LatAm’s Booming Digital Economy Gets Lift From New Payments Models

Sometimes coming late to the game has advantages. Latin America provides an ideal use case.

As applied to payments, Michael Bilotta, global head of digital goods and services at Worldline told PYMNTS’ Karen Webster that digital growth in LatAm countries follows familiar tech paths.

So-called “first-iteration platforms” get added to and perfected over time, and so it is with eCommerce in the LatAm region, which pulled ahead in some ways by coming a bit later to the party, benefiting from the learnings of other digitizing geographies.

“They’re a first iteration eCommerce market,” he said. “All of the things that have been developed over time in the U.S., the U.K., Australia, and parts of APAC, all of those learnings come together to form what we as consumers globally want as, let’s say, a user experience.”

Ironically, it means LatAm got a head start by waiting. That’s made the region a ready-to-rock hotbed of digital goods and services sales, as payments localization meets growing demand.

Bilotta said, “Payments are the linchpin that ensures you can monetize your service, because without an effective payment stack everything falls apart. You can have the best product or service in the world, but if people aren’t willing to pay for it, it becomes an issue.”

Lacking a unified set of rails for a continent of 20 countries and 14 territories, Bilotta said companies can go cross-border or look for tech stacks in-country that support digital payments. Each has its pros and cons, and there remains an attachment to cash as well.

Taking Brazil as his central use case, he noted that the nation of 250 million people has 80% internet penetration, which is higher than China, and 88% smartphone penetration in urban areas. Yet cash and voucher payments are still popular there, such as Boleto Bancário.

Boleto continues to coexist with PIX, Brazil’s near real-time digital payments network that’s more akin to an open banking model. As digital presses its growing advantage in LatAm, things are moving towards faster digital payments: “The same concept that’s behind PIX,” he said.

“If we just opened the APIs of the banks to tech companies to build on top of, we can create payment methods that … disintermediate … the schemes or the wallets or whatever the case may be. No better execution of that has been seen in the world than in Brazil. Brazil has PIX.”

See also: Worldline Set to Buy Banco Desio’s Merchant-Acquiring Activities

Leveraging Local Trust

Worldline overcomes this complexity — and fees that go with the card rails — with its money remittance model, enabling a local entity to act as merchant of record for a foreign seller.

He said, “It gives merchants access to this growing market, all of the local payment methods, and it allows for that penetration without the need to go in [and] establish a local entity.”

Digital goods and services enjoy the benefit of not being physical products requiring shipping and related issues, making certain digital goods ideal for this experience-hungry region.

He said classic eCommerce “has it harder specifically because there are logistics involved, there’s shipping, they have to get things into the country. In terms of a specific category, I would say that anything that has a subscription attached to it, which is the main business model of digital goods and services, has been able to, I would say, penetrate the market quite effectively.”

That goes back to arriving at the party fashionably late. “LatAm is kind of like the third tranche of markets to come online in terms of becoming a real player within eCommerce,” he said. “All of these lessons that we’ve learned from the beginning about localized language, localized currency, local payment methods, and really diving in and understanding, they’ve done that.”

See also: Latin America May Be Holiday Gift Cross-Border Merchants Are Seeking

Consumers in Charge

He illustrated the point by noting that LatAm was doing buy now, pay later before it burst forth from Australia.

“A lot of people don’t know that in the LatAm it’s been quite common practice by Visa and MasterCard, etc., to allow for consumers to pay for, not even just big-ticket items, but regular items through a series of installments, just the way that you would pay with a regular credit card, meaning it’s cadenced out for them,” he said.

That’s a revealing and little-known fact about LatAm’s fascinating role in the development of new payment models, where the old models are getting flipped around in real time.

“The key thing to keep in mind is that the customer is now in charge,” he said. “I think for a long time within eCommerce, there’s been this paradigm of, I am a large merchant with a large market share within my space, and therefore I can go to market with a solution that is low friction for me.”

That’s fading as LatAm becomes a digital superpower in its own right, and big names in payments can find themselves pushed aside by a provider that gets localization right.

Consumers “will find a competitor that will give them a user experience or a checkout experience that they are accustomed to in their home country. Merchants need to keep that in mind. If they don’t, that’s a recipe for them to lose share of wallet very rapidly.”