Editor's note: This blog post was originally published in 2018, but was updated for comprehensiveness in December 2020.
When we last wrote about the alternative payments landscape in Latin America, we began by likening the region's rich tapestry of local dialects to the variety of payment methods used from country to country. In the past two years, this has not changed. Latin Americans continue to use many different alternative payment methods (APMs) – from bank transfers and cash vouchers to installments, local/regional credit cards and full-functioning mobile wallets such as Apple Pay (which is slated to launch in Mexico in early 2021). In fact, the number of APMs available to Latin American consumers has only increased.
Of course, there was one major disruption that occurred since our last report – the coronavirus pandemic. The impacts of that crisis in Latin America were severe, and it accelerated many trends in the payments space. Owing to the necessity of online payments and digital, contactless transactions, 55% of consumers in the region now have a bank account. Online card payments in Chile, for example, more than doubled at the end of March 2020 compared to the same period the year before.
Some APMs such as PayPal (operating locally in Mexico and Brazil) remain popular across multiple Latin American countries, while some, like Brazilian boletos, are strictly domestic. So how should airlines and other travel merchants factor APMs into their payment strategies? Should airlines and travel merchants focus on integrating specific APMs that are relevant only to the locales they serve? Or should they take a more flexible approach that gives them access to dozens of APMs favored by traveler segments from different Latin American countries – all through a single payment orchestration platform?
As airlines and other travel merchants assess their payment strategies in the region, it's worth revisiting the different payment options currently available to Latin America’s consumers and emerging travel sector.
Cash is Still King in Many Places
From the Baja peninsula in Mexico to the Tierra del Fuego archipelago in Chile, the southernmost territory in Latin America, cash is still popular for a number of reasons – lack of banking infrastructure, lack of access to credit, and a mistrust in financial institutions. 85% of transactions in Latin America are cash-based and only 39% of the population has a bank account. 71% of Brazilians report using cash as the "main means for paying for their daily lives." There are a number of mobile money services that allow Latin Americans to shop online and pay for their purchases in cash at authorized locations.
Airlines that offer cash payment options on their websites and mobile apps are not just making it easier to travel but demonstrating their commitment to the Latin American region and its individual countries, where cash is a daily fact of life. Cash payment options in Latin America include:
- OXXO and 7-Eleven (Mexico)
- Pagofacil, Rapipago (Argentina)
- Boleto (Brazil)
- Pagoefectivo (Peru)
- Multicaja, Servipag (Chile)
- Efecty, Baloto (Colombia)
- Redpagos (Uruguay)
Installment Payments are the Norm, Not the Exception
Installment payments (making regular payments over a set period of months) are common across Latin America – over 60% of ecommerce is currently transacted via installments, with Brazil’s ecommerce installment rate as high as 80%. In fact, Latin Americans are as comfortable with making installment payments at the point of sale as North Americans and Europeans are using credit cards. A 2019 survey conducted by EBANX showed that 79% of Latin American consumers prefer to pay with installments for products valued at $50 or more (which would include most airline tickets). Conversely, there are 374 million open credit card accounts in the United States (in a population of about 325 million), and card transactions account for about half of all payments in the European Union.
What’s interesting is that installment payment options have carried over to the online shopping environment, particularly now that COVID has upended traditional retail interactions. Any airline or travel merchant doing business in Latin America, and especially Brazil, Chile, Argentina and Uruguay, will need to add support for online installment payments to match local expectations and make travel purchases more attractive and affordable.
Local Card Schemes
Credit card penetration in Latin America is remarkably low, and growing on average only 1% per year. In some countries such as Cuba, international credit cards are only accepted at tourist locations (for more information about this unique market, download our Cuba infographic for airlines and travel merchants). Other countries have more infrastructure for global card networks but still struggle with fraud and denied transactions (more on that below) when cards are used for cross-border payments.
For these and other reasons, most credit cards in Latin America are local card schemes. These cards can only be processed by local companies and banks, which is why airlines and other travel merchants must work with PSPs that have extensive local bank connections across many countries. Latin Americans largely depend on local payment networks (like Hipercard in Brazil) rather than global networks such as Visa and MasterCard. Local and regional card schemes include:
- Naranja (Argentina)
- Carnet (Mexico)
- Exito (Colombia)
- Hipercard (Brazil)
- Oca (Uruguay)
While credit card penetration in Latin America lags, smartphone penetration among mobile subscriptions has not. In 2019, 510 million mobile subscriptions in Latin America were operated on smartphones and the number is expected to increase to 590 million by 2025. By 2025, 79 percent of all mobile connections in Latin America are expected to be generated by smartphones. Though not all digital wallets require smartphones (many Latin Americans use feature phones to make mobile payments), digital wallets have nonetheless faced some adoption challenges in Latin America as many consumers are accustomed to using their deposited funds immediately rather than as a true “wallet.” But smartphone penetration (and faster connection speeds) are introducing more user-friendly functionality into mobile money services, making them more attractive as everyday wallets.
There are three main types of digital wallet: contactless mobile wallets such as Apple Pay, e-commerce wallets such as Visa Checkout or Amazon Cash, and stored value wallets that allow users to “top up” their feature phone mobile money accounts. PayPal has been quite successful in Latin America thanks to its strong security and value-added services (free return shipping, for example) that connect the wallet to a larger environment for online shopping/ecommerce. While other APMs may have originally been developed to make local utility payments, digital wallets like PayPal have always been consumer-focused products that make it easier to shop and spend online, whether on desktop or mobile.
