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M-Commerce in Latin America


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Americas Market Intellligence (AMI) presentation on mobile commerce in Latin America made at the M2 Money and Payments Latam conference in May 2016. Written by Lindsay Lehr, Senior Director of the Payments Practice for Americas Market Intelligence, the presentation covers the true size of the m-commerce market in Latin America, the powerful opportunity to sell digital goods and services via mobile commerce in latin america, the factors behind the growth of m-commerce in latin america, unbanked smartphone users latin america, optimizing payments for latam mobile commerce,

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M-Commerce in Latin America

  1. 1. M-commerce in Latin America Opportunities, best practices and case studies May 2016
  2. 2. 2 Size, segmentation, growth
  3. 3. 3 In 2016, mobile commerce totals $5bn in Latin America When tablets are removed from the analysis, the m-commerce market is smaller than at first glance • Most estimates claim the mobile channel represents ~20% of all e- commerce in LatAm. • These figures are misleading, however, because tablets alone represent an estimated 15%. • The tablet is used as an alternative to a home computer. It does not mean the user is actually mobile. A mobile user requires different features and products to engage in m-commerce. Projected e-commerce in Latin America, 2015-2019 billons USD Sources: eMarketer, Gestion, El Financiero, La Nación, interviews, AMI analysis *Excludes travel services and event tickets $18 $6 $4 $2 $2 $7 $3 $1 $1 $0.2 $0.3 $3 $1.8 $0.4 $0.3 $0.1 $0.3 $1.0 Brazil Mexico Colombia Peru Argentina ROLA PC Tablet Cell phone $38 $50 $59 $69 $81$10 $12 $14 $17 $19 $4 $5 $6 $8 $11 2015 2016 2017 2018 2019 PC Tablet Cell phone Country Mobile penetration of e- commerce, Excluding tablets, 2015 Brazil 8% Mexico 5% Colombia 5% Peru 3% Argentina 5% E-commerce by country*, 2015, billons USD
  4. 4. 4 M-commerce by verticals: Case of Brazil M-commerce in retail faces large barriers. Services and digital goods are prime opportunities *Includes tablets Sources: E-bit, interviews, AMI analysis Brazilian e-commerce, billons USD, 2015 Key verticals • Digital goods and services have the greatest potential in the m-commerce channel. o They reach 30% e-commerce penetration o They represent the convenience and on-demand economy o Consumption is often on-the-go and immediate • Purchases in retail and tourism require a greater time investment o To promote m-commerce in these verticals, merchants must offer creative incentives $10 $6 $3 $2 $1 $1 Retail Tourism Digital goods and services PC Mobile* Transport Delivery Entertainment Education Telecom
  5. 5. 5 M-commerce growth: Full speed ahead While e-commerce growth is starting to plateau, m-commerce is still in early stages of development Growth, CAGR 2015-2019 Sources: eMarketer, Gestion, El Financiero, La Nación, interviews, AMI analysis E-commerce M-commerce 15% 25% 18% 37% 20% 41% 30% 55% 15% 40% Growth drivers Smartphone penetration growing at 12% annually Limited access to broadband and Wifi High cost of PCs; low cost of handsets Sales via Whatsapp/social media Growth of key verticals Creative merchant solutions
  6. 6. 6 Barriers to success Fear of fraud and low banked rates are major challenges. This creates opportunties for innvation. Barrier Opportunity for Fear of fraud • Consumers believe purchases made on a mobile phone are less secure than those made on a computer • Merchants • Card networks • Banks • Gateways • Technology companies Limited access to payment methods • Credit card penetration varies from 32% in Brazil to 12% in Peru • Alternative payment providers Fear of “wasting” data • 95% of mobile subscriptions in LatAm are prepaid • Consumers don’t want to “waste” data on online shopping • Mobile operators • Merchants Lack of mobile sites/apps • Few merchants in LatAm have mobile websites. Even fewer have apps • Developers • Payment gateways Inconvenience • Extremely low conversion rates (1- 2%) due to lack of tools to faciliate entering in payment information • Aquirers • Payment gateways • Digital wallets
  7. 7. 7 Optimizing payments for the mobile channel
