The rapid penetration of the Internet in Latin America has resulted in e-commerce becoming a fast-growing industry, especially in Brazil. However, the Latin American e-commerce landscape is diverse as many of the markets are embracing e-commerce at different rates. A result of this is that consumer spending behavior differs immensely across the region and online retailers will need to take this into account when targeting this region. So how can e-commerce merchants successfully tap into this market?
China may have the largest online population in the world, but other countries across the globe are starting to present themselves as potentially lucrative markets for merchants looking to sell overseas. Forrester's latest Latin American online retail forecast expects online retail sales to reach more than $25 billion in Brazil by 2017, more than doubling expected sales of $12.2 billion in 2012. The forecast observed the online retail growth in Brazil, Mexico and, for the first time, Argentina and found that whilst Brazil continues to be the largest e-commerce market in Latin America, by quite some miles, e-commerce revenues in Mexico are beginning to grow rapidly and Argentina is not far behind.
The e-commerce market in Latin America is starting to thrive and is only likely to get bigger as the economy aggressively expands, and the penetration and use of the Internet develops. There were an estimated 212,401,030 Internet users in Latin America in 2011 (representing about 36.7% of the region's population), according to statistics by Internet World Stats. What's more, according to the 2012 Latin America Digital Future in Focus report by comScore, Latin America's online population grew faster than any other global region in 2011, rising 16% to 129.3 million visitors in December 2011. Consumers are therefore turning to the Internet for a variety of activities and with continued growth expected across the region, merchants should be taking note.
Research from eMarketer found that 59% of Internet users in Latin America bought online in the past year, purchasing a variety of products. Adding to this, WorldPay's 2012 Global Online Shopper Report found that the percentage of disposable income spent online in Mexico and Argentinais 21%, only just below the global average of 23%. However, online shoppers in Brazil generally spend a higher proportion of disposable income over the Internet -- 27 percent -- than the global average.
Mobile appetite
Latin America, as a region, has some of the highest adoption rates of mobile devices in the world, with an overall mobile phone user penetration of 55.4 percent. WorldPay's Global Online Shopper report shows there is a substantial opportunity for mobile commerce in Latin America. While UK e-shoppers are still only starting to embrace using their mobile devices to shop online (14 percent), the appetite for mobile shopping in Latin America is already quite substantial in some regions.
In Mexico 57 percent of consumers own a smartphone and 20 percent have already purchased goods or services online using a device. Furthermore, 47% intend to do so in the next 12 months. Conversely, in Brazil, though smartphone penetration is high (50 percent) only 12 percent have used their phone to shop online.
In comparison, smartphone ownership in Argentina is considerably lower than other Latin American regions (33 percent). This has an effect on mobile purchasing, with only 8 percent of Argentinean respondents choosing to shop via a smartphone. Encouragingly, 48 percent of online shoppers in this region intend on using a smartphone or tablet to purchase online over the next 12 months.
Despite this promising uptake of mobile payment there are still a number of obstacles retailers will need to overcome if they want this payment method to prosper.
Market challenges
Despite the promise of this thriving region there are numerous different challenges and legal hurdles that merchants will need to take into account when doing business. Not only is there a remarkably restricted choice of software and payment service providers in Latin America but different tariffs and tax structures, together with a lack of cross-border logistical support. These are all challenges that merchants will need to aware of before embarking on formulating an entry strategy. There is also a notoriously low consumer trust in shopping online and higher fraud levels compared to those in Europe and Asia.
It is also worth noting that if retailers want consumers to willingly shop with their mobile devices optimization will be important for future needs. As it stands mobile optimization of retail websites is cited as one of the top three reasons for not shopping via a mobile device in Argentina, Brazil and Mexico. Mobile functionality improvements should be considered as a means of increasing spend via mobile devices in these regions.
Analyzing the consumer preferences regarding purchasing on international e-commerce websites, the WorldPay's Global Online Shopper report found that 43 percent of Brazilians, 38 percent of Argentinians and 50 percent of Mexicans shop on overseas websites, but they all have concerns. Sixty-four percent of consumers in Argentina have cited shipping and delivery as major concerns when shopping online, closely followed by 59 percent of Brazilians. Anxieties about fraud and protection of identity are also high (Argentina 55 percent, Brazil 47 percent, Mexico 56 percent). Finally the cost of shipping and delivering goods is also a concern, as well as additional taxes. Unexpected or unclear costs can result in shopping cart abandonment.
If merchants can address these concerns -- for example, by making fraud prevention policies clear, presenting prices in local currency, or offering local language website and being transparent about additional costs and taxes -- then the opportunity could be very lucrative.
Payment choice
Finally it is worth noting that Latin America has an extremely fragmented payment culture. Alternative Payment (AP) penetration varies hugely across the globe. Latin America continues to have heavy cash societies with small penetration of credit card and debit cards. WorldPay's Optimizing your Alternative Payments Report found that by 2015, AP growth within e-commerce will outstrip that of cards, particularly in the developing economies such as Brazil and Argentina where the use of cards is much lower. The report also found that in Brazil, Boleto Bancário, a payment method regulated by the Brazilian Federation of Banks, is the preferred AP scheme whereas in Mexico cash-on-delivery and PayPal are the most popular amongst consumers; 52% of Mexican respondents use PayPal against a global average of 40%. Other popular payment platforms in Latin America that merchants should be aware of include DineroMail, Astropay and Baloto. Understanding why these differences exist and what they mean is vital for merchants who already operate in those territories, or are considering doing so.
Advice to merchants
The Latin American market presents some interesting e-commerce opportunities. Mexico and Argentina have the growth potential, but not the scale as they are both notably smaller in economic terms compared to their Latin American neighbor Brazil. It is evident that Brazil is getting online at a rapid rate and views shopping online with considerable enthusiasm. As the levels of Internet penetration increase throughout this region, e-commerce is expected to go from strength to strength.
Growth in Latin America is going to be driven by Internet adoption rates in the first instance, but there are other characteristics within the region that merchants should be considering. Online shoppers in Argentina, Brazil and Mexico that are heavy spenders (those that spend more than 30 percent of their disposable income online) are highly sensitive to payment speed, web navigation and clear pricing of goods and additional costs. Merchants need to focus on fulfilling their needs with slick design and a smooth speedy checkout process, and must be clear about costs from the beginning of the purchasing process. They need to concentrate on providing fast, reliable delivery options at a competitive price and offer choice and reassurance -- especially for cross-border customers. Mobile purchasing intention is high in these regions and optimization should be a priority to improve mobile site functionality and encourage spending via mobile devices.
By understanding that shopping behaviors of consumers will differ from region to region and even within region, merchants will have the best chance to take advantage of e-commerce growth in Latin America.