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The future of finance in LatAm & the Caribbean

June 16, 2021

E-commerce surges, but logistics hurdles key challenge for 2021

Nov 30, 2020

E-commerce

After exponential growth as a result of COVID-19, e-commerce in Latin America will face new challenges in 2021, experts tell iupana

COVID-19 has catalyzed growth in much of the digital world this year – and e-commerce has been one of the biggest beneficiaries.

Internet shopping has grown exponentially throughout Latin America, with some countries reporting up to 500% increases in online purchases. Experts believe the trend is set to continue.

“As long as the consumer experience is positive, that we manage to get rid of lingering delivery and logistics problems, consumers will keep buying online,” says Paulina Ortiz, e-commerce manager at market analysis firm Nielsen Mexico.

Nielsen statistics indicate e-commerce in Latin America and globally has recorded three years’ worth of growth in just eight months.

In Mexico, for example, e-commerce has grown six-fold, with the average purchase size rising to between MXN$750 and MXN $1,200 (USD $37- $60), compared to MXN $500 (USD $25) before the pandemic.

“They were smaller purchases. People were going for very specific products, like test purchases. This time we have much more consistent purchases in terms of more products, more categories, and more frequency,” says Ortiz.

As consumers have flocked to e-commerce, so too have sellers.  Tiendanube, an e-commerce platform for small businesses, added 35,000 new clients in the first months of the pandemic, according to Santiago Sosa, CEO. Sales over the platform have reached US$ 100 million per month. Given the growth rate, the company expects to reach 400,000 clients with a turnover of US$ 1 billion per month, in the next five years.

Mastercard data shows that Chile (57%), Puerto Rico (48%), Peru and Argentina (44%), Colombia and Mexico (42%), and Brazil (41%), have been the countries with the largest increases in e-commerce this year. Other countries, such as Panama (16%), Guatemala (13%), Ecuador (12%), Peru and Jamaica (10%), also registered strong growth.

“Before the pandemic, e-commerce had been experiencing a rapid rise in the region, and this was only accentuated by quarantines,” Walter Pimenta, senior VP of products and innovation at Mastercard Latin America and Caribbean, said.

“Pre-COVID, the e-commerce growth rate was 45% among Latin Americans; after the pandemic, that number has nearly doubled to an impressive 83%,” he added.

Amid the growth in e-commerce, several aspects stand out. Artificial intelligence is improving the customer experience, logistics upgrades are making online shopping easier, and the rapid evolution is proving a lifeline for small businesses.

Fast, contactless deliveries

Logistics, particularly in terms of delivery times, continues to be one of the biggest challenges for all e-commerce players – both large and small. Indeed, most complaints about e-commerce experiences stem from poor delivery.

“To the extent that companies strengthen their logistics, they will be able to advance much more with these new consumers for sure,” says Ortiz, adding that delivery safety is also very important.

Most consumers rate “zero contact” as the most important element in online purchasing, she says. Some 64% of Latin Americans buy online not because it is necessarily cheaper, but to minimize exposure to coronavirus, according to Nielsen.

The fear of online payments, related to the sharing of bank data and card cloning, was a constraint that overshadowed the sector for a long time, according to Nielsen. That has been overcome, in part, thanks to the spread of home delivery platforms, such as Rappi or Uber, which democratized not only access to e-commerce but also to new forms of payment, Ortiz says.

“What these last-mile platforms did was multiply the payment options; to pay with debit on delivery and even in cash, so you save yourself the fear of having to give your bank details. With this, they encouraged people to buy a lot,” she explained.

See also: Payments and E-Commerce LatAm: Trust grows as transactions surge

Applying AI to the customer experience

Artificial intelligence is already being used in e-commerce in Latin America – but greater use of the technology could improve customer experiences, say experts.

“As this whole issue of AI and augmented virtual reality advances, we will have much more relevant categories in terms of e-commerce for sure,” Ortiz at Nielsen predicts.

Tiendanube’s Sosa says AI is already being used in the infrastructure behind many services.  “Today, there is AI in many places where people don’t know it is being applied. It is much more present in our lives than users can know or imagine,” he says.

AI is applied in all dimensions of the value chain, such as reducing fraud risks, establishing optimal shipping routes, customer service programs with virtual assistants, and more, he says.

While greater use of AI can improve customer experiences, there are other priorities to offer a faster and more accessible purchasing process. From making payments easier, to increasing one click-check out experiences.

“It may sound obvious, but the truth is there is still a lot to do to improve the experience. In Latin America, there is a lot of work left, but in developed markets there is a lot to do too,” he said.

See also: Real-Time Payments LatAm: Options expand but usage grows slowly

E-commerce: A lifesaver for SMEs

The e-commerce boom is not exclusive to the big marketplaces, but it also opened a possibility of “survival” for small and medium traders, who saw in the digital world an immediate solution to the closure of stores and social distancing.

“Something that was already happening accelerated, a quite significant transition from the offline world to the online world, so this trend will continue to grow. It is rare that someone who has sold online, stops doing so,” the founder of Tiendanube said, which recently landed in Mexico and whose main operations are hosted in Brazil and Argentina.

In Mexico, for example, 3 out of 10 small businesses had some form of digital sales before the pandemic. Today the record is that 6 out of 10, sell online, according to Nielsen data.

Despite that growth, there are still challenges for SMEs, mainly associated with technological access and the use of appropriate tools and strategies, says Sosa.

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