Competitionintensifiesine-commerceenablement

Ase-commerceinLatinAmericabecomesmoresophisticated,e-commerceenablersmustuptheirgameAccording to eMarketer, e-commerce retail sales in Latin America reached $47 billion in 2015.1Compare this to US retail e-commerce, clocking in at $341 billion in 2015,2and Latin American e-commercelookstroublinglyunderdeveloped.Thereasonsforthisarewellknown:bankedrateshoverataround30%anda fearof frauddetersevenaffluent credit cardholders fromshoppingonline.Alesser understood reason is that local e-commerce payment enablers and banks lack sometechnological expertise, resulting in toomany authentic transactions beingdeclined. InMexico, thisnumberis14%.InPeru,itcanreach60%.Thegoodnews is,e-commerce inLatinAmericawillgrow15%annually through2019, ranging from11%inBrazilto40%inPeru.Thisisduetoorganicgrowth,butalsobecauseofaconcertedeffortbypayment enablers to improve the customer experience, an opportunity that is inviting ever morecompetition.E-commerceenablementinLatinAmericaremainsafragmentedindustry.InBrazilthereareatleast20e-commercepaymentgateways--technologycompanieswhoenableonlinepaymentsformerchants.InColombia,whichrepresentsjust9%ofBrazil’seCommercemarket,thereare10.Peru,smallerstill,hasat leasteight.Goingforward,competitionwillrampupinthreedistinctways:1)existingleaderswillexpandintonewmarketsandimprovetheirproductoffering;2) localstartupswillenterthemarket;and3)newinternationalgatewayswillarriveinLatinAmericaforthefirsttime.

MarketleadersRegionally,marketleadersincludePayPal,PayUandMercadoPago.PayPalestablishedlocalpresenceinBrazilandMexicoin2010and2012,respectively,andhassinceexpandedlocalservicetoChile,Peruand Colombia. PayPal has exceled at gaining consumer trust of its brand thanks to its enhanced

1.eMartketer.2015.“RetailEcommerceSalesNear$50BillioninLatinAmerica.”http://www.emarketer.com/Article/Retail-Ecommerce-Sales-Near-50-Billion-Latin-America/1012744/.2.DeNale,R.andD.Weidenhamer.2015.“QuarterlyRetailE-CommerceSales,4thQuarter2015.”USCensusBureau.https://www.census.gov/retail/mrts/www/data/pdf/ec_current.pdf/

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securityandvalue-addedservices suchas free return shipping for remorsefulbuyers. PayUhas thelargestfootprintine-commerceenablementintheregionwithpresenceinsevenmarkets;growthisinthe triple digits for newly launched markets, such as Peru. As a Colombian company, PayU haspositioned itself as the Latin American e-commerce expert. In 2015, MercadoPago partnered withAlipaytoenablepaymentsinMexicoforAliExpress(Alibaba),thelargestmarketplaceintheworld.ButwherePayPal,PayUandMercadoPagohaveachievedregional recognition,othergatewayshavefaltered.Theregionislitteredwithlesssavvycompanieswithunstableandinsecureplatforms,whichcanresultindismalconversionratesunder50%.Asconsumersclimbthee-commercelearningcurve,theirexpectationsforuserexperienceincreaseandmerchantsbecomelesstolerantofshoddyservice.

