How a Newly Digitalized Latin America Is Modernizing Cash and the Local Payments Ecosystem

Ebanx is a Business Reporter client.

For most of the world, the next big payment trends are digital. Instant payments, wearable devices, contactless payments, QR codes and Bitcoin are cited as the future of the industry.

However, the payment trend landscape is a little different in Latin America, one of the fastest-growing regions for e-commerce worldwide, where millions of people made their first online purchase in the last year. As digitalization and connectivity in general rise in the region, payment digitalization is taking on a different form from other markets. Perhaps surprisingly, in Latin America, the most reliable offline payment method—cash—has been crucial in facilitating access to the digital world.

In a region of almost 650 million people, where, according to World Bank data, half are unbanked or underbanked, the importance of cash remains evident— despite the massive growth of digital financial inclusion brought by the Covid-19 pandemic.

As millions were ordered to stay at home, digital banking and payments saw unparalleled growth in Latin America. Governments created digital accounts in state-owned banks in order to distribute emergency aid. Many people were financially included and given a digital account for the first time. And even during the deep economic crisis, e-commerce jumped 8.5% in Latin America,[In 2020? Source or link?] with an increase of almost 25% in the number of online consumers, according to EBANX’s Beyond Borders study.

Yet all of this happened while keeping intact the longstanding cultural preference in Latin America to pay with cash. The breakthrough: Not only is the region rapidly adopting digital payments, Latin America is also “digitizing cash.”

The new face of cash in LatAm

“Cash” is no longer solely synonymous with paper money. It has evolved to include paying with cash vouchers through a smartphone and/or using a bank application, or putting cash into a digital wallet and then using it to make a purchase through an international website, send money to a relative, order a pizza or even split bills into installments. When cash takes on a digital form, the limitations and barriers of physical money are removed.

In Brazil, Boleto Bancário, a cash voucher that is one of the country’s most widespread payment methods, can now be paid for through a bank application, without the need for cash. EBANX’s Beyond Borders study shows that the preference to pay for the voucher digitally has grown, and more than half of Brazilian consumers (56%) now say they prefer to pay electronically.

An emerging hybrid use of this type of voucher involves generating the voucher digitally on an e-commerce site, and then paying for it in cash. In Mexico, for example, a consumer can buy clothes on an international website using OXXO, a cash voucher widely popular in Mexico, and can go to any of the 19,000 convenience stores across the country to pay for an online purchase using paper money.

When this method is digitalized, the physical process works seamlessly with the digital process. The barcode generated from the cash voucher is scanned, the physical money is paid to the cashier and boom—the e-commerce order is fulfilled as cash is digitalized and sent across the wonderful new hybrid world.

Why the fast adoption

For many people, blending the physical and the digital is a necessity. Many Latin Americans are living under imposed digitalization due to quarantine measures, as banks and other locations to pay cash in person have been closed or limited to the public. According to the Beyond Borders study, at least 52 million Latin Americans bought online for the first time during the pandemic, including purchasing basic items such as rice, flour and kitchen oil. High and growing levels of internet penetration, especially due to smartphone popularity, have also contributed to rapid digitalization of consumption in LatAm.

In this circumstance, cash payment methods, whether physical or digital, have been a safe alternative for those not in the habit of buying online; those who couldn’t count on any other payment method; and also those distrustful of digital payments due to data theft and credit card fraud (which, unfortunately, are still common in Latin America when compared with other countries).

We have seen this trend at home. EBANX processes payments in nine countries in Latin America for global companies such as Spotify, Uber and Amazon. Historically, alternative payment methods, including cash-based methods, accounted for around 29% of our total volume of e-commerce payments in the region’s six main markets. In 2020, however, there was an impressive growth of these methods, with peaks of up to 40% of our total processed volume for retail merchants in Brazil, for example, as shown in our Beyond Borders study.

In Colombia, for example, reports show that cash usage grew more than 32% during the pandemic, according to a study from Banca de las Oportunidades. At the same time, mobile banking registered a 68% growth in number of operations during the first half of 2020. Once again, cash and digitisation do not compete with each other in Latin America, but instead go hand in hand.

Looking ahead for the future of payment digitalization in LatAm

What we are seeing in Latin America is the emergence of a hybrid payment system. While cashless methods are the bright shiny objects in other parts of the world, in LatAm what is crucial is ensuring that, as the digital landscape evolves and modernizes, so do the most trusted payment methods. In this process, it’s important to create access for the vast majority of the population—whether they want to pay in cash (even via e-commerce) or digitally.

Global brands that want to seize the potential of Latin America should leverage this flexibility and offer a wide range of local payment options. While digital payments have been on the rise, with the surge of digital wallets, and the launch of instant payments in Brazil and Mexico, for example, cash-based payments will keep evolving in the region due to their adaptability and longevity.

Latin America’s e-commerce market will continue to expand at a fast pace and is expected to grow by 19% in 2021, according to Beyond Borders. Consumers’ digital habits, such as the increase in online shopping and use of mobile devices for e-commerce, should remain in the post-pandemic scenario. But cash is not dead—at least in Latin America.

The moment for e-commerce in Latin America is now. Read the full study and discover why.

— João Del Valle, co-founder and COO, EBANX
_{This article originally appeared on Business Reporter. Image credits: header image - Istock 1286211646, body image 1 - courtesy of Ebanx}