If you look under the hood of nearly any large merchant’s e-commerce operations, there are likely more than a dozen different card-acceptance platforms meshed together to serve different parts of the world with banking partners doing payment settlements and managing FX.
In Latin America, there is the added challenge of processing the many transactions that are not card-based, like bank transfers, emerging instant payments and the cash-based ones that offer in-person payment possibilities that need to be electronically confirmed. A merchant might need anywhere from 50 to hundreds of partners, depending on complexity and the countries they are targeting. If any of the aggregate transactions across platforms go down for just a millisecond, that transaction will fail, potentially leading to huge losses.
Why online merchants need a new breed of infrastructure fintechs
For global merchants expanding to the region – from Alibaba to Amazon and Shopee in e-commerce, to tech giants offering a variety of services such as Garena, Netflix or WhatsApp – Latin America’s payments landscape is particularly daunting. In South America alone, there are at least 14 different currencies. Across Latin America and the Caribbean, there are more than 30 countries – all with varying local customs, financial regulations and consumer protections. There’s also the issue of most global acquirers’ inability to recognize many Latin Americans’ credit scores, leading to a high rate of non-approved transactions.
While advancing quickly, these global merchants have not caught up with regional e-commerce giant MercadoLibre (NASDAQ: MELI), which continues to lead in Latin America – pushing past a market cap of more than $90 billion earlier this year. In a NASDAQ analysis of MeLi’s most recent earnings report, which was stronger than many expected, writer Will Healy describes some crucial advantages for LatAm’s current e-commerce leader: including its investments in both shipments and payments, and its “secret weapon” in Mercado Pago to facilitate electronic payments in its cash-dependent markets.
For both LatAm-founded merchants and global e-commerce players expanding into new countries, the cost of understanding the detailed financial regulations and local customs – such as Mexico’s continued preference for cash-based transactions or Brazil’s use of boleto bancario (bank tickets that customers pay at ATMs, post offices or markets) – and the coding of all that into an online merchant’s platform’s tech stack is considerable. This is why the next wave of infrastructure fintechs is vital and why they are attracting more investors.
Recent infrastructure fintech innovations
As Plato famously wrote: “necessity is the mother of invention.” During the global pandemic, people have needed to pivot to online purchases of essential goods and services across various vertical sectors in the wake of multiple lockdowns. This has driven dramatic shifts in consumer behaviors, expectations and business models that are transforming the digital-business landscape at a breakneck pace.
In Brazil – which was particularly hard hit by the pandemic – one infrastructure fintech Zoop partnered with iFood, one of the leading foodtech/delivery apps in Latin America, to help keep its massive network of 236,000+ restaurants ‘’alive” while they struggled with empty dining rooms. Together they quickly rolled out a new “bank for restaurants” with digital bank accounts that allowed restaurants across 1,200 cities in Brazil to access financial services such as banking transfers and payments, credit transactions with prepayments of receivables via iFood and acquiring services from POS offers to payments via QR codes. The restaurants were charged lower credit interest rates than by traditional banks, as low as BRL $1.99/month.
Similarly, Rappi – the Colombian foodtech that aims to be Latin America’s first “super app” – has just announced plans to seek regulatory approval to operate as a digital bank in Colombia by the beginning of next year, per Reuters. If approved, it will roll out RappiPay, a joint venture with publicly traded Banco Davivienda, a Colombia-based banking institution.
In early November, the Minas Gerais-based Hotmart, a tech platform and app for the creator economy that was freshly minted as yet another Latin American unicorn in March, launched its own credit card and WhatsApp integration. The new HotMart Card, in partnership with Visa, provides an easy way to bill and collect for content producers’ online sales or subscriptions. Available in both physical and virtual versions, the premium Black Accounts are reserved for creators who reach a minimum volume of BRL $1 million in sales. This sector is a growing hotspot for fintech innovation as the “Creator Economy” surpassed $100 billion in 2021.
Healthcare, which is a core component of any country’s total GDP spend today, is ripe for new infrastructure innovations to reduce the complexity and cost of providing quality patient care. In particular, the recent public-health crisis has highlighted the need to innovate around healthcare delivery, driving leaps forward in telehealth and remote care in addition to the ongoing pursuit of lowering healthcare costs.
A great example of infrastructure fintech impacting healthcare, similar to innovations in other parts of the world, is San Francisco’s PayZen, an early-stage healthcare fintech startup tackling the growing patient-payment responsibility problem. At issue are the many hospital systems now struggling to make ends meet in the wake of COVID-19 due to vastly reduced income from elective surgeries or other profitable procedures. On the flip side, more patients are struggling with out-of-pocket healthcare costs.
PayZen’s fintech infrastructure platform addresses both these issues by paying hospitals upfront for patient invoices and offering patients zero-interest, fee-free payment plans. The startup aims to increase collections for hospitals by up to 50 percent while making quality healthcare more affordable for patients. This approach is also beginning to demonstrate potential for health-focused companies in Latin America, including health plan innovations such as Alice, a Sao Paulo-based healthtech that aims to make people healthier through B2C health insurance.
As reported by Reuters in September – “global brands from Mercedes to Amazon (AMZN.O) to IKEA and Walmart (WMT.N) are cutting out the traditional financial middleman and plugging in software from tech startups to offer their customers everything from banking and credit to insurance.” With the help of infrastructure fintechs, global merchants can quickly roll out embedded financial services such as Buy Now, Pay Later options instead of paying full price at checkout. And car brands from Audi to Jaguar to Mercedes can embed payments technology into their new models to provide their customers with a more frictionless payments experience.
Moving from friction-filled to “thoughtless” commerce
Laying down new global commerce rails through a collaborative effort of infrastructure fintechs partnering with a wide variety of sector leaders around the world promises many benefits for consumers and businesses alike.
The key to growing market share and loyalty for global merchants and service providers increasingly dependent on online commerce is knocking out the friction tied to payments and the online-buying experience. In practice, consumers want this process to be “thoughtless” so there are no barriers to paying using the methods they prefer and ensuring that digital transactions are fast, easy, painless and secure.
From an IT and operations perspective, reducing the complexity of managing dozens of disparate platforms and financial systems and a never-ending array of regulatory and compliance laws and revisions could save millions of hours and multi-millions of dollars (or reais, or pesos, or many other currencies) for businesses of all kinds selling goods and services online to an increasingly global audience.