Latin America: a diverse and well-established market brimming with potential
In a nutshell
Recent advancements in financial inclusion, digital payments, and digital commerce penetration have propelled Latin America into a burgeoning, robust, and mature market, offering solid opportunities and vast room for further growth.
Brazil, with its impressive USD 275 billion market, stands as a prominent digital commerce force and ranks fourth globally in terms of the number of digital buyers. Meanwhile, Mexico, Colombia, and Peru are also emerging as strong contenders, displaying annual growth rates of around 30%.
Latin America is culturally diverse, and different countries within the region offer unique opportunities for brands. Understanding and catering to this diversity allows global brands to tailor their marketing strategies and products to suit various preferences and tastes.
The uptake: With digital commerce thriving, global brands can seize Latin America’s rising consumer demand for global products and capitalize on these opportunities. This not only nurtures brand growth but also places global companies at the forefront of the region's expanding digital commerce landscape.
Latin America stands as a hub of innovation and leadership in financial inclusion.
The recent advances to promote more access to financial services made it possible to nearly double the share of adults who own accounts.
According to the World Bank’s Global Findex, in 2021, 74% of adults in the region owned financial accounts compared to just 39% in 2011. That means that, in just 10 years, more than 100 million people were included in the financial system.
In the land of major innovations, such as Pix, PSE, and Mercado Pago, digital payments are no longer a novelty. Seven out of 10 Latin American adults have made or received payment through digital rails, versus four in every 10 in 2014.
Concurrently, cash use is decreasing. A Mastercard survey of 7 countries (Argentina, Brazil, Colombia, El Salvador, Guatemala, Mexico, and Peru) showed that only 15% of respondents used cash for more than 75% of their monthly expenses — before the pandemic, the share was 25%.
“The majority of people use digital payments. In the financial inclusion narrative, access has been solved. Now, it's about UX, speed, security, adding value,” says Lindsay Lehr, Managing Director at PCMI (Payments & Commerce Market Intelligence).
Alongside this trend is the growth of the consumer class. Projections from the WDL (World Data Lab) suggest that by 2024, Latin America will welcome an additional six million individuals into the consumer class, with Brazil and Mexico contributing over one million each. Looking ahead to 2030, these two countries, along with Argentina, Peru, and Colombia, are expected to see an influx of 32 million new consumers.
In contrast, the consumer class is diminishing in Europe and certain parts of Asia due to aging populations. WDL's projections indicate significant declines by 2030, with Japan estimated to lose 3.6 million consumers and Italy losing another 480,000.
78%
is the digital commerce penetration in Latin America
All of these factors make Latin America a prominent consumer market brimming with lucrative prospects. While the discourse about the region previously centered on enhancing access, today's focus has shifted towards seizing the opportunities arising from the surge in financial inclusion and the evolution of the market.
A consolidated market with plenty of cross-border potential
Latin America boasts 78% digital commerce penetration, underpinned by a market worth a staggering USD 510 billion in 2023. This represents a USD 100 billion growth in market value in just a year.
An 85% increase in the size of the digital commerce market is expected over the next three years. By 2026, this burgeoning region will host an online sales ecosystem worth nearly USD one trillion, according to PCMI projections.
In the top seven Latin American markets, nearly 80% of the population has bought online. PCMI estimations indicate a substantial online buying population of approximately 351 million people in 2023, marking a striking 45% increase compared to figures recorded in 2020. This surge underscores the region's significant expansion and consolidation as a formidable market.
100 million
Latin Americans started to purchase online from 2020 to 2023
Verticals digital services (such as SaaS) and retail are the main forces that drive the prospected success, with annual growth rates between 2022 and 2026 of 30% and 23%, respectively, says PCMI.
As Latin America solidifies its position as a powerful force in digital commerce, the region remains poised for significant growth. While boasting an increasingly mature and robust market, LatAm is far from exhausting its full potential.
"You still see people shopping online for the first time. It's unbelievable, but it's true," says André Allain, Vice President of Growth at EBANX. "As the infrastructure improves, with 5G networks and more stable broadband, you reach remote areas and underserved consumer segments. There's still a growth curve."
In this dynamic landscape, global brands such as SHEIN, Shopee, Spotify, Netflix, and Amazon have not only thrived but also contemplated establishing local footholds. Their successes epitomize the maturity and strength of Latin America.
As per PCMI estimates, the cross-border digital commerce market currently stands at USD 70 billion, nearly doubling in just 2 years. Projections anticipate that by 2026, the market will soar to USD 144 billion, showcasing a compound annual growth rate (CAGR) of 27%.
The cultural ties between Latin America, the USA, and Europe make LatAm ideal for global merchants. Historical connections, language influence, and similar consumer behaviors support a shared cultural foundation making it easier for world-famous brands to resonate with Latin American consumers.
To Lehr, from PCMI, this advantage positions Latin America ahead of other regions.
