Learn the top payment methods in Latin America and the things to consider before expanding your business into this growing market
For those wanting to break into the Latin American (LATAM) market, it can be tough — especially if you are wanting to apply the same business strategies used in the U.S. to emerging markets like Mexico or Colombia. Not only do you have to focus on barriers to entry like language and cultural gaps, but there are local regulations and restrictions you have to be aware of.
Today we’re going to focus on 1) the differences in card acceptance between Latin America and the United States and 2) what you need to know before entering this growing market.
Each country in LATAM is extremely unique and should be thoroughly researched and understood before entering the market. Each country has its own popular local payment method that is widely used across a certain geography. These payment methods can be quite different from the ones used in United States.
Going back over five years ago, Latin America had one of the lowest numbers of online transactions per capita, according to Statista. Now, coming back to the present day, the LATAM market has taken off and shows no signs of slowing down, with online sales projected to double the global average of 11% by 2023.
LATAM vs. the U.S.: Card acceptance and payment methods
One of the biggest differences between the payment scope in LATAM and the United States is that credit and debit payments are not as widely utilized or accessible in various countries in LATAM.
According to the Wall Street Journal, only 5.4% of households in the U.S. do not have access to a credit or debit card. Credit cards are still the most popular form of payment in the U.S., accounting for nearly half of all transactions in 2020, but cash payments are still the second most popular payment method. On the other side, in LATAM, up to 65% of adults are unbanked, meaning that these individuals do not have access to many financial services and things like a debit card, credit card, or even a bank account. This means that a payment strategy used in the U.S. might not be able to capture the same amount of market in LATAM.
Popular payment methods in Latin America
Because of the ever-growing popularity of e-commerce across the world, regions like LATAM have had to innovate and bring in alternative payment methods to accommodate those without access to a debit or credit card. Various countries in LATAM have adapted and developed alternative payment methods independent of each region. These payment methods can be categorized into three different types:
1. Mobile instant payments
Instead of paying with cash, check, or card, a person can use a mobile phone to pay for a wide range of goods and services. These mobile payment solutions have become a means for developing countries to expand their financial services to the community.
In the U.S., mobile instant payments have been popularized by platforms like Apple Pay and Google Pay. In LATAM, platforms like PayPal have increased in popularity due to their wide range of adaptability to each country and ease of use for the end-user. However, PayPal still has yet to reach the same amount of popularity in the LATAM region as it has in the U.S.
Other popular platforms in LATAM include:
- OXXO Pay (Mexico)
- BBVA Wallet (Mexico, Colombia, Peru, and Chile)
- PagSeguro (Brazil)
- MercadoLibre (Argentina)
2. Electronic funds transfer
Although it might seem dated for U.S. retailers to accept bank transfers as payment for goods and services, in countries like Colombia, it is a norm for consumers to pay via an online bank transfer. One popular online bank transfer service in Colombia is PSE, or Pagos Seguros en Linea.
3. Prepaid/loadable cash cards
Possibly the least common, prepaid cards are a great way for consumers to load cash onto a purchasable card and use it as if it were an ordinary credit card. This is a safe way for consumers who do not have banking accounts to make purchases and payments.
Overcoming the popular use of cash in LATAM
Unfortunately, for many countries in the LATAM region, cash is still the most popular form of payment. According to a 2018 study by New Europe, 85% of transactions in LATAM are cash-based. There are multiple reasons for this. In many cases, it is due to the lack of access to credit and a lack of trust in the banking institutions. This is why there has been an increase in the number of companies offering alternative means to make cash payments online.
Cash payments don’t overlap payment methods like credit cards; they simply work together in synergy to increase the number of conversions for online retailers. The portion of the population in LATAM that does have access to credit has a low credit limit to spend every month, so the solution is to pay in cash.
These cash payment solutions vary and depend on the country. Popular cash payment options in LATAM include:
- Rapipago (Argentina)
- Boleto (Brazil)
- Servipag (Chile)
- Baloto (Colombia)
- OXXO (Mexico)
- Pagoefectivo (Peru)
- Redpagos (Uruguay)
Payment methods by country
The variety of payment methods you choose to accept depends on where in the world your customers are located. Let’s take a look at a country-by-country breakdown of common alternative payment methods for some of the region’s leading economies.
Brazil payment methods
Visa and Mastercard are among the most popular payment methods, but other common options include Boleto (a cash style payment method) and Elo (a domestic debit and credit card company).
With any transaction, consumers may expect to have installment payments. A surprising 80% of all e-commerce payments in Brazil are made in installments.
Mexico payment methods
Visa, Mastercard, e-Wallets, and American Express are dominant. Like other markets in the region, consumers expect to be able to make payments in several installments, whether via credit card or another method.
Colombia payment methods
The most common forms of payment in Colombia include Visa and Mastercard, but for shoppers without credit cards, services like Efecty and SafetyPay offer secure and direct payment methods. For those without even a bank account, Baloto allows for cash-based e-commerce purchases through the issuance of a voucher.
At the end of the day, the goal is not just to offer random alternative payment methods but to offer the right ones for that specific region and customer. If you are looking to break into the Latin American market, you will definitely need to adapt your payment acceptance strategy.