Colombia: an e-commerce & payments primer
Colombia is a tough market but one with enormous potential. E-commerce is growing and expected to grow over the next years at an average rate of 18.4% a year, but the sector is still relatively small and ripe for development. The opportunities are there for merchants able to localise and develop a model that will both appeal to Colombian consumers and mitigate risks.
Credit cards are the most common type of online payment method in Colombia, used in 51% of all purchases [1]. Cash is used in 9% of online purchases, bank transfer in 18% and wallets in 13% [1]. Mastercard is the most popular brand of payment card with 44% of the market. Visa has 33%, American Express has 1% [1].
22% of online card payments are made with localized credit cards issued by the global brands Visa, Mastercard and American Express but restricted to domestic use. Those localized versions of international credit card schemes are characteristic for the LatAm countries Argentina, Brazil, Chile, Colombia, Mexico and Peru. Those local cards are limited in use, as they are restricted to local purchases and cannot be used cross-border. Even if those cards are issued by international brands and may seem like standard credit cards, they can only be used in the country in which they are issued and can only be used to make payments in that country’s currency.
The IMF estimates that the Colombian economy will grow by 5.8% in 2022, down to 3.6% in 2023 and then 3.4% in 2024 [2]. The long-term unemployment rate is just over 11%, down from 16% in 2021 [2]. By the end of the first quarter of 2022 inflation had already hit 8% [2]. By August 2022 it reached a 23-year high of 10% [3].
The e-commerce market
The Colombian e-commerce market is worth $10 billion [1], up from just $1.07 billion in 2014 [4]. The most popular categories are fashion (33%), electronics & media (21%) and furniture & appliances (19%) [1].
Underpinning this growth is the increased availability of usable Internet connections. In 2014, Colombia announced a plan to make the Internet available to 63% of the population by 2018 [5]. And the country has hit its goal: 69% of the population today has Internet access of some kind [1].
Colombians complete 43% of all online purchases using a mobile device [1]. This is unsurprising, with smartphone penetration in the country at close to 75% [1]. According to the International Telecoms Union, just over 71% of the population has a mobile-broadband connection while only 16% of Colombians have a fixed-line Internet connection [6]. So, any e-commerce strategy for Colombia must be mobile first.
Almost half of Colombians have shopped cross-border [1]. Their purchases account for 14% of all Colombian e-commerce [1].
Enabling and limiting factors
Despite various government drives to increase the availability of affordable Internet, a digital divide remains in Colombia. Overall, as already noted, 69% of the population has Internet access of some kind and 74% has an Internet-enabled smartphone [1]. However, the speed of your connection and its price is likely to vary greatly depending on location. In Bogota, $30 a month will get you a 30Mbit/s line [7]. In a rural area, for the same price you’ll get around 2Mbit/s [7].
Only 49% of the population is banked and 15% has a credit card [1]. In recent years, however, Colombia has been highly effective in promoting financial inclusion. Using its database of benefits recipients, the government notified unbanked citizens to tell them that they would need a bank account to receive state benefits [8]. The state then worked with digital banks to enrol these citizens with new digital bank accounts. More than two million were signed up for new accounts [9].
Colombia is 58th out of 160 countries in the World Bank’s Global Logistical Performance Index – an impressive jump from its previous position in 94th place [10]. In rural areas, remoteness, lack of infrastructure and distance can make delivery challenging.
- Original PPRO research
- https://www.imf.org/en/Countries/COL
- https://www.bloomberg.com/news/articles/2022-08-05/colombian-inflation-jumps-more-than-forecast-to-a-23-year-high
- https://www.ppro.com/allpago/ecommerce-growing-rapidly-in-colombia-reaching-us-2-53bn-by-2018
- https://colombiareports.com/2018-63-colombians-will-connected-internet
- https://www.itu.int/en/ITU-D/Statistics/Pages/stat/default.aspx
- https://www.dw.com/en/colombia-is-becoming-an-online-country-but-a-digital-divide-still-separates-cities-from-the-countryside/a-47563079
- https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/covid-catalyzes-financial-inclusion-in-colombia-59068822
- https://oxfordbusinessgroup.com/overview/time-right-stable-investment-environment-and-infrastructure-expansion-projects-offer-attractive
- https://lpi.worldbank.org/international/global
