How Latin America's local payment schemes connect into a cross-border network

Cross-border payment processors are stitching together Latin America’s patchwork of local payment methods to facilitate the growth of international e-commerce marketplaces and digital content providers in the region.

And, due to the rapid expansion in Latin American e-commerce transactions, these processors are attracting venture capital investment and high valuations.

Digital transactions are surging across Latin Americans as cash-preferred consumers move online for the first time for shopping and entertainment during COVID-19. However, many Latin American consumers use domestic payment methods that aren’t supported by international e-commerce merchants.

In response, cross-border processors are forming partnerships with local acquirers, digital wallet providers, bank networks and cash payment schemes to enable consumers to pay online with their preferred method. The processors make these connections available to global companies such as Amazon, Google, Spotify, AliExpress and Uber via a single API integration, enabling them to accept local payments, which are processed in local currencies and acquired domestically.

Luiz Ribeiro, a principal at General Atlantic, said that the New York-based VC firm has been investing in Latin American digital disruptors since 2000 including Uruguay-based cross-border processor dLocal.

“Local payment solutions are a real area of need for any company wanting to tap emerging market consumers,” he said. “There’s a big opportunity in Latin America: enabling acceptance of the hundreds of local payment options in each country, beyond traditional platforms like Visa or Mastercard, while ensuring that a particular transaction is approved.”

Because 70% of Latin Americans are unbanked or underbanked, Latin America’s e-commerce market has a prevalence of domestic-only non-card payment methods, creating a payment acceptance barrier for cross-border transactions. Local e-commerce payment methods include cash vouchers, digital wallets that can be loaded with cash, bank transfers, and QR code-based instant payments. In addition, many domestic Latin American debit and credit cards can’t be used on international e-commerce sites.

Despite COVID-19, the use of cash voucher payments for online shopping remains popular in Latin America, accounting for 20% of all Latin American e-commerce purchases in 2020, according to “Beyond Borders 2020/2021,” a report from Brazil-based cross-border processor Ebanx. Vouchers such as Brazil’s Boleto Bancário (banking ticket) and Mexico’s Oxxo contain a bar coded invoice that consumers print out and pay with cash at convenience stores or ATMs. According to the Ebanx report, Oxxo vouchers account for 19% of online purchases in Mexico.

Latin Americans can also pay for online purchases by handing over cash to delivery drivers. For Rappi, the largest Latin America on-demand delivery service, the ability for cash-preferred customers to pay delivery drivers with cash and the funds to be deposited at local collection points is a major factor in its growth. In Brazil, Mexico and Costa Rica, Rappi uses a cash collection system involving a network of agent locations developed by Miami-based SafetyPay to collect and reconcile the funds its Rappi delivery drivers receive from customers.

In Brazil, consumers are usingPIX, a QR code-based mobile instant payments and P2P transfer scheme operated by the Central Bank of Brazil, for e-commerce purchases. PIX, which doesn’t require users to have bank accounts, saw 92.5 million transactions in the first month following its November 2020 launch, the Central Bank said.

CoDi (Cobro Digital), Mexico’s QR code-based instant payment scheme which was launched in September 2019, is expected to be used for digital commerce, the “Beyond Borders 2020/2021” report said.

“PIX is a game-changer, and will erode Boleto Bancário’s market share in Brazil, as it offers merchants instant notification of payments, unlike Boleto,” said Michel Golffed, vice president of growth at dLocal, one of several cross-border processors enabling international e-marketplaces to connect to PIX.

According to the “Beyond Borders 2020/2021” study, use of e-wallets grew by 20% in Colombia in 2020, driven by the distribution of emergency aid through digital accounts, and wallets represented 12% of Brazilian online purchases in 2020. Wallet providers include PicPay, the largest wallet in Brazil with 33 million users; MercadoPago, a wallet provided by Latin American e-marketplace MercadoLibre; PayPal; and Colombia’s Nequi, which is owned by Bancolombia.

Partnerships with domestic-only and international wallet providers are important differentiators for cross-border processors wanting to offer clients a wide range of payment methods. “dLocal supports MercadoPago, which is used in Argentina and Brazil and is gaining more traction in Colombia,” said Golffed.

