Last year, following the COVID-19 pandemic, the Brazilian ecommerce market experienced rapid growth. Now, with a change in consumer behavior, while forces underpinning the market continue to evolve, this growth is set to progress in the new normal.
The truth is, the Brazilian ecommerce market was a high growth market, even before the pandemic stimulated online sales in the region. As the largest ecommerce market in Latin America and 13th largest worldwide, in 2019, it registered 12.5 billion EUR in total ecommerce sales, up 16% year-on-year. This growth was even greater last year at 18%.
So, with all of this in mind, why is ecommerce in Brazil flourishing and why is it a good idea for businesses to be setting their sights on it?
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Great scope for growth
Among the key characteristics of the market is the fact that Brazil’s internet penetration is at 61%. This is still low in the grand scheme of things – the US, for example, has internet penetration of 88%. Also, Brazil has a unique domestic ecommerce ecosystem, where half of the population is unbanked. This highlights that while the market is rapidly growing, there is still huge potential for its expansion.
The prospect for this expansion to progress has also improved in recent years. Competition among banks in Brazil was low until a few years ago, with a small number of institutions dominating the market. In order to address the need for innovation and diversity in the sector, Brazil has attracted significant fintech investment – $2.5 billion in venture capital funding in 2019 alone – and there are now over 700 new fintechs, many of whom are stepping up to address the needs of the unbanked population.
The advent of challenger banks, including nubank, N26 and Banco Original has also boosted industry competition levels. Through their offerings, these players aim to reach the unbanked, opening up access to global ecommerce and gradually creating a more inclusive financial system for various consumer groups.
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Locally relevant payment methods are essential
Consumers in the region also favor local payment methods when it comes to ecommerce, which have a market share of 36%. This is not the only unique feature in regards to customers’ ecommerce spending behavior in Brazil either. Sixty percent of ecommerce purchases are made by using at least two instalments and only 38% of adults hold a credit card.
What’s more, while the opportunities are vast, local taxation, regulation and higher fraud present challenges which may affect the process of starting and operating a business at a country level. All of this makes the ecommerce market very local, demanding a deep understanding of the financial ecosystem and specific payments solutions tailored to Brazilian preferences.
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How consumers are purchasing goods
‘Invisible’ payments is a key trend in Brazil. More consumers are using digital platforms and subscription services in the region, such as Uber, Spotify and Netflix. These brands have made payments much easier, with the entire process taking place in the background, without any effort required from consumers.
Meanwhile QR code payments show huge potential to replace physical wallets, offering consumers improved speed and security. In fact, a study in 2019 (Novos Meios de Pagamento) found that 17% of those consumers surveyed are now using QR codes for payments in retail stores – up from 0% the year before.
The Central Bank in Brazil is also playing a very important role in coordinating the market’s fast payment solution, PIX, as well as the overall Open Banking agenda. It is through PIX that all wallets that use QR Codes will be interoperable, meaning transfers and payments will be allowed from one e-wallet to another in real-time, 24/7.
These trends are evidence that Brazil is rapidly moving towards a digital payments landscape similar to China. As consumers are becoming increasingly tech-savvy and alternative payment methods are the norm, players are seeking to unlock the unbanked and introduce them to the digital marketplace.
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The promises and pitfalls of Brazil
It is clear that the Brazilian ecommerce market is a rapidly expanding one, with customers moving swiftly towards digital payment methods. Internet growth in the region is outpacing the US and connectivity is at an all-time.
While this is a fantastic opportunity for businesses to grow and thrive, they must understand local consumer demand when it comes to preferred payment methods in the region. Failure to do will likely result in customers turning elsewhere to shop for goods and services.
When formulating an entrance strategy for Brazil, businesses should find a strong partner with the right knowledge and expertise of the market, along with the connections needed to facilitate payments in the region. That way, they will be able to meet the specific needs of all their customers, unbanked or otherwise.
To learn more about expanding into Brazil, visit: https://worldline.com/
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About Worldline
Worldline [Euronext: WLN] is the European leader in the payments and transactional services industry and #4 player worldwide. With its global reach and its commitment to innovation, Worldline is the technology partner of choice for merchants, banks and third-party acquirers as well as public transport operators, government agencies and industrial companies in all sectors. Powered by over 20,000 employees in more than 50 countries, Worldline provides its clients with sustainable, trusted and secure solutions across the payment value chain, fostering their business growth wherever they are. Services offered by Worldline in the areas of Merchant Services; Terminals, Solutions & Services; Financial Services and Mobility & e-Transactional Services include domestic and cross-border commercial acquiring, both in-store and online, highly-secure payment transaction processing, a broad portfolio of payment terminals as well as e-ticketing and digital services in the industrial environment. In 2019 Worldline generated a proforma revenue of 5.3 billion euros. worldline.com
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About the author:
Daniel Passarelli is Worldline’s Executive Managing Director for Latin America. For the last 14 years, he has held direct leadership for products, business development and strategic partnerships in the payments and financial services market. Daniel is a corporate entrepreneur with strong experience in digital products.