  8. 8. 8 Banked vs the unbanked Smartphone penetration is growing more rapidaly than the banked rate, creating two key consumer segments Banked Unbanked 25 124 192 223 39 54 2015 2019 Sources: The World Bank, eMarketer, MasterCard, GSMA, AMI analysis Financial inclusion in Latin America, millions of people, ages 15-65 Smartphone uers Feature phone users Implications • Nearly all banked Latin Americans use smartphones. They are the target population for m- commerce. • The unbanked who use smartphones is the consumer groups growing most rapidly – 12% annually • This group often wants to access m-commerce but cannot do so for lack of a payment method Totals 204 / 277 175 / 116 Totals 220 / 240 192 / 172
  9. 9. 9 Smartphone user profiles – Two distinct groups Banked smartphone users need advanced features to improve conversion. The unbanked need alternative payment methods designed specifically for them Banked Unbanked Characteristics • Ages 18-40 years old • Urban • Live in central, traditional neighborhoods • Professionals • Have a PC and stable access to Wifi • Have post-paid phone plans • Use credit cards • Use a wide array of smartphone features • Ages 18-40 years old • Urban • Live in city outskirts • Work in the informal economy • May not have a computer • Have limited access to Wifi. Depend on data plan • Prepaid cell phone plan • Use cash • Use smartphones primarily for communication and social media Annual growth 3% 12% Relevant verticals • All segments, especially taxis, home delivery, education • Entertainment • Mobile downloads • Bill pay • Mobile topups • Small business uses Relevant m-commerce functions and products • Digital wallet • Personalized online store • Recurring payments • One-click payments • Prepaid solutions • Alternative payments • Free access to mobile sites • Purchasing via social media
  10. 10. 10 Credit and debit card penetration, 2014 Being banked is often not enough to access m-commerce. In some markets, credit is the only viable m- commerce payment method. Credit Debit 32% / 60% 18% / 27% 14% / 30% 12% / 21% 28% / 54% 27% / 44% Sources: World Bank Delivery services, digital downloads, games, and entertainment are attractive to SES B- and C, who currently cannot consume via the mobile channel Due to limited access to payment methods, m- commerce is only available to SESs B+ and A Offering additional payment options is an opportunity to increase the size of the pie
  11. 11. 11 Cash maintains a strong presence in e-commerce For m-commerce to reach scale, the market needs alternative payment options for the mobile channel Country Cash payment pentetration of all e- commerce sales Cash payment providers Brazil 25% Mexico 22% Colombia 34% Peru 33% Argentina 40% Sources: E-bit, PayU, AMPICI, El Tiempo, interviews • Cash payments are popular in e-commerce, even among banked shoppers • Most relevant in retail, tourism, home delivery • But cash payments are not a practical option in many cases – low ticket items, on-the-go goods and services • There is ample room to develop new products, including prepaid mobile wallets and cards
  12. 12. 12 Among the banked, mobile conversion is still a problem Merchants need advanced technological features to promote conversion Why? Inportant for which verticals Tokenization • Facilitates ‘one-click’ purchasing • Retail • Cuponeras • Event tickets • Transportation • Entertainment Recurring payments • Enables automatic billing • Subscriptions, entertainment Digital wallets • Saves payment information for future uses • Enables the use of an alternative payment card if the preferred card is declined • All verticals Alternative payments • Proivdes an alternative option when the user is afraid of entering his/her cc information online • Average tickets USD 20+ Mobile web sites and apps • Mobile sites reach a wide audience, representing 60% of merchants’ e-sales • Apps have higher conversion and are useful to promote loyalty • All verticals Payments via Whatsapp/s ocial media • Have become a key customers service channel • Ideal for merchants without a website • Small companies
  13. 13. 13 Leading payment service providers (PSPs) Selecting the right gateway or payment service provider is a costly but worthwhile process. Merchants must seek advanced m-commerce functions to maximize conversion To maximize m-commerce sales Merchants should seek PSPs who: Offer tokenization Have the fewest number of steps to complete a transaction Offer transparent checkout and SDK for apps Process transactions locally and offer local, alternative payment methods Have higher than average mobile penetration of their overall volume Offer integration with digital wallets Have experience in the most relevant segments for m-commerce: entertainment, taxis, games, etc.
