online.
“Unlike other Latin American countries, Chile is heavily banked, so the majority of people who pay cash online have bank cards,” said Sánchez Prandi. “The challenge is to encourage them to use their cards and bank accounts to make online payments. dLocal has piloted projects with ServiPag to show consumers the flexibility to use credit cards or e-wallets instead of cash payments.
In low-banking countries such as Argentina, Brazil and Mexico, dLocal offers online solutions to encourage unbanked consumers to pay digitally. “These include electronic wallets linked to prepaid cards, which can be funded from cash deposits,” said Sánchez Prandi.
Argentinian electronic wallets from Ualá and MercadoPago, the payment subsidiary of MercadoLibre, and Brazilian electronic wallets such as PicPay, PagSeguro and Ebanx Go are increasingly adopted.
In the month following the start of Argentina’s lockdown, Ualá provided unbanked consumers with nearly 140,000 prepaid cards linked to its Ualá branded digital wallet. Brazilian PicPay saw its payment account openings sixfold to 20 million customers in early May, hitting a previously expected target for December. Reuters reports.
One option promoted by dLocal with its banking partners in Brazil and Mexico is the digital installment loan for consumers who do not have a credit card. These loans can be repaid through electronic wallets, bank transfers or cash.
Installment loans on credit cards are very common in Latin America both online and at point of sale. In 2019, installment payments accounted for 80% of Brazilian credit card online purchases, according to ABECS (Associação Brasileira das Empresas de Cartões de Crédito e Serviços / Association of Brazilian Credit Card Issuers).
“Providing installment loans is an incentive for customers to pay digitally, and generally people who buy with installment loans online spend more per purchase,” said Sánchez Prandi. “So we’re testing installment loans for online shoppers who don’t have a credit card. “
Piloting and communicating with consumers and traders on digital options has paid off for dLocal, resulting in a 15-20% increase in digital transaction approvals in Argentina alone. “COVID-19 is reshaping payment ecosystems in Latin America,” said Sánchez Prandi. “We are seeing the digital switchover start to happen and hopefully it will continue after the crisis. “
Based in Brazil Ebanx has developed strategies to encourage customers to pay digitally. These include communicating through its merchant customers to consumers that it is safe to pay online with bank accounts or cards and offering them a range of options including digital wallets and prepaid cards.
In January, Ebanx launched its own digital wallet in Brazil, Ebanx Go, which includes a physical and virtual prepaid Visa card. In April, Ebanx launched an interface for Shopify-based merchants selling in Brazil that allows consumers to use local payment methods through a checkout on a merchant’s own site, instead of redirecting them to pay on the Ebanx platform, which was required by its previous Shopify integration. According to Daguani, merchants testing the new Shopify interface saw a 30 percentage point drop in checkout abandonment rates and a 7 percentage point increase in conversions.
Ralf Germer, CEO of Brazil-based PagBrasil, said his company focused on improving the online payment experience for merchants and customers long before COVID-19.
“We developed Boleto Flash because Boleto Bancário does not perform well on smartphone screens,” he said. “Boleto Flash allows consumers to copy and paste Boleto barcodes into their digital banking app or e-wallet to make a payment on their phone. This encourages customers who prefer cash to make digital payments. “
Rapyd, based in London, is diversifying cash payment points. “Cross-border processors that work with multiple local cash payment networks are in a stronger position than processors that offer only one cash payment method like Boleto,” said Eric Rosenthal, Managing Director of Rapyd for Americas. “We support three other treasury networks outside of Boleto in Brazil. So when people cannot use Boleto due to store closures, we may fall back on other treasury networks with open locations.