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Opporuntities in Brazil’s
e-commerce market
Why and how to go to market
June 2016
2
Legal notice
Wherever possible, AMI has verified the accuracy of information provided by third parties, but
does not und...
3
ca
About AMI
4
AMI is Latin America's leading Market
Intelligence and Advisory group.
AMI is the leading independent Market Intelligenc...
5
Experts in the Latin American payments industry
Mobile money Payment gateways Financial inclusion
Correspondent
banking
...
6
Setting the stage: Market size,
segmentation and growth
7
The state of e-commerce in Brazil
#10 in the world for e-commerce sales, Brazil towers over other LatAm markets
*Compris...
8
Retail takes 52% of all e-commerce in Brazil
Compared to 2014, high ticket items gained share, while cheaper goods lost ...
9
An impressive growth story – Brazil is resilient
Even in the midst of economic crisis, e-commerce is growing at surprisi...
10
E-commerce growth is slowing, but mobile is set to take off
M-commerce is gaining traction and has years of robust grow...
11
So what? Developing an e-commerce strategy for Brazil
Brazil will see sustained e-commerce growth of 10-15% growth in t...
12
Brazil’s local payment system
13
How to go to market? Cross-border vs local
Cross-border is more than having a Brazilian website. It means plugging into...
14
Cross-border sales represent only 17% of
all e-commerce in Brazil. Without a local
processing strategy, merchants forfe...
15
Active credit cards in Brazil, 2015, millions
Brazil’s e-commerce payment landscape
Local payment methods represent 78%...
16
Top international merchants with a local strategy
Both international retailers and digital goods merchants leverage loc...
17
Parcelamento makes Brazil go round
Offering parcelamento places a financial burden on merchants but can significantly i...
18
Payment processing: Key takeaways
Brazil is too competitive a market for merchants not to take seriously via a local st...
19
Going local: How is it done?
20
Doing business in Brazil: Not for the faint of heart
Many merchants are deterred from Brazil because of the high cost a...
21
Going local is no easy task, but merchants have options
Due diligence into e-commerce enablers and their capabilities w...
22
Case study: Genesis*
By scrapping a cross-border strategy in Brazil and going local, Genesis grew its revenue by double...
23
Where do I get more information?
24
Optimizing E-commerce payments in Brazil
A practical guide for international merchants on how and why to go local
Brazi...
25
About AMI
AMI is Latin America’s leading independent
market intelligence consultancy
Our founding partners helped pione...
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Doing Business in Brazil - The Ecommerce & Cross Border Trade

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Doing Business in Brazil - The Ecommerce & Cross Border Trade

  1. 1. Opporuntities in Brazil’s e-commerce market Why and how to go to market June 2016
  2. 2. 2 Legal notice Wherever possible, AMI has verified the accuracy of information provided by third parties, but does not under any circumstances accept responsibility for such inaccuracies should they remain unverified. It is expected that the Client will use the information provided in this report in conjunction with other information and with sound management practices. AMI therefore will not assume responsibility for commercial loss due to business decisions made based on the use or non-use of the information provided.
  3. 3. 3 ca About AMI
  4. 4. 4 AMI is Latin America's leading Market Intelligence and Advisory group. AMI is the leading independent Market Intelligence provider in Latin America AMI’s founding partners are pioneers in the field of Market Intelligence in Latin America, with over 20 years experience in the region. AMI has experience in every market in Latin America and the Caribbean. AMI is a member of SCIP – Strategic and Competitive Intelligence Professionals.