“Latin America is doing really well. Brazil has really changed the course of the region, and the proximity to the US has been an advantage that other regions don’t have. Proximity to Amazon, to Netflix… These global companies can go anywhere in the world, but there’s a matter of timezone, cultural similarities… That’s just a lot of synergy,” she said.
In addition, many Latin Americans already have familiarity and a positive perception of brands originating from the US, APAC, and Europe. This awareness stems from exposure through media, trade, travel, and international business relations. Trust in established global brands often translates into a market primed for their products or services.
“Latin America is doing really well. Brazil has really changed the course of the region, and the proximity to the US has been an advantage that other regions don’t have.”
Managing Director at PCMI
Brazil, Mexico, Colombia, and Peru stand out as leading digital markets
Brazil, boasting a remarkable USD 275 billion market, ranks fourth worldwide in digital buyers and stands out as a leading force. Meanwhile, Mexico, Colombia, and Peru are emerging contenders, showcasing annual growth rates close to 30%.
"One of the main challenges of Latin America is the different timings of each market, and how to navigate those. The state of evolution in digital commerce varies a lot," says Juliana Etcheverry, Director of Country Growth at EBANX.
Undoubtedly, the largest country in the region, Brazil, stands out as a global force, commanding 54% of Latin America’s market. Renowned for Pix, one of the world's most innovative instant transfer systems, Brazil saw digital commerce penetration surge to 90% among adults in 2023, a notable leap from 68% just 3 years earlier.
“If you take Rio or São Paulo, they are in some ways at the same levels as developed countries. It’s not fully mature, because it’s still growing fast, and there is a lot of inequality and discrepancy in the region, but enough people are fully digitized and leapfrogging”.
Managing Director at PCMI
Brazil is only a part of the narrative propelling the triumph of digital commerce in the region. Another significant force is Mexico, which experienced a robust 34% growth from 2022 to 2023 and currently holds a market worth USD 74.5 billion.
Even so, Mexico is still in the process of expanding financial inclusion to the majority of its population, with only 35% of adults possessing financial accounts and a small fraction owning a debit or credit card. This highlights two crucial aspects of this market: the importance of offering alternative payment methods for success in Mexico and the nation's untapped potential, which hinges on continuous strides toward financial inclusion.
Colombia, Chile, and Peru represent three burgeoning markets to monitor closely in the near future. These countries are witnessing rapid growth in digital penetration and significant increases in online sales.
Even Argentina, amidst a turbulent financial crisis, has achieved an impressive 26% growth in digital sales, signaling its resilience in the digital commerce landscape.
"Overall, the region has been through an amazing transformation through tech adoption and digital payments. There is an effervescent field for innovation; it's boiling there," says Etcheverry.
Nascent opportunities in Central America and the Caribbean
In addition, Central American and Caribbean nations, like Costa Rica and the Bahamas, distinguish themselves due to their robust credit card penetration and well-established cross-border shopping environments.
Countries such as El Salvador, Guatemala, and Panama, due to their geographical proximity to the United States and high remittance inflows, underscore significant opportunities for global brands seeking to expand their market footprint. In these three markets, half of online sales originate from foreign countries.
"Central America is growing a lot. The industry is modernizing its payments infrastructure, investing in real-time payments, anti-fraud capabilities" stresses Allain. "There are a lot of opportunities there."
How Latin Americans pay: intense use of alternatives, with cards still reigning for online purchases
In the payments landscape, cards lead the pack for online transactions, with credit cards commanding 48% of the market and debit cards holding 10%. Markets like Panama and Ecuador heavily rely on credit, accounting for over 70% of sales, while debit wields more power in Peru (45%) and Mexico (25%), as per PCMI's data.
Despite the increasing ownership of cards in Latin America due to enhanced access to credit in the region, APMs maintain significant relevance — and their importance is poised to grow in the near future.
This momentum is driven by the surge of account-based transfers, which is expected to climb in step with the region's financial inclusion, rising account ownership, and the proliferation of instant transfer systems, mirroring the success of Brazil's Pix.
With this trajectory, account-based transfers are anticipated to undergo rapid growth, forecasted to achieve a CAGR of 38% between 2022 and 2026. Within this timeframe, Pix is projected to claim 40% of the Brazilian market, matching credit cards as the favored payment method.
As a result, cash-based methods are expected to decline in usage. A good example of this is the Mexican market, where vouchers such as OXXO used to hold 25% of sales in 2017. By 2026, the amount will decrease to only 8%
Digital wallets, such as Mercado Pago or PayPal, hold 9% of LatAm’s market, but are very relevant in specific countries. In Argentina and El Salvador, they are responsible for nearly 25% of sales, and projections say they will remain relevant in the years to come.
Wallets are also significant in Uruguay and Bolivia, where these channels make up 15% of revenue.
In light of Latin America's vibrant cultural diversity and distinct market landscapes, seizing the opportunities presented becomes imperative for global brands.
It is the prime time for global brands to capitalize on increasing consumer demand for seamless shopping experiences with global products and services. Embracing these opportunities not only fosters brand growth, but also positions global companies at the forefront of Latin America's ever-expanding digital commerce realm.
