João Del Valle
If you look under the hood of nearly any large merchant’s e-commerce operations, there are likely more than a dozen different card-acceptance platforms meshed together to serve different parts of the world with banking partners doing payment settlements and managing foreign exchange.
Latin American companies have the added challenge of processing the many transactions that are not card based, like bank transfers, emerging instant payments and the cash-based ones that offer in-person payments that need to be electronically confirmed.
A merchant might need anywhere from 50 to hundreds of partners, depending on complexity and the countries they are targeting. If any of the aggregate transactions across platforms go down for just a millisecond, that transaction will fail, potentially leading to huge losses.
Why online merchants need a new breed of infrastructure fintechs
For global merchants expanding to the region — from Alibaba to Amazon and Shopee in e-commerce, to tech giants offering a variety of services such as Garena, Netflix or WhatsApp — Latin America’s payments landscape is particularly daunting. In South America alone, there are at least 14 different currencies.
Across Latin America and the Caribbean, there are more than 30 countries, all with varying local customs, financial regulations and consumer protections. There’s also the issue of most global acquirers’ inability to recognize many Latin Americans’ credit scores, leading to a high rate of unapproved transactions.
While advancing quickly, these global merchants have not caught up with regional e-commerce giant MercadoLibre, which continues to lead in Latin America, pushing past a market cap of more than $90 billion earlier this year. In a Nasdaq analysis of MeLi’s most recent earnings report, writer Will Healy describes some crucial advantages for LatAm’s current e-commerce leader, including its investments in both shipments and payments, and its “secret weapon” in Mercado Pago to facilitate electronic payments in its cash-dependent markets.
Both LatAm-based merchants and global e-commerce players expanding into new countries face the considerable cost of coding into their tech stack their understanding of the local customs and regulations. These may include local habits such as Mexico’s continued preference for cash-based transactions, or financial products such as Brazil’s use of Boleto Bancário (bank tickets that customers pay at ATMs, post offices or markets). This is why the next wave of infrastructure fintechs is vital and why they are attracting more investors.
Expanding operations to a highly competitive and large e-commerce market such as Brazil offers another strategic benefit: The ability to tap infrastructure fintechs to quickly pilot and “test-drive” offerings such as Pix, buy now, pay later systems or installment payments that have long been used by a large portion of the population.
Recent infrastructure fintech innovations
During the pandemic, people had to buy essential goods and services online in the wake of multiple lockdowns. This drove dramatic shifts in consumer behavior, expectations and business models that are transforming the digital business landscape at a breakneck pace.
In Brazil, infrastructure fintech Zoop partnered with iFood, one of the leading delivery apps in Latin America, to help keep its massive network of 236,000+ restaurants “alive.” Together, they quickly rolled out a new “bank for restaurants” with digital bank accounts that allowed restaurants across 1,200 cities in Brazil to access financial services such as banking transfers and payments, and credit transactions with prepayments of receivables via iFood.
Similarly, Colombian food tech firm Rappi recently said it plans to seek regulatory approval to operate as a digital bank in the country by the beginning of next year, per Reuters. If approved, it will roll out RappiPay, a joint venture with publicly traded Banco Davivienda, a Colombian bank.
In early November, the Minas Gerais-based Hotmart, a tech platform and app for the creator economy, launched its own credit card and WhatsApp integration. The new HotMart Card, in partnership with Visa, provides an easy way to bill for and collect content producers’ online sales or subscriptions.
The recent public-health crisis has highlighted the need to innovate around healthcare delivery, driving leaps forward in telehealth and remote care, in addition to the ongoing pursuit of lowering healthcare costs.
A great example of infrastructure fintech impacting healthcare, is San Francisco’s PayZen, an early-stage healthcare fintech startup tackling the growing patient-payment responsibility problem.
PayZen’s fintech infrastructure platform pays hospitals upfront for patient invoices and offers patients zero-interest, fee-free payment plans. The startup aims to increase collections for hospitals by up to 50% while making quality healthcare more affordable for patients. This approach is also beginning to demonstrate potential for health-focused companies in Latin America, including health plan innovations by companies such as Alice, a Sao Paulo-based health tech that offers B2C health insurance.
As reported by Reuters in September, “Global brands from Mercedes to Amazon to IKEA and Walmart are cutting out the traditional financial middleman and plugging in software from tech startups to offer their customers everything from banking and credit to insurance.”
With the help of infrastructure fintechs, global merchants can quickly roll out embedded financial services such as BNPL options instead of paying full price at checkout. And car brands from Audi to Jaguar to Mercedes can embed payments technology into their new models to provide their customers with a more frictionless payments experience.
Moving from friction-filled to “thoughtless” commerce
Laying down new global commerce rails through infrastructure fintechs partnering with a wide variety of sector leaders around the world promises many benefits for consumers and businesses alike.
The key to growing market share and loyalty for global merchants and service providers is knocking out the friction tied to payments and the online buying experience. In practice, consumers want this process to be “thoughtless” so that there are no barriers to paying using the methods they prefer and ensuring that digital transactions are fast, easy, painless and secure.
From an IT and operations perspective, reducing the complexity of managing dozens of disparate platforms and financial systems and a never-ending array of regulatory and compliance laws and revisions could save thousands of hours and millions of dollars for businesses.
When it comes to e-commerce, the world is smaller than ever, and our shopping and payment experiences need to reflect this. Developing a new global financial infrastructure capable of supporting a world dominated by digital commerce is a massive challenge to address in the months and years ahead. But that’s why the dawns of new commercial eras are both challenging and quite enticing for us as a society.
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