Politics, Business & Culture in the Americas

E-Commerce: Easing Cross-Border E-Commerce

Reading Time: 3 minutes

The age of digital commerce is dawning in Latin America, with cross-border marketers looking to the 2014 World Cup and 2016 Olympics in Brazil as opportunities to connect with online shoppers. Will the region capitalize on its e-commerce potential?

The cross-border e-commerce math is simple. More online traffic means more sales opportunities, especially for digitally savvy brands from the U.S. and United Kingdom. The number of Latin Americans accessing the Internet jumped 12 percent last year, and mobile traffic is on the rise too. From July 2011 to July 2012, Flurry Analytics reports that four of the 10 fastest growing iOS and Android markets, as measured by the number of active devices, were in the Americas: Chile (279 percent); Brazil (220 percent); Argentina (217 percent); and Mexico (193 percent).

Federico Torres, CEO of Traetelo, a cross-border marketplace solely focused on Latin America, explained why the region’s future is digital at the June 2013 Chicago Internet Retailer Conference and Exhibition, the world’s largest e-commerce conference. According to Traetelo, Chile (27 percent growth), Mexico (19 percent) and Brazil (19 percent) were among the five fastest-growing e-commerce markets in the world last year. “Three-quarters of Latin America shoppers find the products they search for on U.S. e-commerce sites,” said Torres.

Although the opportunities are alluring, the reality is that capturing online orders is one thing; getting paid is another. Consider Brazil, where establishing a local payment entity can take six months and lots of money and patience. Even after getting paid, the next challenge is transferring money out of the country, which can cost what amounts to a 25 percent extraction fee.

It’s understandable why leaders of emerging markets erect barriers to stifle the outward flow of money. However, making it hard for innovative digital commerce companies to get paid discourages investment in domestic industries (e.g., technology, distribution, accounting, marketing services) poised to grow as e-commerce booms globally.

Support for cross-border trade is happening elsewhere as products and payments flow more freely across borders. Today, e-commerce is growing by over 20 percent annually in the Asia-Pacific region, and by 2017, cross-border e-commerce is expected to drive over 30 percent of all e-commerce growth there.

Yet in Latin America, which is experiencing the same growth rate today, cross-border e-commerce in 2017 will drive half as much growth as in the Asia-Pacific area. Barriers to cross-border trade, especially in payment facilitation, mean Latin America may lose billions of dollars as innovators invest elsewhere.

Look for external and internal pressure on Latin American cross-border and e-payment policies to grow. To date, international e-tailers, defined as merchants who sell their products and services over the Internet, have primarily targeted the global tier-one shopper—the relatively wealthy, international credit card–holding consumer comfortable buying online and familiar with the English language.

But to scale recent investments, digitally savvy brands are now focusing on global tier-two shoppers—namely, upwardly mobile middle-class buyers relatively new to e-commerce and e-payments and who are less comfortable making purchases in English.

Internal pressure will come from these emerging middle-class shoppers. They want popular global brands that cannot be found locally, or at least not affordably. E-payment costs, coupled with costly tariffs and high markups by domestic retailers facing little external competition, means Latin American consumers often pay twice what other shoppers pay for products.

Of course, it’s not just cross-border and payment-related policies and practices that can make it tough for digital commerce industries to thrive in Latin America. Personal payment preferences matter.

Consider Brazil, where roughly 30 million e-consumers have come online in the past two years. Seventy percent of Brazilians’ credit cards are not accepted for international transactions—and many shoppers have low spending limits. The lack of credit card acceptance is true throughout much of Latin America, where only about 20 percent of shoppers have credit cards.

But this doesn’t mean tier-two Latin American shoppers lack buying power. Most shoppers prefer to pay online in the same way that offline payments are made, and according to Torres, 60 percent want to pay cash. Others like to pay via installments or bank transfers.

Brazilians prefer the Boleto Bancario, a popular bank transfer payment option that is safe and trusted by consumers. It is also well-liked by merchants, due to a lack of payment gateway commissions and lower instances of consumer fraud.

Change will require continuous education and direct investment. “Technology moves very fast,” explains Mario Mello, head of PayPal for Latin America, whose company works with governments to create online experiences that comply with local needs and policies.

International online retailers can nurture Latin America’s growth by investing in retail store construction and technology and distribution infrastructures. Their global reach can also help local suppliers find markets for goods and services.

Working with Latin American banks is also critical. Banks are teaching customers how to shop online and providing native language customer service.

For Latin America to be part of the e-commerce future, it must be made easier for global e-tailers to transact with consumers and cheaper for people to buy online.

Tags: E-Commerce
Like what you've read? Subscribe to AQ for more.
Any opinions expressed in this piece do not necessarily reflect those of Americas Quarterly or its publishers.
Sign up for our free newsletter