  5. 5. 5 Experts in the Latin American payments industry Mobile money Payment gateways Financial inclusion Correspondent banking Remmittances Personal credit cards Small business and corporate credit cards Prepaid cards Fleet cards Distribution and purchasing cards POS systems NFC EMV cards Mobile payments E-commerce Payment gateways Digital wallet Retail cards Credit lines Mortgages
  6. 6. 6 Setting the stage: Market size, segmentation and growth
  7. 7. 7 The state of e-commerce in Brazil #10 in the world for e-commerce sales, Brazil towers over other LatAm markets *Comprises all segments including retail, travel, digital goods and services, and all payment methods Sources: eMarketer, E-bit, Bigdata Corp, AMI analysis Brazilian e-commerce data, 2015 market size* $23 billion e-shoppers 39 million online merchants 550,000 Average ticket of $111 Mobile penetration at 14% $7 $5 $5 $2 Global comparison, e-commerce sales, USD bn, 2015 Latin America $563 $349 $94 $79 Global
  8. 8. 8 Retail takes 52% of all e-commerce in Brazil Compared to 2014, high ticket items gained share, while cheaper goods lost momentum Sources: eMarketer, E-bit, NextCommerce, AMI analysis $12 $7 $4 Retail Travel Digital goods and services $2.9 $2.6 $1.6 $1.3 $1.1 $1.0 $1.6 Other Toys, games and leisure Books and magazines Mobile phones and accessories Electronics Home furnishings and appliances Fashion and cosmetics E-commerce market by vertical, USD bn, 2015 Retail e-commerce sales by category, USD bn, 2015 Compared to 2014 Fashion and cosmetics 19% Mobile phones and accessories 27% Home appliances 45%
  9. 9. 9 An impressive growth story – Brazil is resilient Even in the midst of economic crisis, e-commerce is growing at surprising rates 4% 2% 3% 0% -4% -4% 0% 1% 2% 2011 2012 2013 2014 2015 2016 2017 2018 2019 $26 $34 $45 $65 $78 $90 $15 $17 $20 $26 $23 $24 2011 2012 2013 2014 2015 2016 (E) 2011-2016, R$ and USD billions Reais Sources: eMarketer, E-bit, NextCommerce, IMF, Federal Reserve, AMI analysis 0.6 0.5 0.4 0.4 0.3 2011 2012 2013 2014 2015 Brazil is currently experiencing its worst recession since the 1930s The Real has lost 50% of its value against the dollar since 2011 Despite a collapsing economy, e- commerce grew 20% in 2015 and is forecasted to grow 13% in 2016. Brazil GDP growth Value of the Real against the USD Brazilian e-commerce market, 2011-206
  10. 10. 10 E-commerce growth is slowing, but mobile is set to take off M-commerce is gaining traction and has years of robust growth ahead E-retail sales stats 2014-2015 growth Number of e-shoppers 3% Number of transactions 3% Total sales 15% Value of average ticket 12% Sales via mobile 88% Sources: E-bit 26% 20% 28% 24% 15% 34% 25% 32% 17% 3% 2011 2012 2013 2014 2015 Growth of e-commerce retail sales Growth of number of e-commerce retail transactions The average ticket grew in 2015, as the number of transactions nearly stagnated. This indicates less participation by SES C and B as a result of economic crisis. E-commerce growth is slowing, as a result of overall market maturation and a difficult economic environment. But the mobile channel is growing energetically, powered by free browsing provided by retailers, the expansion of the app economy and growing popularity of on-demand services. Brazilian E-commerce growth rates, %
  11. 11. 11 So what? Developing an e-commerce strategy for Brazil Brazil will see sustained e-commerce growth of 10-15% growth in the medium term. To be extra competitive, merchants need a honed mobile strategy. How? 2016 will be Brazil’s worst year in decades. Growth will resume in 2018 Even so, merchants can expect e-commerce growth of 10-15% in 2016 and 15- 17% in 2017 Mobile will grow in the high double digits for several years to come International merchants wary about Brazil’s economic situation should use the next 24 months to gear up for a Brazil market entry in late 2017 Merchants entering Brazil in the short term must have a targeted strategy to drive and capture mobile sales Now is a particularly good time for mobile-oriented digital goods merchants to begin playing in Brazil Developing an e-commerce strategy
  12. 12. 12 Brazil’s local payment system
