The surge in e-commerce, as a result of global stay-at-home orders to combat the COVID-19 pandemic, opened the way for fast growth of digital payments in Latin America. But it’s unclear whether the growth will continue for digital payments after COVID-19 passes.
The new coronavirus pandemic and the associated stay-at-home orders globally have given digital payments a huge boost.
Payments processor SafetyPay, for example, reports that 90% of transactions through its platform are digital today. Before the pandemic, that figure was around 70%.
“Probably in volume, we will end this year similar to the previous year,” predicts Gustavo Ruiz Moya, CEO of SafetyPay. “What we are seeing is that, they are lower volume transactions, but with a higher margin.”
Other digital payment solutions providers also report significant growth in favor of contactless transactions since stay-at-home measures swept through the region.
NovoPayment, which develops payments back-end systems for financial institutions, has seen growing interest in contactless payment tools.
“We are receiving requests for contactless programs, because it is what clients [of our clients] are going to ask for,” says Anabel Pérez, CEO of NovoPayment. “So, already our clients are getting ahead in upgrading their plastic payment methods.”
Smart Beta Fix, a Mexican digital payment and collections start-up, has also seen more interest.
“Demand has increased because this crisis is not only impacting the life of each person, but also businesses,” says Allan Flores, co-founder and CTO of Smart Beta Fix. “Businesses that don’t sell through digital channels are counting the days [of lockdown] and feeling the pinch – until everything returns to ‘normal’.”
Digital payments grow – but with challenges
Although cash has fallen sharply as a means of payment in Latin America, and cards, account transfers and mobile payments have gained ground, experts differ on why uptake is not faster still.
Pérez says the low use of digital channels is due to “lack of prioritization”.
“I think it has been a lack of prioritization in some countries and suppliers,” she says. “Today, more than ever, those who do not participate in this type of service will need to incorporate it because, if they do not have it, their client is going to move to the bank next door or to the provider on the corner.”
For Omar Arab, executive vice president of corporate business development at VeriTran, the low adoption is tied to an issue of resistance to online transactions.
“Many consumers still feel more comfortable using traditional payment methods, given their simplicity, universal acceptance and a sense of control and security,” says Arab.
That reluctance to leave the comfort zone is one of the main barriers to adoption, says Flores.
“The first hurdles stems from uncertainty,” he says. “If I’m not familiar with the payment method, I don’t feel comfortable using it – and I keep using cards and cash. And if there are no strong incentives that make me change my habits, then I keep doing the same.”
Incentives – key for digital payments adoption
While the coronavirus crisis has pushed digital payments to the forefront, now the industry is asking how it can make these channels sustainable in the long term.
SafetyPay’s sustainability plan includes campaigns for banks and other establishments to raise awareness and offer incentives. Diversification is also critical. Ruiz attributes the company’s growth in demand in recent weeks to a diversification strategy launched in 2018.
Flores also agrees on the importance of incentives, pointing to direct benefits at the time of purchase, for example, or the use of credit card-like reward points.
“One of the biggest efforts we have to make during this crisis is to give confidence [to consumers], and give them payment alternatives with very good UX – so that, when the crisis ends, digital payment methods become their preference,” he adds.
What is needed is a dramatic adoption of digital payments – on the same scale as the mobile internet revolution – says Pérez. That will only happen with the “true commitment” among financial services providers to invest in developing best-in-class experiences.
Flores echoes this point. “If we don’t implement direct and concrete initiatives that explain the benefits to users, the crisis will end and we will return to our previous habits.”
Digital payments after COVID-19
Although digital payments in Latin America have nuances in terms of adoption – due to low bank penetration and other factors – large and small businesses are joining the trend to use “socially distant” means of payment.
And while a huge amount of uncertainty remains, experts say that the prognosis for digital payments is positive.
Pérez argues that, with a new appreciation for the convenience of e-commerce, consumers are likely to continue buying online. Further, they may turn to scheduled, repeat purchases.
“Just as today they pay for a subscription to Direct TV, Netflix or Spotify, [people] are very likely willing to pay for subscriptions in new categories of e-commerce that allow them to access goods and services on a regular basis, and thus be sure that, faced with something unexpected, they will not go through the calamities that they have been suffering in the last 7 or 8 weeks. ”
Similarly, VeriTran expects that the digital revolution will remain and industries will continue to bet on them: “The consumer will want to remain independent and digital payments will be their tool,” says Arab. “Digital wallets will continue to grow to avoid physical contact and to be able to carry out most of the daily errands from our homes. ”
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