The New E-Commerce Phenomenon in Latin America

The rising cost of everyday items is driving the aggressive expansion of e-commerce globally, particularly from China, into the U.S.A, Western Europe and Latin America. LatAM markets however, have much to give back as successful economies scale and expand globally. This global e-commerce phenomenon presents just as many opportunities, as it does geopolitical and regulatory headaches. Santiago Diaz, D24’s Sales Director, provides an overview of the key players, the opportunities and the pitfalls.

The world has witnessed an unprecedented rise in the establishment of new cross-border trade routes that are digitally connecting continents and increasing trade volumes between nations. This presents a huge opportunity for retailers and a huge economic boost to the markets they operate in through increased sales. 

Today, Latin America accounts for one third of India’s global exports of cars and motorcycles (that represents $1,79 billion of sales). Another example is China. According to the World Economic Forum (WEF), trade between China and the LAC region (Latin America & Caribbean) grew 26-fold between 2000 and 2020 from US$12 billion to US$315 billion and much of this growth is emerging from the so-called ‘tangible’ economy such as ecommerce with companies such as Temu and Shein firmly established in LatAm countries.

The potential for Latin America

Mexico, Chile and Colombia have made immense progress in recent years to attract foreign investors and companies looking to embrace nearshoring. These advances include everything from a more streamlined process for business registration to subsidies, grants and tax incentives. With 12 free trade agreements, 80% of Mexico’s industrial production has the United States as its final destination. In Colombia, bureaucracy and documentation have been so simplified, that it is possible to open a company branch in the country in about a week. As a result, expansion from other continents into LatAm is on the rise.

Barriers and challenges to overcome

On the other hand, Brazil has a much more complex structure for opening and taxing companies which makes it harder for international retailers to tap into this lucrative market. Whilst massive expansion with huge economic potential is underway, there are a number of complexities and different legal structures in each LatAm-based country to adhere to. When it comes to legislation, every detail counts. Company taxes, import and export duties and labor rights must all be taken into account before expansion into new markets takes place. 

The three main challenges of cross-border payments are; a disparity of standards regulations in different markets; a greater exposure to payments frictions – the failed payments rate is significantly higher among those online businesses operating internationally, and increased vulnerability from fraudsters taking advantage of non-digitized users as the platform broadens. In order to ease retailers’ transitions into new markets there needs to be a framework to ensure safety without over regulating C-commerce platforms, as we’ve seen in LatAm. Cross border payments companies have a role in devising and maintaining this framework for merchants by ensuring commerce regulations, compliance and standards meet the requirements set in each market. 

According to cross border research from Lexus Nexus[1], half of the merchants responding reported losing 2% or more of their customers due to failed or delayed international payments; the same research calculates that a global average of 14% of cross-border payments are not completed and incur charges from a banking partner. Data from PYMNTS Intelligence research underscores this, with 70% of U.S-based merchants experiencing higher rates of failed payments in cross border sales compared to domestic sales. 

Addressing these challenges, there is a huge opportunity for banks, fintech companies and cross border payments companies to come together and collaborate in building a ‘super ecosystem’ supported by the latest ‘deep payment’ technologies. 

Deep payment solutions are able to circumnavigate the payment frictions issue with the creation of AI-enhanced dashboards that provide real-time visibility of the performance of each bank. Any anomalies can be investigated by observing the metrics, such as conversion rate and average approval time. The analysis of these metrics allows D24 to pinpoint exactly where the issue is, beyond just monitoring from a technical standpoint, which drives greater transparency around business performance overall. AI-enhanced dashboards deliver effective mechanisms and screening tools to prevent fraud and minimize payment frictions.

Creating a ‘super ecosystem’

Interlinking payments systems globally is only possible when parties have close trading partners, good relations and can collaborate effectively. This means knowing and trusting partners and having strong, established relationships across all ends of the transaction, from merchants to banks, brokers, intermediaries and regulators in every market. Collaborating with cross border payment companies that are currently based in Latin America with deep working knowledge and solid expertise in the payment types operating in different markets is the first step. International merchants and retailers looking to expand to LatAM, should work with a SaaS-based payments company that provides access to all essential global payment types via a single API. This provides instant, hassle-free access to new markets, adhering to the standards and regulations of each. Via its partners, D24 has integrations with hundreds of local banks, wallets and card acquirers so it can quickly and safely process millions of transactions from people from diverse jurisdictions, every day.

Whilst the global opportunity for expansion into new markets presents lucrative opportunities, international retailers need to overcome the technical hurdles and knowledge barriers to get there by working with payments partners with deep local market knowledge, good relationships with banks and partners, and smart technology that enables easy integration of multiple payment methods.