  13. 13. 13 How to go to market? Cross-border vs local Cross-border is more than having a Brazilian website. It means plugging into the local payment system Global acquirers • From a payments perspective, a “cross-border” transaction is one that is captured by an international acquirer, even if it is transacted in a local currency, on a localized website. • A transaction is considered “local” when it is processed by a local acquirer. Brazilian acquirers • Most international merchants do not have a Brazil-specific payments strategy. They process transactions from Brazil cross-border through international acquirers. What does cross-border mean for payments? Cross-border merchants
  14. 14. 14 Cross-border sales represent only 17% of all e-commerce in Brazil. Without a local processing strategy, merchants forfeit access to 19$ bn addressable market The problem: Cross-border is only the tip of the iceberg A cross-border approach restricts merchants to only 17% of the total market $19 $4 Domestic vs cross-border e-commerce sales in Brazil 2015, USD billions Domestic Cross-border Sources: E-bit, interviews, AMI analysis A cross-border approach is not ideal for several reasons: 1. All purchases made in a foreign currency are subject to a 6.38% financial operations tax. 2. Only 20% of Brazilian credit cards are enabled for international purchases 3. Non-card payments make up ~25% of all e-commerce sales and are only available through Brazilian banks 4. ~60% of e-commerce sales are purchased through an installment plan, made available only by Brazilian acquirers
  15. 15. 15 Active credit cards in Brazil, 2015, millions Brazil’s e-commerce payment landscape Local payment methods represent 78% of e-commerce sales, accessible only through local acquirers Sources: Pagamento.me, Adyen, allpago, The Paypers, interviews, AMI analysis • A cash-based invoice issued by banks at the request of a merchant • Customers select boleto bancario at check out, print out a voucher, and pay in cash at millions of locations throughout Brazil, i.e. banks, supermarkets, lottery agents, etc. Brazilian e-commerce sales by payment type, 2015 17 68 Domestic use only Enabled for international use 22% 49% 23% 4% 2% International credit card Domestic credit card Boleto bancario Online bank transfer Debit card What is boleto bancario? Why do international merchants need to think about boleto? • Boleto makes up 23% of all e-commerce spend and is especially popular in high-ticket purchases • 50 million Brazilians do not have a bank account or any electronic payment method.
  16. 16. 16 Top international merchants with a local strategy Both international retailers and digital goods merchants leverage local payment methods
  17. 17. 17 Parcelamento makes Brazil go round Offering parcelamento places a financial burden on merchants but can significantly increase revenue Parcelamento, or “interest free” installment plans, are a cornerstone of the Brazilian shopping experience How do they work? • Acquirers make the option available to merchants for varying fees • Merchants make the option available to customers at the point of sale • Customers can choose to finance their purchase from three up to 12 installments, usually “interest free” • Merchants incorporate the financial cost of installments into the final price of the product • 12 month interest-free installment plans are available on goods priced as low at R$150, or 40 USD, for every kind of product Why should international merchants care? In 2015, 58% of e-commerce sales were made using an installment plan, equal to $13 bn. Sources: E-bit (0 Avaliações) Camiseta Nike Franca | Jogador Masculina Camiseta/Manga Curta/Camis… Por: R$ 499,90 Ou 10x de R$ 49.99 sem juros Preco por adulto Aincluir taxas e encargos R$ 258 Ate 10 vezes sem juros! Comprar Smartphone Xiaome Redmi 2 Cinza De: R$ 649,00 Por R$ 10x de R$ 549,90 Sem juros 549,00
  18. 18. 18 Payment processing: Key takeaways Brazil is too competitive a market for merchants not to take seriously via a local strategy Merchants who use a cross-border strategy in Brazil are only scratching the surface of their sales potential. In contrast, processing locally, merchants can offer local payment methods, which grants them access to an additional $19 bn in addressable market. Brazilian consumers expect to be able to buy in installments. To be competitive, merchants—especially retailers—must offer them. To generate a sound local payments strategy, merchants need to understand the local banking and acquiring landscape, payment methods, and peculiarities of the Brazilian market. To process payments locally, merchants must work with local acquirers
  19. 19. 19 Going local: How is it done?
