Steve Villegas is vice president of payment partnerships for North America at cross-border payment specialist PPRO. Opinions are the author's own.
An explosion in fintech over the past decade has ushered in a new era of commerce. Payment innovations and new solutions have closed the technology gap and connected consumers around the world — even those without bank accounts — to the digital marketplace. Many fast-emerging markets across Asia and Latin America have seen breakthroughs in delivering pragmatic payment solutions to meet the needs of each region’s consumers.
These local payment methods, known as alternative payment methods until they ceased to be the alternative, have adapted to the cultural and economic factors of these geographies to offer a seamless and catered payment experience. Fintech innovations have enabled shortcuts in building infrastructure, allowing many countries to achieve fast results. Some regions have altogether leapfrogged certain legacy financial systems. And digital progress across the globe isn't slowing down.
The transformation of payment technologies provides solutions for regions missing what was once considered fundamental infrastructure. But these solutions still have to apply to the needs of specific consumers.
PPRO research shows 38.3% of the population of Latin America is unbanked. This means payment solutions must not be tied to banking institutions or credit cards. Further, 17% of online transactions in Latin America are cash-based. The region has adopted many cash-voucher payment methods to give unbanked and cash-dependent consumers access to global e-commerce. Solutions such as RapiPago in Argentina and BoletoBancario in Brazil have driven the region to a 22.9% increase in business-to-consumer (B2C) e-commerce growth in the past year. Oxxo, meanwhile, gives consumers in Mexico access to e-commerce through their local convenience store.
A smartphone is essentially a virtual bank account.
This phenomenon is not limited to Latin America. Chinese consumers went directly from paying with cash to using mobile payments, skipping the widespread adoption of credit cards. Mobile e-wallets are far outpacing credit cards in terms of market penetration — accounting for 55.7% of online transactions, compared with 22% for credit cards. The creation of QR codes and payment platforms such as WeChat Pay and Alipay were developed in direct response to consumer needs and preferences.
The mobile phone is a key reason that countries like China were able to leapfrog card-based payments. There is a low barrier to financial entry, as anyone with a mobile device is able to participate in the exchange of funds. A smartphone is essentially a virtual bank account. GrabPay, which started out as food delivery and on-demand taxi app has ingrained itself in the lives of 115 million consumers in Southeast Asia.
Across the Asia-Pacific region, there is a 50.1% internet penetration and 51.4% smartphone penetration. That figure jumps much higher in Hong Kong (89.4% and 76%) and South Korea (95.1% and 94%). Consumers have embraced mobile technologies faster in that region than others. About 57.5% of e-commerce transactions in Asia-Pacific are completed on a mobile device.
Unbanked, underbanked and cash-preferring consumers face challenges buying online. But instead of developing nationwide banking infrastructure and waging an uphill battle toward adoption, payment solutions leapfrog this step to give consumers a viable payment method for their needs today.
On the global stage, card-based payments will not be effective. Around the world, local payment methods comprise 77% of total e-commerce spend, and that number will only continue to rise.