Mexico is the second largest e-Commerce market in Latin America with 18% of the region volume and represents an interesting opportunity as forecasts expect a compound annual growth rate of 25% until 2016. The combination of an open economy but local payment methods poses a dilemma to merchants: should they go local or operate the market from abroad? allpago international is launching business in Mexico in July 2014 and wants to help international merchants in better understanding the market in order to solve this dilemma.
Mexican e-Commerce is rapidly growing and it is full of potential
Mexico’s market presents a great area of opportunity when its numbers are deeply analysed. Business-to-Consumer (B2C) e-Commerce sales reached the amount of $8 billion in 2013, 18% of Latin America market share, positioning Mexico as the second biggest in the region. However this only represents a fraction of the market potential. With a population of 120 million(1) only 46 million are internet users(2), which means a penetration of below 40%. Among internet users only 18% are digital buyers(3). But now Mexico is grasping its own potential.
The country’s compound annual growth rate until 2016 is 25% and is the highest rate in Latin America. Brazil, the biggest e-Commerce market in the region, is expected to register a growth of 14% in the same period and indicates that Mexico is the new emerging market. allpago estimates that B2C e-Commerce sales in Mexico will register $10 billion in 2014 and growing.
Most of the e-Commerce market has been developed around Tourism. Tourism was the industry stimulating and creating the basis of the e-Commerce activity in Mexico, as this sector is one of the main drivers of the Mexican economy, contributing 7% towards the country’s gross domestic product(4).According to an AMIPCI (Mexican Internet Association) survey, currently 64% of buyers have purchased travel related products(6). However, new categories are quickly growing in importance. Digital goods like music, movies and software are the ones gaining space in the market.
The Mexican economy is deeply integrated with the U.S. and is one of the most open economies in the world, as shows the fact that it has signed the highest number of double taxation agreements (27). E-Commerce merchants have reached to the conclusion that they could operate Mexico from abroad. However the particular structure of Mexican payment methods suggest the contrary.
Mexican online payments are dominated by local payment methods
Mexican online payments are dominated by local payment methods. More than 40% of purchases are made through credit and debit cards, followed by cash and cash on delivery (32%) and bank transfers (15%)(7). All of these payment methods present some challenges if a merchant operates from abroad.
With 28% of all purchases, credit cards are extremely relevant on online purchases. Only part of these cards is allowed to process international currencies, which makes necessary for merchants to process locally. Diverging from Latin America pattern, the number of debit cards is much higher than the one of credit cards: 103 million, against 27 million, which means a proportion of almost 4 debits cards per credit card(8). By default, most of debit cards are not allowed to process online transactions and are not allowed to process foreign currencies. This explains why this payment method accounts for only 15% of the e-Commerce purchases. However this represents an open opportunity in the short-term: merchants can negotiate with acquirers to open debit cards for their customers. A tedious and long process: merchant might take up to one year only with this process.
Traditionally the biggest issuing banks are also the biggest acquirers. The main acquirers and issuers are BBVA Bancomer, Banamex (part of Citigroup), Banorte, Santander and HSBC, accounting together for 75% of the total of credit cards and 82% of all debit cards contracts. Ban Coppel and Banco Azteca target a lower-income portion of the population and register respectively 10% and 7% market share(8).
After debit and credit cards, cash and cash on delivery are the most relevant method with 32% of the online payments. Cash payments are done through convenience stores. The buyer chooses the convenience store payment method, fills out the checkout page, prints out a voucher containing a barcode and presents the voucher at a convenience store and pays with cash. Oxxo positions itself as the convenient store payment leader. It is a convenience store chain present all across the country. With more than 11.700 stores(9), it has more than 3 times the sum of stores of other direct cash brands.
Cash on delivery, has been used by nearly 4 in 10 online shoppers. This payment method is used in the sale physical goods(7). It began to be used because Mexicans feared that the products would never arrive. allpago predicts that a better fulfilment by merchants will make switch buyers to more convenient payment methods like credit and debit cards.
Bank transfers are used by 15% of the digital buyers in Mexico. This method consists depositing the purchase amount to the Merchant’s account.
Merchants can only accept cash, debit cards and a portion of credit cards if they’re processing in Mexico. Even an international bank transfer can be a challenge for most Mexican account holders. If a merchant decides to go local, it would need to consider the challenges inherent to the operation.
Recommendations to operating locally in Mexico
Merchants will face obstacles in Mexico, especially because the market is still incipient. Merchants should make sure that they have access to local payment methods, find workarounds for the current payment technology and comply with current e-Commerce regulation.
The lack of modern technology in the payment industry in Mexico poses a real challenge for merchants. Basic features like reconciliation, chargeback notification or even tokenization hasn’t been fully developed by most of players. For instance merchants will normally receive chargeback notification through email. Furthermore best practices are improving, like shows the fact that PCI certification level 2 is necessary in order to process online payments. Growing interest in e-Commerce is changing the landscape and professionalizing the sector, although at a slow pace.
The tighter anti-money laundry regulation is increasing the data compliance. Mexico requires to record for a period of time all the transactions and the new Mexico’s Federal Law on Data Protection sets tight rules to protect personal data that is processed, transferred, or disposed by entities. International companies in Mexico need to constantly monitor new compliance requirements, especially because the Mexican government will continue to regulate the financial market aiming at spotting money laundry from drug cartels.
allpago international, after its success in Brazil, brings its expertise and pioneering solutions to fast-growing Mexican market. Operations will begin in July 2014. allpago will offer merchants with legal and taxes know-how, local advice and an operation with the highest security standard in the industry, the Level One PCI DSS. By offering credit cards (Visa, Mastercard and American Express), debit cards, Paypal and Oxxo, allpago will cover all national payment methods and will support merchants in exploring the second largest market in LATAM.
allpago international provides a full-spectrum of payment services in the LATAM region. allpago works as a payment gateway, a white label payment service provider (PSP) or a product and service reseller for merchants and payment service providers interested in the LATAM markets.
allpago’s features include one-click payments, recurring payments, instalments, dynamic descriptor and mobile payment solutions. The company’s html 5.0 code allows multiscreen and is as easy to implement into the store through the “plug and pay” feature. Furthermore, the company offers a fully integrated Risk Management Solution with more than 70 checks. allpago has recently become the first LATAM payment solution provider of the Merchant Risk Council (MRC).
Current clients include Art.com, Busuu.com, McAfee, Teamviewer, Twoo.com and many other leading payment or digital companies from various sectors.
(1) World Bank. World Development Indicators 2014.
(2) ITU World Telecommunication/ICT Indicators database, 2012
(3) eMarketer. Ecommerce Sales Topped $1 Trillion for First Time in 2012.
(4) UNWTO World Tourism Organization. World’s top tourism destinations, 2013.
(5) AMIPCI. Estudio de Comercio Electrónico México 2013.
(6) Shop the World! DHL, 2014.
(7) Tecnocom. Tendencias en Medios de Pago 2013.
(8) Comisión Nacional Bancaria y de Valores (CNBV). Boletín Estadístico Banca Múltiple, 2014
(9) FEMSA Comercio Website., 2014.
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