  20. 20. 20 Doing business in Brazil: Not for the faint of heart Many merchants are deterred from Brazil because of the high cost and risk involved Brazil is a difficult and expensive place to do business. The notorious Custo brasileiro entails: • Cumbersome regulation and endless red tape • High taxes and a supremely complicated tax code • Extreme difficulty firing personnel • Difficulty repatriating funds • Corruption Brazil’s rank on the 2015 World Bank’s Ease of Doing Business Index, out of 185 countries Overall rank Starting a business Paying taxes Registering property Trading across borders 116 174 178 130 145 Sources: World Bank In many cases, to process payments locally, merchants must open a legal entity Open a Brazilian bank account Hire a payment gateway or payment service provider and integrate with local acquirers Register with the local tax authority
  21. 21. 21 Going local is no easy task, but merchants have options Due diligence into e-commerce enablers and their capabilities will help clarify the decision of how to go local Opening a full local entity is not always required, especially for digital goods merchants who do not need a physical footprint. • General advisory services on how to set up local payments • Introductions to local attorneys and accountants • Opening and maintenance of a non-resident bank account • Official representation of the merchant in Brazil in lieu of a legal entity • Wire transfers out of Brazil • Customer support for the merchant’s customers in Brazil • Support for payments in other LatAm and global markets Various technology companies enable merchants to sell from afar without a full legal entity. E-commerce enablers – gateways and payment service providers – depending on their model, provide a long list of services to help merchants sell into Brazil. These include:
  22. 22. 22 Case study: Genesis* By scrapping a cross-border strategy in Brazil and going local, Genesis grew its revenue by double digits *Fictional name Sources: AstroPay Genesis is a publicly traded Internet domain registrar and web hosting company, with presence worldwide. AstroPay is a Uruguayan-based payment service provider whose business model allows merchants to sell locally into Brazil without ever setting up a local entity. “Processing payments locally in Brazil resulted in double-digit revenue growth in the country.” -- AstroPay The Challenge • Genesis had strong presence in the US and Europe and wanted to expand into emerging markets. • It was processing international credit cards only, resulting in <40% average approval rates. • It needed a partner to help it accept local payment methods in Latin America and grow its market share. The Result • Genesis’ overall approval rate soared to over 75%. • Working with a regional partner with local knowledge and infrastructure allowed Genesis to go to market in a matter of weeks, as opposed to months or even years. • The initial pilot with AstroPay’s Redirect API was so successful that Genesis invested more resources and implemented the Full API in Brazil, further upping conversion rates. The Solution • In 2012, Genesis chose AstroPay as its Brazilian and Latin American payments processing partner. • The partnership enabled Genesis to accept local credit cards, bank transfers and boleto bancario. • Through AstroPay, Genesis also began collecting local payments in Mexico and Colombia.
  23. 23. 23 Where do I get more information?
  24. 24. 24 Optimizing E-commerce payments in Brazil A practical guide for international merchants on how and why to go local Brazil’s e-commerce market Brazil’s banking system • Top Brazilian banks by revenue • Acquirer market share • Card network market share • E-commerce breakdown by payment method • Detailed description of local payment methods, including local credit card schemes, boleto bancario, and wallets • Detailed description of installments E-commerce enabler directory Detailed profile of 16 payment gateways and payment service providers, including: • Number of merchants • Number of transactions processed per month • 2015 growth • Years of experience in Brazil and ownership • Coverage of other LatAm markets • Acquirers and all payment methods supported • Complete service offering • Fraud and risk management services • Tools and strategies to maximize approval rate • Merchant specialization and noteworthy clients • Level of experience with international merchants • Special services for international merchants • Capabilities regarding the need to open a legal entity • Number of employees • Customer service and English language capabilities • Fee structure • Competitive advantage • Types of merchants for which it is best suited • Sales team contact information Models for market entry • When and why to open a local entity • Description of alternative market entry models • List of payment processors supporting each model Merchant best practices • AMI analysis of Brazilian e-commerce enablers by merchant type and size • Merchant best practices when choosing a provider In July 2016, AMI will be releasing a comprehensive report on developing an e-commerce payments strategy in Brazil, including:
  25. 25. 25 About AMI AMI is Latin America’s leading independent market intelligence consultancy Our founding partners helped pioneer the field of market intelligence in Latin America Our consultants have advised over ½ of the region’s 100 largest strategic investors over a span of two decades AMI consultants have conducted close to 2,000 client engagements in Latin America since 1993 Our consultants have worked in every market in Latin America Our holistic approach to market intelligence is unique. We combine market research, competitive intelligence, political analysis and economic forecasting in our studies. Few others do the same in Latin America Lindsay Lehr, Senior Director +1 (305) 873-4311 llehr@americasmi.com

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