EmerginglocalcompetitionNew local players want to capitalize on themediocre service of incumbents. Conekta, founded inMexico in 2012, enables advanced features less common in Latin America, including recurringpayments, card-on-file, and anti-fraud tools that negate the need for authorization via 3D Secure.3SimilarlaunchesincludeBrazil’sEbanx,whichspecializesinenablinglocalpaymentmethodsforcross-border e-commerce, and Peru’s Culqui, catering to the m-commerce market. As these companiesconsolidate in their home countries, we can expect regional expansion, with a focus on small andmediumbusinessesthatneedexcellentcustomerserviceandintuitivetools.Additionally, local payment gateways and merchants are capitalizing on cash payments for e-commerce.Theboletobancario,acash-basedinvoiceusedreligiouslyinBrazil,actuallygainedshareine-commerce in 2015, ticking up from 18% of transactions to 19%4. This is due in part to Braziliansturningawayfromcredit inamoreeconomicallychallengingclimate,butalsobecausean increasingnumber of e-merchants are accepting boletos for the first time. SafetyPay, a Miami-based cashpayment enabler, has expanded throughout the region to 14 markets, and is actively integratingoperationswithlocalgateways.PagoEfectivo,aPeruviancompetitortoSafetyPay,launchedinOctober2015 the country’s first prepaid card specifically for e-commerce. By enabling these alternativepayments,merchantstapintotwoseverelyunderservedsegments:cardholderswhoareafraidtouseacreditcardonline,anduncardedcustomerswhoareotherwiseshutoutofthee-commercechannel.Emerging local competition is trouble for international gateways, including 2Checkout, Adyen, andGlobal Collect, who face the disadvantage of not being plugged into local processors. As such,transactionsarechargedinforeigncurrenciesandconsumersareassessedFXfees.Merchantearnings3.3DSecureistechnologyofferedbyVisaandMasterCardforcard-not-presenttransactions,whichrequirestheusertoauthenticatehis/heridentity,therebyenhancingsecuring.However,authenticationaddsanadditionalsteptoanye-commercetransactionandresultsinsignificantlylowerauthorizationrates.Gatewaysareattemptingtobypasstheprocessusingtheirownsecurityfeatures.4.Ebit.2016.“Webshoppers33aEdição2016.”http://img.ebit.com.br/webshoppers/pdf/33_webshoppers.pdf

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are stored abroad, necessitating costly wire transfers to the local market. Traditionally, manymerchants have preferred international gateways because of their technological superiority, betterauthorizationratesandlowerfees.Butasthelocalgatewayofferingimproves,merchantsregion-wideareswitchingtolocalproviders.

InternationalPlayersThisdoesnotstopnewinternationalplayersfrombeingattractedtoLatinAmerica,withthebeliefthattheycanoutwitoroutmuscletheregion’slocalsolutions.ThemostpoignantexampleisStripe,whoisinpursuitoftheburgeoningm-commercesegment.InbetaphasesinBrazilandMexico,Stripewantstolaunchitsownproductintheunderpenetratedsegmentofin-apppaymentsandpaymentsviasocialmedia.Itfaceslittleornocompetition.

As the e-commerce market matures, international payment companies are launching evermoresophisticatedproductsintoLatinAmerica,encroachingontheturfoflegacyplayers.VisalaunchedVisaCheckout, a card-on-filewallet, inMexico, Colombia, and Brazil in 2015, andMasterCardwill likelyexpanditscompetingproduct,MasterPass,in2016.eCommercegiantAliExpresshasmadesignificantstrideswith itsproprietarygateway,AliPay,andYellowPepper ispoweringmultipledigitalwallets inColombia,Mexico,andEcuador.

Heydayformerchantsandconsumers.AtestofcunningforpaymentcompaniesAturbulentcompetitivelandscapeisawinformerchantsandconsumers.Withincreasedcompetition,consumers enjoy an improved e-commerce experience, enhanced convenience and a lower risk offraud.Merchantsfacedecliningfeesandbettercustomerserviceasgreatercompetitionpusheslameducksoutofthemarket.

Onedownsideforinternationalmerchants,however,isthecomplexityofthee-commerceenablementlandscapefromaregionalperspective.Thereisnooneprovidertoenablee-commerceforallofLatinAmerica, a rude awakening tomerchants expecting an easy LatAm solution.Gatewayswho a) havepresenceinmultiplemarketsandb)enablelocalpaymentsolutions,suchasPayUandEbanx,havethebest shot at international merchants and their lucrative cross-border sales. But internationalmerchants unfamiliar with these less-known brands are often gun-shy to go with a local solution.Regardless,amulti-facetedapproachtoLatinAmericane-commerceisrequired.

Paymentgateways,bothbigandsmall,areunderfirefromallangles.Largeplayersneedtomeasurethecompetitivedynamicandidentifyacquisitiontargetsorweaknessesthattheycanexploitwiththeirownservicelaunch.Start-ups,armedwithsuperiortechnology,needquickwinsandneedtofindtheright partners to scale up their operations. New players, in search of funding, need to prove to

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investorsthattheirofferingissuperiortowhatisfoundinthemarket.Inshort,competitionisgrowingfiercerandtocompete,companiesmustarmthemselveswithmarketintelligence.

JohnPrice is themanagingdirectorofAmericasMarket Intelligenceanda20+yearveteranof LatinAmericancompetitiveintelligenceandstrategyconsulting.jprice@americasmi.com