Insights 05 October 2018 By: James Schildknecht

Discovering the Alternative Payments Landscape Across Latin America

In a region where the vast majority of the population speaks one of two languages – Spanish or Portuguese – each country in Latin America has its own colloquialisms and references that are entirely different from that of neighboring countries.

Mirroring this same-but-different language landscape, Latin Americans use many different alternative payment methods (APMs) from country to country – from bank transfers and cash vouchers to installments, local/regional credit cards and full-functioning mobile wallets such as Apple Pay (which expanded to Brazil in 2018). There are as many APMs in Latin America as there are regional dialects.

Some APMs such as PayPal (operating locally in Mexico and Brazil) are 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 service provider (PSP) connection?

Before considering which payment strategy is right for an individual airline or travel operator, however, an overview of the different payment options currently available to Latin America’s consumers and emerging travel sector is needed.

Cash is King in Many Parts of the Region

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. 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. There are 364 million open credit card accounts in the United States (in a population of about 325 million), for example, and card transactions account for about half of all payments in the European Union. Installments are just as common in Latin America, even on everyday purchases like groceries, whereas credit cards are usually reserved for larger purchases.

What’s interesting is that installment payment options have carried over to the online shopping environment. 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

In Latin America, only 113 million people have credit cards, out of a population of around 650 million. 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)

Digital Wallets

Smartphones now account for 60% of mobile connections in Latin America, up from one in ten connections in 2012. 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)

Online Banking

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 biggest challenge here is fraud and security, especially across borders – in Q1 2018, Latin American ecommerce sites saw an 88% increase in fraud attacks over the previous year, 820 million bot attacks and 150 million rejected transactions. Attack rates for ecommerce sites in the region were 10 times as high as compared to financial services transactions, illustrating the importance of PCI-DSS compliance and other security features for any payment solution (our Velocity payment platform is fully PCI DSS Level 1 and GDPR compliant).

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:

  • SafetyPay
  • SPEI
  • Khipu
  • Servipag

Mobile Payments

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, reaching Itaú Unibanco Holding SA’s roughly 1.2 million card holders who also own an iPhone 6 or higher.

In Chile, 84.5% of total internet access is via mobile device, but true mobile payment users will be at the higher end of the market – the iPhone X cost 6,999 Brazilian reals ($2200) when it launched in Chile (where the average monthly salary is $861 USD). But the “true” mobile payment methods 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:

  • Bim
  • 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 single connection to multiple, local and global PSP providers that can flexibly address new payment needs, quickly add new payment methods to an app or website and (this is crucial) provide more competitive pricing on transaction processing fees. Finally, airlines need a convenient interface where they can manage all payment methods, without 18-month lead times from their legacy PSP or costly one-off integrations. If PSPs formerly provided “payment services,” newer PSPs such as CellPoint Mobile are offering “PSP-services-as-a-service” – the next evolution of airline payments built around one connection, many options.

Multi-PSP Services 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 Mobile’s Velocity payment platform provides one simple interface where airlines and travel merchants can control their payment transactions and connect to a network 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. Velocity features a PCI DSS Level 1 certified card vault and advanced fraud monitoring to ensure a safe and secure payment experience for customers, whatever their preferred method.

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 Mobile works with local and regional airlines in Latin America, including AVA Airways 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 (www.cellpointmobile.com) to discuss how our mobile-first solutions can provide your airline access to a flexible and global network of payment methods and local bank acquirers, while reducing transaction processing fees and making travel easier for your customers.