Cabal Online Penetration

[Jenn Smotherman]

Digitalbanking penetration: Among Spanish-speaking countries in Latin America, Chile has the highest digital banking penetration, at 66%. Argentina follows close, while Peru is third at 50%.

Leading eCommerce payment method: In notable Latin eCommerce markets including Chile, Colombia, Peru, and Argentina, cards are the dominant paying method. Visa, Mastercard and American Express have high usage.

Mainstream banks generally had exclusive policies, like a high income threshold and prohibitive fees for opening a bank account. Long distances to bank branches, complicated paperwork, and a lack of trust in financial institutions further excluded lower-income and other groups.

Once fintech companies entered the financial sector, the banking market opened. Governments also introduced legal frameworks to improve banking access, online and offline. The pandemic further prompted people to explore digital banking and payment services, and the trend continued afterwards.

Today, a growing share of the Latin American population is opening bank accounts and using digital banking services. This increase in access to banks, including online banking, is termed as bancarization. Financial inclusion is one of its outcomes, alongside a change in how people are choosing to pay for their online purchases.

Visa is the most commonly offered payment service provider in Argentinian eCommerce, with 95.4% of all online stores accepting it in 2023. Mastercard has a comparable level of penetration, at 94.6%. American Express has a smaller share of the market, at 76.2%.

Visa has the highest penetration in Chilean eCommerce, with 98% of online stores offering it. Mastercard is next at 96%, followed by American Express, at 87%. All three cards have the highest penetration in Chile, out of all selected countries, while cash does not feature in the top five.

Chile is a traditional market, dominated by a few banks. This curbs fintech expansion, but banks facilitated the process of acquiring cards, leading to their large-scale adoption. Since 2020, the field of digital payment has also become more dynamic, with customers also using Buy Now, Pay Later (BNPL) and digital wallets like Garmin Pay.

Visa is the top payment provider in Peru, offered by 94.3% of eCommerce businesses. Mastercard has similar market penetration at 94.3%, followed by American Express at 90.6%. These cards are more used in Peru as banks have been instrumental in driving financial inclusion.

A large share of Peruvian population is still unbanked, which is likely why cash is still frequently used in eCommerce as well: 64.2% of online stores accept cash in advance. But PCMI reports that the digital turn in the country is accelerating. In the last two years, cash usage has fallen by 20 percentage points, while wallet usage has increased to cover almost half of the population.

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Greater speed and ease of payment: 50% of respondents prefer debit card payments for its speed and ease. For those who prefer mobile payments as well, ease is the biggest factor (55%) behind their preference.

Contactless payment: 28% of respondents use debit cards as a means of contactless payment. With this method, they can check out faster, without having to handle cash. It is both efficient and fast.

Only accepted reason: 15% of debit card owners use it for payment because it is the only option available. But the relatively small share indicates that most who do use debit cards are actively choosing it.

Incentives: People are paying through debit cards because of the discounts and promotions (15%), and cash backs (12%) opportunities they offer. This suggests that service providers and merchants are also encouraging digital adoption in payments by incentivizing it.

The acceleration in eCommerce has further persuaded online shoppers to pay digitally. A drawback is that consumers are largely unaccustomed to non-cash payments, which may leave them more vulnerable to online banking fraud.

Latin America has a young demographic, whose access to both the internet and mobile phones is improving. As digitalization continues to strengthen, it will not only bolster the overall digital economy but also eCommerce markets, which benefit from the efficiency and convenience afforded by digital payment methods.

Mobile payment takes place through a mobile device like smartphone or tablet. A mobile wallet like Apple Pay or PayPal is loaded with credit or connected to a bank account to make transactions.

Secure transactions: Digital payments utilize advanced security functions like encryption and two-factor authentication. This minimizes risk and fraud, unlike cash-based transactions.

The Covid-19 pandemic prompted consumers to explore digital payment methods. The behavior continued after the pandemic, boosted also by improvement in banking coverage and digital banking penetration across Latin American countries.

The growth in mobile phone penetration in Nigeria, coupled with initiatives led by the Central Bank, has led to a sustained shift in user behaviour towards mobile applications as the preferred means of conducting transactions, increasingly replacing traditional cash-based methods.

Data from the report reveals that 36% of Nigerians above 15 own a debit card, with one of the largest card payment companies, Verve, claiming to have issued around 35 million active payment cards as of 2022.

This shift underscores a trend towards digital payments, such as POS terminals, mobile wallets, and online transfers, signalling increased smartphone and internet usage. POS transfers experienced a 17.00% increase in total volume, rising from 982.83 million in 2021 to 1.14 billion in 2022.

Smartphone penetration in Nigeria is growing and is projected to hit 60% by 2025, with over 143 million Nigerians owning smartphones. The uptick suggests confidence in the security provided by digital payment platforms, showcasing progress toward financial inclusion.

Often-mentioned factors tend to include internet penetration rates, smartphone penetration rates, logistical & delivery challenges, underlying payments infrastructure, market fragmentation & operational costs, over-reliance on cash, poverty, and trust. Which of these, if any, or what else are the primary factors in your view? What would it take for e-commerce to take off at scale? During what time frame do you think e-commerce will blossom across Africa, if ever? Or do you find this question's assumption mistaken and take the view that e-commerce has indeed taken off across Africa already - perhaps in another form, for example via Instagram and Whatsapp?

While there are significant challenges to e-commerce in Africa, the opportunity is tremendous. By aggregating demand across larger populations, e-commerce holds the promise of delivering products and services that otherwise would not reach African consumers for many years. While e-commerce started in the US and Europe as primarily a convenience tool, in Africa it can begin as a primary shopping experience especially for higher-value products that are not widely available.

Logistical/delivery challenges are also important. In Kenya, a big limiting factor to B2C e-commerce was the lack of an effective postal system combined with the lack of physical addresses. This was overcome by

Group CEO & Co-Founder, AzamPay

AzamPay develops payment management solutions for companies operating in East Africa. It\u2019s associated with the Azam Group, one of the leading industrial conglomerates in East Africa. The Azam Brand was ranked as the 5th Most Admired African Brand by African Business Magazine in May 2020.

Smartphone penetration has not reached critical mass among end consumers for widespread e-commerce. Those that do have smartphones may not even use them as smartphones, focusing primarily on Whatsapp as a communication tool or for the phone itself as a status symbol. Smartphone penetration is not enough, in addition, smartphone fluency is required \u2014 meaning a critical mass of consumers capable of downloading and placing an order on a smartphone without any technical support or hand-holding.

Total Addressable Market \u2013 The number of middle to upper-class consumers with the financial resources to purchase online remains limited and highly fragmented across major cities. E-commerce operators face an uphill climb with respect to economies of scale required to manage logistics, inventory, and produce profits given relatively smaller, localized customer bases. This can be both a challenge and an opportunity. Ultimately, as African economies continue to grow, we will reach a tipping point where the addressable market achieves the required scale and operators start to see value in recovering costs associated with servicing customers. In the immediate to medium term, e-commerce operators will either sustain losses or have to be creative about how they address the customer base while keeping transaction costs low.

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