Among many other things, COVID-19 has added financial pressures on companies and consumers like never before. As the world took turns to shutdown economies and disrupt businesses, banking institutions were also forced to enable alternative payments and transfers with new automation as the number of e-commerce transactions and new consumers trends accelerated. 2020 was a year to remember, and for many it was the first in which large portions of people in Latin America and other countries around the world made their first online purchase ever. It is estimated that as many as 10 million Latin American consumers made an online purchase for the first-time last year. In part due to consumer behavior, but also because of established e-commerce systems that created seamless experiences for the end user. With physical shops closed and stay-at-home orders still active in several countries, the number of online consumers will surely only rise in 2021, especially in areas where alternative payment options are available to them.
E-commerce robust growth makes alternative payments a dynamic sector amongst consumers that are still developing their appetite for digital commerce while intensifying the competition between merchants. As the space evolves, there are several challenges that need to be addressed.
Financial inclusion provides into growth opportunities
Among the new challenges that global merchants are facing is trying to expand their reach, addressing financial inclusion is key for future expansion. By striving to provide additional options for consumers that are under banked or those who chose not to use credit cards, it offers solutions to make alternative payments.
There are two essential components toward promotinge-commerce growth. Offering a transfer platform for those customers wanting to make online purchases without compromising financial information, and providing instant confirmation to merchants to better manage their inventories in real time must be part of the overarching strategy. Both of these solutions must be considered and executed to build customer trust which will ultimately lead to the future of banking success.
Consumer behavior and merchant preparation will drive future trends
Customers are actively shifting toward options that do not compromise their financial information, accessing their banking information via apps and secure sites on their mobile devices. Through this consumer shift, banks, companies and startups alike are rushing to adapt to consumer preferences, however some are still struggling to solve this dynamic.
Latin American consumers still are interested in premium products and are willing to pay for them, but that doesn’t mean they are not price conscious. For example, 79% say that they are changing their shopping behavior to save money on their purchases during the pandemic. Although Latin American consumers are also willing to purchase digital goods and services using the internet, there is still a high level of openness towards the idea of digitally shopping for physical goods. Figures have shown that nearly 40% of consumers would be prepared to buy takeaways, beauty products and toys through their smartphone.39% of consumers would prefer to shop directly on a brand’s website rather than a marketplace website to connect directly with merchants and bypass secondary messengers.
How much overall business could be lost for large retail merchants that may not accept alternative forms of payment or present alternative distribution channels? Our research at SafetyPay shows that three billion people worldwide do not have credit cards, and two billion do not even have a bank account. If you look at Latin America, e-commerce represents $109 billion in terms of sales. Potential for growth in the next four to five years projects to over $200 billion in sales. E-commerce and alternative digital payments represent close to 38% in total digital sales.
Partnering to foster growth
It is incredibly important for merchants and consumers alike to solve the digital payment challenges. Partnering with other digital banking companies and establishing a multiple distribution channels for commercial transactions is an excellent start. Simple communication and accessibility are also critical toward helping merchants connect with consumers – understanding their needs and preferences. A detailed personal banking strategy that recognizes cross-border payments needs to be included when developing for a future post-pandemic. Countries are pulling ideas from other countries to establish rapport and build new target audiences to help improve their business strategy – which starts with the implementation of digital wallets and alternative payment options in their markets.
As the world moves forward in 2021, digital payment options will no longer be a choice for merchants but a need to survive in a digital led era. It is still early to predict the long-term trend, but certainly digital payments are here to stay. As we exit the pandemic, it will be important to keep a close watch to see if people will slip backwards or move forward with digital behavior. The global pandemic accelerated e-commerce growth, and despite the return to “normalcy” and more economic activity, we believe that merchants that are prepared will continue to do well.