Latin America’s embrace of ecommerce, digital payments marks cultural shift

The adoption of digital payments and the number of people who are doing their shopping online has accelerated rapidly in Latin America this year. While the region still trails most parts of the world in terms of the percentage of people who have access to modern banking services, the gap is narrowing.

For example, a study by PYMNTS, done in conjunction with digital payment platform Kushki, found that in one five-month period in 2021, just over 40 million consumers became banked for the first time.

The growth of eCommerce and digital payments is largely due to cultural change, said Kushki Vice President of Payment Partnerships Andy Obando in an interview with PYMNTS. He explained that while Latin Americans have traditionally been wary of accepting credit cards and debit cards, that is no longer the case. With people’s fears of catching COVID-19 and the emergence of so-called neobanks, which have made digital banking services more accessible, cash is no longer nearly as popular as it once was.

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“People got scared — they didn’t want to catch COVID — and because paying in cash involves passing physical money and touching it, they started using digital payment methods instead,” Obando said. “So, people started moving to card payments in websites or [near-field communication (NFC)] payments with their phones at the point of sale, so they don’t need to pass their cards to the cashier.”

At the same time, the Latin American region has suddenly become inundated with digital wallets, which make it very easy for people to acquire prepaid cards.

One of the problems with banks in Latin American countries is that they’re generally not interested in doing business with people who only have limited financial resources, Obando said. So, getting even a basic savings account has traditionally been next to impossible for someone who makes $300 or $400 a month.

Neobanks, on the other hand, are willing to do business. Take a photo of your identification card and provide your address and a phone number, and they’ll send you a debit card within a day or two, Obando said. That kind of service was never available until recently.

There is still a long way to go before Latin America can consider its digital banking revolution to be complete. The study revealed that for all the rapid acceleration of digital payments, cash still accounts for between 20% and 30% of all eCommerce transactions. That’s likely because more than a quarter of the region’s population remains without any kind of bank account, be it a traditional one or something more modern, such as a digital wallet.

But Obando said he believes these numbers will decline rapidly over the next few years due to the high penetration rate of internet access and smartphone ownership in Latin American countries. He pointed out that in Mexico and Ecuador, for example, there are now more smartphones than people.

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“Those are encouraging numbers,” he said. “It means people who cannot afford a computer can still do their banking online through apps on a smartphone.”

Obando said he is further encouraged by the array of different services neobanks are providing to Latin American consumers. In addition to offering prepaid debit cards and the ability to top up a digital wallet at physical locations so people can pay in restaurants and shops, they also integrate with multiple, big retailers.

“So, you can go to the Adidas app or the Nike online store and buy directly from there through your smartphone,” he said. “So, it becomes eCommerce, even though you’re not paying with a debit or a credit card.”

For now, though, most Latin American consumers are more interested in purchasing online items from local brands. The survey revealed that Latin America’s online shopping revolution is still fairly localized, with a full 86% of all eCommerce transactions in the region being made domestically.

Obando said this has mostly to do with the infrastructure in the region, or rather, the absence of it.

“If I’m in Ecuador and I buy something from a local store, it takes around a week to arrive,” he explained. “But if I buy something from an international supplier, going through customs and everything, it can take as long as a month to arrive.”