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The perfect storm to promote digitization in Latin America

If 25% of new digital buyers are retained, spending on e-commerce will grow 39% across the region

Latin Americans are buying on digital channels like never before. And this wave of rapid digitization is likely here to stay. Those who had not yet bought online before are being highly encouraged to do so in the current stay-at-home circumstances due to the COVID-19 pandemic. They are using digital tools to shop, compare prices and pay. 

But ecommerce and payment industries must also allocate resources to hold on to these new users. While it is certainly a hard pitch to ask for companies to make investments in the midst of a crisis, maybe the potential returns of retaining this clientele can at least draw their consideration. Americas Market Intelligence (AMI) predicts that if only 25% non-e-commerce users before the pandemic are retained, Latin American digital sales will grow 39% – an extra $42 billion for the whole market. This estimate considers the $686 average annual expenditure of e-commerce buyers in the region.

Source: AMI analysis

According to the Brazilian Association of E-Commerce (Abcomm), retailers are serving a huge new audience in the country: at least 1 million new customers who are venturing into e-commerce.

Lindsay Lehr, associate managing director of AMI, says that e-commerce is frequently the only channel available to consume. “It is the perfect storm to promote digitization in Latin America,” she pointed out in a recent webinar hosted by the research firm.

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Lehr mentioned that “forced digitization”, a trending expression, is not meant to be taken negatively. “‘Forced’ means that the circumstances are delivering convenience, value, and incentives that are enough to change consumer behavior, or it may also be forced thanks to government programs and assistance being delivered electronically”, she said.

Shoppers are indeed increasingly paying in ways that don’t involve touching cash or even handing over a credit card, because of fears of the new coronavirus. Mastercard recently reported a 40% jump in all contactless payments during the first quarter, including in Brazil, Costa Rica, Dominican Republic, and Colombia.

In another research, commissioned by Mastercard and prepared by AMI, shows that more than half of Latin American consumers who have a bank account are conducting their transactions online.

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Mastercard CEO Ajay Banga said the trend was being driven by consumers looking for a quick way to get in and out of stores without exchanging cash and touching terminals. “We are seeing an increase in the use of contactless transactions, and we think this trend will continue after the pandemic,” Banga said on Mastercard’s latest earnings call with analysts.

But where should merchants invest?

The reality has shown that business and payments digitization has left the realm of trends: stores will need to think of ways to deliver everything; banks will need to offer efficient, instant and easy-to-use access to their services.

In this scenario, the e-commerce industry must devise ways to make its channels and platforms convenient and user-friendly enough to entice the recently digitized Latin American. Online sellers may take a variety of paths to make themselves more attractive and gain new, loyal, and recurrent consumers in the region, such as offering:

  • Free shipping or discount coupons;
  • Access to online stores with no data consumption;
  • Good call centers to accommodate those who are not familiar with technology;
  • Partnerships with reliable delivery or courier services. 

Lindsay Lehr stated that greater consumer retention results in room for  merchants and payment providers to have more opportunities to design products and to address new clients, and to worry less about competition. In a hypothetical 100% conversion rate, there will be “a massive sandbox in which to play, of so many different niches of consumers and demographics” to provide optimism for players feeling stressed about investment. 

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But caution is also needed when talking about digital sales skyrocketing because, despite some booming segments, Latin American households, in general, are spending less money due to the uncertainty of times. Overall, AMI expects an 8% decrease in e-commerce expenditure in the region during 2020. The figure includes areas like travel, which will take longer to recover. 

What is true is that certain areas are experiencing a massive boost, and some of those that saw an average decline in sales in April, such as clothing and appliances, will reclaim lost terrain and continue growing later this year, as the graphic below shows:

Payments industry

According to Mastercard, there are five best practices that financial institutions should look to activate during 2020 and beyond.

  • Expanding beyond banking into commerce, transportation and social media;
  • Leveraging AI with tools like chatbots and virtual assistants to help customers;
  • Moving from omnichannel to unichannel, by offering all-in-one banking apps;
  • Devising ways to monetize customer data;
  • Building consumer trust.

“As the global pandemic continues to impact the financial industry as well as consumers’ lives across the Latin America and Caribbean region, there is a real need for both new and traditional banking partners to better support communities everywhere,” says Kiki del Valle, Mastercard’s senior vice president of digital partnerships for Latin America an the Caribbean. “The most innovative banks understand that they must embody the values that consumers identify with and create a user experience that reflects their needs now.”