Ebanx supports wallets such as Nequi, PicPay and Argentina’s Ualá. In September 2020, Ebanx partnered with PayPal to enable Brazilians to use their PayPal wallets for purchases on international websites integrated with Ebanx's platform.

Connecting to global PSPs enables cross-border processors to provide local payments services for these PSPs’ clients. “We interconnect to PSPs such as Worldpay, Ingenico and Adyen in order to provide local payments acceptance for their international merchants,” said SafetyPay CEO Gustavo Ruíz Moya. Unlike other cross-border processors offering multiple payment methods, SafetyPay focuses on bank transfers and cash payments through its partnerships with Latin American cash collection networks and bank payment networks.

Another example of collaboration with a PSP is the partnership announced in December 2020 between Luxembourg-based cross-border processor PrimeiroPay and Visa’s acquiring subsidiary Cybersource. The partnership enables PrimeiroPay to use Cybersource’s local acquiring capability and the VisaNet card network in Latin America for cross-border processing and to provide international e-commerce merchants with access to Latin American markets.

PrimeiroPay also has partnerships with other global payments firms to enable their clients to accept local payments in Latin America without needing to establish local entities. “We’re integrated with Ingenico and Adyen so we can provide local processing and handle the flow of funds for international merchants in countries where they don’t have a presence,” said Tim Werner, PrimeiroPay’s CEO.

For VC firms, Latin America is an increasingly attractive region because of the growth of its e-commerce market. According to the “Beyond Borders 2020/2021” report, 52 million Latin Americans purchased online for the first time in 2020, helping the region’s e-commerce market to grow 8.5% year-on-year to $192.6 billion. While Latin American online travel sales fell 37% year-on-year in 2020 due to COVID-19, online retail sales grew by 21%, and the digital goods and services market grew by 45%. The overall Latin American e-commerce market grew by 20% in 2019.

“Due to COVID-19, Latin Americans are using e-commerce for product and services purchase categories such as groceries and food delivery which were previously bought physically,” said Eric Rosenthal, vice president and managing director for the Americas at London-based cross-border processor Rapyd. “We’re seeing significant increases in use of non-card payment methods for e-commerce transactions, including bank transfers and cash vouchers such as Boleto Bancário. People who don’t have credit or debit cards are feeling more comfortable using these alternative payment methods for e-commerce.”

Over the last two years, as the Latin American e-commerce market has expanded, cross-border processors serving the region have attracted significant amounts of funding and seen their valuations soar. In September 2020, dLocal was valued at $1.2 billion, after receiving up to $200 million from existing investor General Atlantic and new investor Addition.

General Atlantic’s Ribeiro said his firm invested in dLocal as it saw an opportunity to help the processor fill a gap that global payments players have left unattended. “While global players normally focus on their core markets in developed economies, dLocal exclusively focuses on payments solutions tailored to emerging markets,” he said. “Its platform addresses two pain points for merchants: greater payment method acceptance and better approval rates.”

Ebanx became a unicorn in October 2019 following an unspecified investment from FTV Capital.

“The VC community realizes there is huge opportunity in Latin America,” said Juliana Etcheverry, Ebanx’s director of strategic payment partnerships and Latin American expansion. “We’ll see more VC investment here in 2021, which will lead to greater competition.”

For Mexican VC fund Ignia, Rapyd’s cash collection network and its extensive connections to local Latin American payment systems attracted it to invest in the company, said Ignia managing partner Álvaro Rodríguez Arregui. In February 2019, Ignia participated in a $40 million Series B funding round in Rapyd led by General Catalyst and Stripe.

Munich-based PPRO entered Latin America in June 2019 after buying Allpago, a Berlin-based alternative payment processor with operations in the region. PPRO has a global partnership with PayPal, which led a $50 million investment round in PPRO in July 2018.

“PPRO uses PayPal’s Brazilian acquiring rails for credit card payment collection and settlement in Brazil,” said Steve Villegas, PPRO’s vice president of North American payment partnerships. “We then remit the funds to PayPal’s merchants cross-border. We plan to expand our partnership with PayPal across Latin America to use PayPal’s acquiring rails for credit card processing.”