Expanding to the Latin American market: payment trends & business specificities
Expansion to other regions or countries looks like a logical option for further developing a business that is overgrowing its domestic market. But the likelihood of failure during this period increases as in any new project: a company accustomed to stability and comfort gets into an unknown surrounding filled with threats. To get through it, businesses should execute research and develop a detailed expansion strategy.
This article is intended to help you in case you decided to expand your business to the Latin American market.
Latin American market overview
Latin America comprises 20 countries and 14 independent territories. The population of the region is over 600 million people. The region represents a whole cluster of promising markets, among which Brazil, Mexico, and Argentina stand out. The market in Latin America is not as highly competitive as in the United States and Europe, where most entrepreneurs with global ambitions work.
Latin America is now ahead of even the United States in terms of high-speed and mobile internet growth. The number of mobile internet users in Latin America is expected to reach 424 million by 2025. Meanwhile, 70% of Latin Americans have smartphones, which makes them one of the most connected populations in the world. This level of internet accessibility opens up new ways and opportunities for communication and, as a result, contributes to rapid growth in many sectors of the economy.
According to Goldman Sachs‘ review of emerging economies, Brazil and Mexico will be in the top 10 largest economies in the world by 2050. All these circumstances make the region attractive for global companies and investors across the globe. Moreover, consumers’ habits have changed since the last year — 2020 made people buy online like never before. It is conditioned upon social isolation and digitalisation, giving lots of opportunities for global companies.
Expanding to the Latin American market: 4 main don’ts
Latin America tends to copy and adapt the world’s high-tech services to local realities almost instantly. The region has analogues of Uber and Amazon. And an Argentinean marketplace Mercado Libre has bitten off such a share of the potential market for eBay that the latter was forced to enter into a strategic alliance with a local competitor. Original projects do not always have time to approach the Latin American market. Usually, local entrepreneurs are quicker to create similar services. It is not profitable for world-renowned companies to enter the Latin American markets.
- Don’t ignore local culture and region’s specificity. Before entering the new market, it would be nice to define a country to start with and study it closely. Some people perceive Latin America as a single region or lay emphasis only on a few large countries. But each of the countries has its own characteristics that directly affect business performance. They include local regulations — licensing, certification, etc., and local customs, which often strongly impact business development. The specifics of doing business in each country can often become a critical restriction for founders.
- Don’t disregard the rules of the local business performance. In Argentina, for instance, a business focused on domestic demand may do good. But it will be almost impossible to withdraw money abroad. It is also important to determine the importance of the political structure of the country’s market. For example, only 7 countries in the region belong to countries with a free democracy. These are Argentina, Brazil, Paraguay, El Salvador, Uruguay, Chile, Peru, and Costa Rica.
- Don’t understate the competitors. For the countries of Latin America, China is an important strategic partner. Take into account this factor and plan how your company will compete with such a major player. The volumes of import and export operations are growing. But still, China is supplying much more goods to Latin America than buys from it. Also, China occupies the majority of free business niches in Latin America, and investments go in various directions: from agriculture to IT and HiTech.
- Don’t put everything on the line at once. It is worth visiting a foreign market for business development before launching a project in it. At least do not invest all the money in the project at once. This is one of the common mistakes many companies make. In Latin America, there are countries such as Chile, Argentina, Costa Rica, where the local population treats foreigners very well. But knowledge of Spanish is critical here.
Preferred payment options in Latin America
The regional market shows particular interest in new B2B solutions for medium and small businesses. Compared to the United States and Europe, entrepreneurs in Latin America do not have a wide choice of marketing, sales, infrastructure, and enterprise management tools. In general, online commerce is growing rapidly in this region, especially in Argentina. A large number of online shoppers is concentrated in Chile.
COVID-19 significantly impacted consumers’ choice of payments. The pandemic modified Latin Americans’ spending habits in 2020. Now consumers try to avoid using cash wherever it is possible, making contactless payments their first choice. It provided an additional impetus for the growth of m-commerce.
Bank cards have a large share of online payments in Brazil, Colombia, Mexico, and the Dominican Republic. Still, they are in serious competition with PayPal, cash on delivery or at a local bank, and local payment systems. In Brazil, a third is accounted for its own Boleto Bancário payment system, together with bank cards of local payment systems, they occupy 93% of the market. In Colombia, both cash and bank card payments are popular — they account for 61%. Cards of the international payment systems VISA and MasterCard are also used here. At the same time, about half of online purchases in Brazil are paid from a mobile phone. This figure is growing in Colombia as well.
Local payment systems are popular in Mexico; international bank cards account for 28% of the market. Although the penetration of bank cards in Mexico is small by the standards of Latin America, they dominate online payments. Prepaid cards Teléfonos de Mexico, PayPal, and direct bank account payments are relatively popular alternative payment methods in this country.
Expanding to new markets is an effective way to grow a business. But the success of such a step largely depends on thorough preparation and willingness to take risks. When planning to launch a project in Latin America, it is worth looking at the specifics of doing business in each country because they can become critical restrictions for founders. At Corefy, we provide our clients with an opportunity to start accepting payments quickly and connect hundreds of payment methods in several clicks. Contact our team — we are ready to assist you with choosing the most relevant payment strategy to expand your business to any market.