  14. 14. 14 38 32 18 80 61 2 14 8 4 Brazil Mexico Argentina Twitter Facebook WhatsApp Emerging payment technologies Payment innovation will drive m-commerce growth Sources: Visa, El Universal, El Financiero, El Economista, Folha, Infobae, La Razón Digital wallet Country Providers Trends • Visa reports that Visa Checkout results in an 86% approval rate (globally) by providing enhanced security and convenience. • Competition in payments will become more intense as more players enter the market. • PayPal and MercadoPago are current leaders, but there is significant opportunity to capture market share. Social media users Payments via Whatsapp Country Provider Millions of people, 2015
  15. 15. 15 Success factors – Case studies
  16. 16. 16 Case study: Netshoes The first online store globally to offer free access to its mobile site Sources: MUV Mobile What is Netshoes? • Online clothing and sporting goods retailer, with annual sales of $500+ million • 2009-2015 CAGR: 52% • Mobile channel represented 46% of traffic on its website in 2015 The problem: Factors limiting mobile conversion The solution: Free web access 70% of Brazilian cell phones are on a prepaid plan 120 million Brazilians do not have data at least one day per month Highly social: Brazil is the third market worldwide for Facebook and Instagram Brazilians don’t want to “waste” data on online shopping Netshoes collaborated with MUV Mobile, Brazilian mobile marketing company Negotiated with mobile carriers Launched free web access campaign Leveraged ‘Black Friday’ Transferred the cost of data from the user to the merchant What did they do? % of web visits represented by mobile 10% 46% 2014 2015
  17. 17. 17 Netshoes: The results The success of offering free web access will spark a growing trend 81% 81% 80% 80% 76% 73% 75% 75% 19% 19% 20% 20% 24% 27% 25% 25% Jul 15 Aug 15 Sep 15 Oct 15 Nov 15 Dec 15 Jan 16 Feb 16 % of mobile, visits to Wifi Data plan Sources: MUV Mobile • Free web access will become more common • Emergence of platforms to facilitate negotiation with telecoms • Growing competition will drive prices downward TrendsImpressive results • Average time spent on mobile devices 80% • Number of transactions in the mobile channel 80% • Revenue in mobile channel 60% • Conversion rate 60%
  18. 18. 18 Case study: BQuick A Mexican logistics company leverages the mobile channel Sources: BQuick Performance 300% growth in 2015 330 affiliated merchants Database of 25,000 consumers 100,000 orders delivered Future opportunities • Offer deliveries for e-commerce • Create a food delivery marketplace • Automate merchant payouts What is BQuick? The merchant receives an order for delivery Merchant enters order into the BQuick platform BQuick locates the nearest driver and sends an alert via the BQuick app Driver picks up the order and delivers to the customer The merchant monitors the delivery in real time • Mexican start-up founded in 2014 • B2B, multi-merchant delivery • Owns a fleet of vans, motorcycles and electric bicycles • Drivers are employees • Serves restaurants, pharmacies, supermarkets, convenience stores, laundromats, and offices • Guarantees delivery in under 45 minutes in six Mexico City neighborhoods
  19. 19. 19 BQuick: Future opportunities BQuick payments take place offline – a quintessential example of m-commerce in the region Credit card Cash 60% 40% BQuick is a perfect example of m-commerce in transformation. The service functions in the mobile channel, but payments are transacted offline. Market size of food delivery, cities in Mexico, billions USD $6.9 $7.6 $8.3 2016 2017 2018 Payment methods, % of total BQuick sales How do payments work? Today, orders are placed online, but the payment still takes place in person Cash is still prevalent, even though BQuick serves only affluent neighborhoods Huge opportunities Unmet needs A PSP to process payments online Provider of payouts to merchants Education to merchants and consumers Incentives to promote electronic payments over cash Sources: BQuick
  20. 20. 20 Conclusions
  21. 21. 21 Conclusion: M-commerce, a green market with local peculiarities Mobile commerce in LatAm is in early stages of development. There is significant room for innovation and disruption Digital goods and services are the verticals that most lend themselves to m-commerce. Retail and other segments have larger barriers. M-commerce in LatAm is in a phase of migration. A large share of payments still take place offline. Shoppers need a better user experience via advanced m-commerce features. M-commerce is inaccessible to the underbanked. But the underbanked with smartphones represent the fastest growing consumer group. P2P payments via smartphones has not yet reached Latin America in any large capacity. This represents both a need and opportunity.
  22. 22. 22 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