The Covid-19 pandemic has caused a significant jump in the popularity of e-commerce, due to various lockdowns and restrictions. However, the global situation merely accelerated what was already happening, with online retail sales continuing to be a top choice for consumers.
Marius Costin is Head of EMEA High-Velocity Sales & US Global Account Team at PayU, a company that provides payment technology to online merchants.
Here Marius shares his thoughts on E-commerce in Latin America, and its consistent boom in popularity.Marius Costin, Head of EMEA High-Velocity Sales & US Global Account Team, PayU
In the midst of 2020’s challenging economic and social conditions, e-commerce became a shining beacon for many markets. Perhaps none more so than Latin America, where online retail sales rocketed to $83.63 billion in 2020, going from $36.9 billion in 2016; almost tripling in value in less than five years. The prediction for 2023 is $116.23 billion.
As uncertainty follows us into 2021, so too will the prevalence of e-commerce in Latin America. Consumers and businesses continue to be dependent on its convenience and accessibility during lockdowns. But, beyond this, the ability to access global goods and services, experience personalised customer journeys and the ease of e-commerce shopping will mean consumers are online for good.
Slower but continued growth
2020 was record-breaking. More than 120 million online transactions were processed by PayU across the continent in the first seven months of 2020 alone. Purchases in June, for example, were up by 68% compared to 2019. Our data showed that almost every sector benefited from the transition to e-commerce, with transactions in department stores up 295%, delivery services up 233% and home and garden up 138%.
The staggering statistics summarise the sudden shift catalysed by COVID-19. However, it is the breadth of sectors that were affected that suggests the most promise for continued growth. The entire retail industry in Latin America has undergone a change in demand, with online outpacing brick-and-mortar stores. Merchants sought to capitalise on this increase in demand, and in Colombia we witnessed nearly 1.500 new merchants sign up for payment solutions in the second half of April alone.
This investment in e-commerce is unlikely to be reversed. Merchants who have built websites, partnered with digital payment companies and built loyal online customers overcame the biggest hurdle – creating the channel – and will be reaping the benefits. The Colombian government also recognised the economy’s reliance on consumer spending, both instore and online. It created three VAT-free days for consumers in June, July and November; at PayU, we processed over 81 million transactions each of these days, well above the usual 16 million. All signs point to e-commerce now being fundamental to many Latin American economies.
Cementing customer loyalty
According to a study by EBANX, “52 million people in Latin America will buy online for the first time during the pandemic,” increasing the number of online consumers by up to 30% in some countries. The question which 2021 presents is: who will capture these new customers in the long term?
This year, the competition will heat up as consumers look to establish digital habits and loyalties. International businesses are increasingly exploring Latin America as a ripe but unsaturated market, and now is the time for merchants to expand before the ‘Big Tech’ dominance seen in Western Europe and the US sets in.
Fintech players are already demonstrating that there is ample space and appetite for innovation. VC investment in the region has been doubling every year since 2016, reaching $4.6 billion in 2019, and the likes of Klar and Nubank have been drawing customers away from traditional banks. E-commerce players have a similar opportunity to offer digital products, tailored to each market and demographic.
Digital payments will be integral to this, with fraud prevention and personalisation both fundamental to accruing long-term customers. PayU has already begun its migration processes from traditional fraud management models to AI and ML schemes for fraud management and prevention.
We’ll also see AI becoming ever more important in personalising customer experiences – the retail industry has big expectations for the next decade, but the customers may yet be bigger. Research shows that product recommendations can lead to an 11% uplift in sales, while 13% of online shoppers will abandon their basket if the price is displayed in a foreign currency. In the competition for some of the fastest-growing e-commerce markets, personalisation will be at the forefront.
Mobile shopping’s moment
Latin America is home to roughly 450 million mobile phone users and, based on PayU’s data, we anticipate more than 500 million mobile phone users by halfway through the decade. Nearly 80% of these use the internet on their phone, and this is projected to reach 87% by 2025. The access to technology coupled with the young population – with 41% under the age of 25 – creates a promising environment for mobile commerce to grow even further.
Mobile e-commerce will be a considerable driver in 2021 and into the rest of the decade. During lockdown, mobile operators reported a 25% jump in mobile data traffic. The GSMA is predicting significant increases in internet penetration and 5G connections in the region and it’s highly likely m-commerce will follow. As it stands, 60% of Latin American consumers browse the web via mobile channels. By 2020, the region’s m-commerce revenue is forecast to reach nearly $27 billion.
However, effective payment offerings will be crucial to capitalising on this. Latin America is a particularly diverse region and payment methods from buy-now-pay-later, to credit cards, to mobile wallets vary in popularity. To tap into these markets, merchants will need to use a payment provider that doesn’t just facilitate, but anticipates local payment preferences to create a frictionless customer journey. Laying the foundation for cross-border transactions will also help retailers to future-proof their businesses.
Getting it underway
Latin America’s overall e-commerce market is expected to grow 8.49% this year and reach $200 billion in market value, becoming one of the fastest-growing markets in the world. While the sudden onslaught of new users and merchants most likely won’t be repeated, e-commerce is just getting started.
2021 will be an exciting year for e-commerce as the sector truly begins to mature in Latin America. Retailers can be sure that consumers will sustain what the pandemic has started and gravitate increasingly towards the convenience and ease of online shopping. The race for Latin America’s e-commerce customers has become a marathon.