Many digital wallets in Latin America are attached to a retail chain such as convenience retailer OXXO in Mexico, which launched OXXO PAY in 2017. Amazon Cash has taken an ecommerce-focused approach to payments – “deposit cash now, shop online later” unlike than other APMs (boletos in Brazil, for example) that are meant for a specific one-time purchase. Other ecommerce payment players include:
- MercadoLibre (Argentina)
- Nubank, PagSeguro (Brazil)
- Multicaja (Chile)
- PayPal (operating locally in Mexico and Brazil)
Among Latin America’s top 7 economies, Brazil (68%) and Chile (63%) have the highest banked populations, while Peru has the lowest (29%). Whether a country is predominately “banked” or “unbanked,” there are opportunities for fintech companies to innovate – and many certainly have. One area fintech companies have made their mark is in online banking, making it easier for mobile users to spend directly from a bank account. Bolivia, Brazil and Peru have been particularly friendly to creating a competitive market for mobile money, allowing non-bank third parties to offer mobile or e-wallet products alongside banks, which in turn has spurred banks to improve their own offerings, in partnership with fintech companies.
The COVID-19 accelerated the trend toward online banking further. Not only did ecommerce and contactless payments become a necessary fact of life for Latin American consumers during the pandemic (as they did across the globe), but government aid distributed digitally helped reduce the unbanked population. Brazil’s coronavoucher program and Merenda em Casa, Colombia’s Ingreso Solidario and Argentina’s Ingreso Familiar de Emergencia all distributed financial aid to the populace, but used digital platforms that brought new users into the banking system while getting them used to making more online purchases rather than relying on cash.
More online payments also means more opportunity for fraud – which has always been a major concern in Latin America. Latin America experienced the highest cyberattack rates of all regions globally and realized consistent spikes in attack rates from March to June 2020. Post-COVID, with banks and ecommerce companies scrambling to meet increased demand, the potential for phishing, social engineering, automated bot attacks and other fraud schemes is only increased. This illustrates the importance of PCI-DSS compliance and other security features for any payment solution (for example, our Velocity payment orchestration platform is fully PCI DSS Level 1 and GDPR compliant, and features advanced fraud screening based on consumer payment data collected across channels).
When Latin Americans spend from their bank accounts, they are more likely to do so with payment providers they trust, and they will extend that trust to airlines and travel merchants who accept payment through those providers (trust and security are major factors in mobile payment adoption and usage). Some of these providers include:
All APMs can potentially be “mobile” payments, even cash, but true mobile payments are wallets and services like Apple Pay, Alipay, Google Pay and Samsung Pay (i.e., APMs built specifically for a mobile-first environment to replace cash and cards). In 2018, Apple Pay made its long-awaited debut in Brazil, and is set to launch in Mexico in early 2021.
Mobile internet usage is widespread among Latin Americans – there are 144 million mobile internet users in Brazil 85 million in Mexico and around 33 million each in Argentina and Colombia. But true mobile payment users will be at the higher end of the market, and these are crucial for airlines and other cross-border travel merchants to capture a segment of the market that is willing and able to travel, for business and leisure. Local mobile payment players in Latin America include:
- Visa Checkout (Brazil, Mexico)
- Apple Pay (Brazil)
Supporting the APM Landscape in Latin America
Once airlines and travel merchants are familiar with the different APMs in Latin America, they will need to think about their payment strategies in the region. It’s undeniable that support for APMs in Latin America is an urgent business case, but transaction fees, implementation costs and integration lead times can quickly sink payment strategies for airlines and travel merchants.
The objective is not just to offer alternative payment methods, but to offer the right ones for that customer, passenger, traveler, country and market. Airlines in Brazil or Mexico or the Dominican Republic, to name just a few countries, need to be able to quickly add new payment methods in new markets and for new customers as their route networks evolve. They cannot expect their legacy payment service provider (PSP) to work around their route network evolution.
Airlines today need a payment orchestration platform that can flexibly address new payment needs, quickly add new payment methods to an app or website and (this is crucial) provide intelligent routing and a multi-acquirer strategy that can reduce per-transaction costs. Finally, airlines need a convenient control panel and dashboard where they can manage all aspects of their payment ecosystem, without 18-month lead times to introduce new payment method from their legacy PSP or costly one-off integrations. If PSPs formerly provided “payment services,” payment orchestration platforms provide payment ecosystem control, and a holistic approach to all aspects of a transaction.
Payment Orchestration for Airlines in Latin America
Traditionally, airlines have had a single payment service provider (PSP) that works around their legacy systems and occasionally integrates a new payment offering. But this legacy Airline-PSP model was built around traditional financial systems where banks built out the global “rails” for payments. Lacking access to these traditional payment options, Latin Americans need alternatives that work for them and make it easier to pay for travel products and services across borders. And airlines looking to serve this market need to support those alternatives.
CellPoint Digital's payment orchestration platform offers quick implementation of popular APMs, including cash options, installment payments, local card schemes, digital wallets, online banking options and “true” mobile payments such as Apple Pay and Alipay. This POP also features intelligent routing and advanced fraud monitoring to reduce costs and ensure a safe and secure payment experience for customers.
Is your airline doing business in Latin America? Could your airline be doing in business in Latin America? What are the obstacles, hindrances and challenges you face when it comes to payment strategy and execution? CellPoint Digital works with local and regional airlines in Latin America, including Viva Air and Sunrise Airways, to realize their payment and revenue strategies in the mobile channel, cut costs, increase revenue and be more flexible with their sales and payment strategies.
Contact us today to discuss how we can help you design your end-to-end payment solution and optimize your digital commerce to help you build share in the Latin American market.