The future of finance in LatAm & the Caribbean

The end of the POS? Rappi looks to a future of mobile payments

Mar 28, 2022

By Antony Pinedo
Paga con Rappi

The Colombian superapp has introduced Pay with Rappi, a service that’s set to compete with platforms such as Mercado Pago in Mexico, Colombia, Brazil, Chile and Peru, and complete its ecosystem of financial solutions.

Rappi has plunged into the electronic payments business with the introduction of a processor that leverages app data to improve the user experience, in the Colombian unicorn’s latest bid to capitalize on gains in the growing digital financial services market.

Pay with Rappi — or Paga con Rappi — is already available in Mexico and Colombia and will be released in Brazil, Peru and Chile in the next three months. The processor offers electronic payment processing for e-commerce through a simple integration, with which the firm aims to compete with giants such as PayPal of the U.S. and Argentina’s Mercado Pago, which increased transactions by 56% last year.

Rappi is betting that in the near future, electronic payments will displace the acquiring network that prevails today—and that’s a wave it doesn’t want to miss.

“The dataphone (point of sale terminal) is probably going to die,” says Lorena Sánchez, global head of Pay with Rappi, at an event organized by UTEC, a Peruvian university.

“And it’s most likely going to be replaced by cell phones. The new dataphone will be these virtual payment processors, like what we have in Pay with Rappi,” she says.

Rappi has long ceased to be simply a delivery app. Founded in 2015, it has followed the superapp model that seeks to cover the entire commercial chain: from the sale of the product to payment, financing and delivery.

Its offering has spread into digital banking with products such as wallets and cards, under its RappiPay venture with Colombia’s Davivienda . And last year, it applied for a license in Colombia that would allow it to offer users a savings account that would see RappiPay evolve as a product.

“What makes this process different is that, when it’s a B2C facing the user, it speeds up check-outs in e-commerce in order to make payments for services more friendly,” Sánchez says.

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Data: The superapp’s secret weapon

To simplify purchases, Pay with Rappi uses information from the app that takes the order (such as the data from the card used for the transaction), in order to avoid its re-entry into different e-commerce apps. In addition, it generates new data, such as where the transaction takes place, what the user buys, and whether they pay in installments.

“What we do is we share the information we already have saved with the retailer and then process the transactions,” says Sánchez.

An order they make on another website “can reach their home at the same address they have registered when they buy on Rappi. This saves them a lot of time because they no longer have to enter their data every time they go shopping online,” she adds.

In this way, the unicorn is taking advantage of the trend of complete ecosystems, where data gains value through streamlining and identifying the responses and needs of users; it’s a particularity of superapps that will continue to take shape and enhance innovative business models—and attract more users.

In a survey by Americas Market Intelligence (AMI), 72.9% of Latin Americans said they prefer to use financial services through digital channels while just 33.9% would rather go to a branch.

And, even more strikingly, nearly half of those questioned said they are looking for a new financial services provider, which is an opportunity for neobanks.

“In the end, the money is in moving the money,” Andrés Carriedo, founder of DesignBanking, a consultancy for fintechs and banking based in Mexico, told iupana.

“Startups that sell cars, houses; even rental companies: in the end every transaction will have its own means of payment, without intermediaries. They’ll try to provide all the financing,” he adds.

This will allow you to make a single login, follow a single KYC process (know your client), adding a qualitative difference for users.

“It gives you the possibility of already having the data and making onboarding much easier, once you are able to use the data the client gave you for one thing in something else,” adds Carriedo.

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Rappi’s challenges ahead

However, the expansion of multiapps is being accompanied by regulatory, implementation and operational cost challenges.

Rappi has operations in more than 250 cities in Latin America, a region that has diversity in payment methods, and legislation. Its market value was $5.25 billion in September 2021, when it raised $500 million in a series G funding round.

Companies such as Rappi face “high marketing costs to acquire and retain customers, although this strategy does not guarantee loyalty. They can burn through capital quickly, then investors may start demanding stabilization in growth so they can see results,” Juan Ortega, a specialist in economics and finance in Mexico, told iupana.

Carriedo adds that the challenge for fintechs looking to build these financial supermarkets will be to channel their efforts towards more profitable customers. “They are going to focus mainly on what is familiar: areas where they already have captive customers, users who are already interoperating with more than one service.”

“In the end, the limits are set by the law and the competition,” he adds.

Meanwhile, in the not too distant future, Rappi hopes to lower fees and expand its financial offering to catch the attention of new audiences.

“I think where this is also going is merchants integrating directly with payment processors, without intermediaries for clearing. That’s what should lower the costs, because you’re going to take all the intermediaries out of the game,” says Sánchez.

The company doesn’t rule out the possibility of starting to make loans to SMEs—something that fintechs such as Clip, Tribal and Treinta are already doing.

It’s probably going to happen in the near future, she adds.

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