As digital commerce continues to boom in Latin America, accelerated by the pandemic and subsequent lockdown measures, alternative payment methods (APMs) are beginning to become commonplace across the region.

It’s an exciting time for consumers and merchants to see momentum in the region as access to the internet and eCommerce through mobile phones allows different ways to pay. It also drives greater choice and inclusivity. Smartphone adoption reached 72% in 2020 and is forecast to be closer to 81% by 2025. Consumers and merchants should be excited as Latin America’s increased digitalisation, support of instant payments and population who are keen to adopt APMs have made this a market with huge potential.

The growth of APMs can be attributed to an interesting number of factors. According to the World Bank’s Global Findex Data, the percentage of the Latin American population who have an account has increased from 39% to 73% in the last decade, which is below the global average of 74%. According to the same report only 28% have a credit card, higher than the global average of 25% yet it’s in this gap that alternative payment methods have found room to grow.

Freedom of choice

The diversity of the payment landscape in Latin America is related to the consumption behaviour of Latin Americans. The choice to use alternative payments is a cultural one. For Latin Americans, it’s important for them to pay how they choose. Latin America’s economic, political, and cultural realities mean most consumers rely on a patchwork of alternative payment methods to pay for goods online.

Popular alternative payment methods include account-based transfers, such as Pix in Brazil and PSE in Colombia; e-wallets, such as Uala in Argentina; cash-based payments such as OXXO in Mexico; Buy Now Pay Later (BNPL) solutions, such as Sistercredito in Columbia and others.

The cost-of-living crisis has had a significant impact on Latin America, including their choice of payment method for online purchases. In 2020 digital payments emerged as the preferred method of purchase, with eCommerce growing by 18%. It’s clear that the Latin American population are willing to adapt payment habits to circumstances as and when they need to.

Instant is key

Among the alternative payment methods that are on the rise in Latin America, account-based transfers and digital wallets are among the most popular.

According to the Beyond Borders report, account-based transfers have nearly doubled in volume each year in Latin America’s digital commerce since 2018 and are expected to reach $70 billion in 2022. By 2025 account-based transfers are expected to reach $121 billion in volume growing at a 33% CAGR (Compound Annual Growth Rate).

Digital wallets are expected to grow by about 20% per year up until 2025, driven by Latin American consumers’ desire for digital services. According to the Beyond Borders report, payments made via e-wallets in Latin American eCommerce are expected to surpass $70 billion by 2025, making up just 10% of all eCommerce transactions in the region.

These APMs are growing in popularity due to changing consumer behaviour and expectations regarding payments and online shopping. Real-time confirmation enables payments to happen instantaneously. This ability to instantly send or receive money aligns with consumer mindset and expectation for their payment options to align with their way of life.

Financial Inclusion

This shift in the payments landscape, which has taken place over the last three years or so has had positive knock-on effects including the acceleration of financial inclusion through digital payment methods, not only in Latin America but worldwide. Globally, 59% of people made a digital payment in 2022 compared to 57% in 2021.

Although there are so many differences in Latin America — demographics, banking environments, regulations, payment preferences and etc — which exist from one country to another, there are some common characteristics.

According to the World Bank, 45% of Latin Americas’ population is unbanked, compared to 24% globally, therefore, there’s a general tendency towards an informal economy and a preference for cash over credit cards.

In this type of environment, alternative payment options such as eCash are drivers of financial inclusion. eCash has a multitude of benefits for consumers including avoiding high fees, no complex application processes and no credit checks, meaning it’s a better experience for customers who prefer cash. So, it’s no surprise the use of eCash in Latin America is on the rise.

Stress on security

Alternative payment methods such as eCash, Pix and QR-code-based services have been increasingly popular over the last couple of years in Latin America. While convenience, simplicity and speed are all good reasons for alternative payment methods to be popular, there is also a real concern around security of financial information.

Latin America has long suffered from high levels of fraud, so it’s no surprise that Latin Americans are worried about security. After South-East Asia, Latin America had the highest percentage of overall revenue lost to fraud (20%arcu), and one in five eCommerce transactions were declined as fraudulent — twice as many as anywhere else on the planet. Unsurprisingly, the Latin American consumers prioritise security when considering how to pay for online transactions.

Alternative payment methods are popular as they can give consumers access to eCommerce in a way that doesn’t make them feel like they are compromising their security. APMs often don’t require consumers to enter their financial or personal details online in the way traditional payment methods do.

The Latin American region is both challenging for payment providers, as companies need to overcome intricate regulations and unstable economic systems, and exciting. The population are extremely open to alternative payment methods, and we’re excited to see what shapes Latin America’s digital economy in the future!

‍