Brazil remains a quagmire for international merchants. In the midst of recession, a president recently impeached, and notorious red tape, taking on Brazil seems like a task for only the foolhardy. Yet with a population of 200 million, a tech-savvy and consumption-driven middle class and arguably the most Internet-connected population in the world, Brazil is a necessary evil for international merchants looking to expand internationally.
The goods news is that e-commerce is still a bright spot in the Brazilian economy, set to grow 15% in 2016, while the rest of the economy will contract 3%. Brazil’s e-commerce market totals roughly $23 billion, dwarfing the rest of Latin America. M-commerce will grow almost 90% this year, driven by the expanding app economy and the rising popularity of on-demand goods and services. Despite Brazil’s challenges, e-commerce in every vertical offers opportunity for the ambitious e-merchant.
Yet successfully penetrating Brazilian e-commerce requires a well-honed strategy, considering Brazil’s complex local payment landscape. To the dismay of many North Americans and Europeans, Brazil has several peculiarities that make it difficult for merchants to bill their clients. In fact, without a local payment strategy, merchants have access to a measly 17% of Brazil’s total addressable e-commerce market.
The reasons for this are many. Firstly, if merchants use an offshore payments approach by processing transactions through international acquirers, they are unable to offer local payment methods. Only 20% of Brazil’s 80 million active credit cards are enabled for international purchases, so without a connection to local banks, merchants are already forgoing 80% of the credit card market. On top of this, 50 million Brazilians do not have a credit card and must rely on cash-based payments to buy online. The famous boleto banacrio, a voucher paid for in cash at banks and other locations, solves this problem, and accounts for 23% of e-commerce spend. Finally, 60% of e-commerce spend is made using interest-free installment plans, which are made available by Brazil’s local banks. In short, Brazilians pay for things differently than they do in the US or Europe, and merchants failing to adapt their online store to local habits and preferences will come up short.
Merchants fall into these trappings because a) they lack the know-how to establish local partnerships; or b) are intimidated by Brazil’s high cost of doing business. Offering a local payments strategy in many cases requires opening a local entity, which is a too-pricey investment for merchants expanding around the world. Many are not aware, however, that local payment providers offer additional options and often negate the need to have a local entity in Brazil at all. Providers such as AstroPay, allpago, and PayU, are innovating to make local e-commerce payments a reality for international merchants.
Merchants are well advised to conduct due diligence when selecting a payment gateway in Brazil. Upwards of 25 local providers exist in the market, with only 15 or so offering decent service. Gateways and payment service providers vary on their suitability for merchants depending on size, verticality and how heavy-handed they want their local presence to be. Another important consideration is the providers’ footprint in Latin American and their ability to power payments beyond Brazil. But the fact remains, developing a local payments strategy in Brazil is accessible to merchants abroad at a lower cost than most believe. And Brazilian e-commerce is too competitive and large a market for international merchants to squander the opportunity.