1059. Insights: The payments boom connecting APAC and Latin America

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1:32Hello and welcome to Fintech Insider Insights, this week in association with P-Pro. I'm Benjamin Ensort, Director of Research and Strategy at 11FS. In today's episode, we're diving into one of the most exciting shifts in global e-commerce, the rapid expansion of Asia-Pacific merchants into Latin America, and why payments will play a crucial role in who succeeds. Latin America is one of the fastest-growing e-commerce markets in the world, already worth around$770 billion and growing at something like 20 % year-on-year. At the same time, we're seeing a surge of global merchants, particularly from the Asia-Pacific region, moving into Latin American countries to encourage and capture some of that growth.

2:16To explore this in more detail, we've partnered with P-Pro, which has just released its latest report in the P-Pro Almanac Corridor series, focusing on the APAC to LATAM corridor. You can download it now at ppro.com slash APAC dash LATAM. We'll also leave a link in the podcast description below, just in case you didn't catch that, which is entirely likely. So look for the link in the description. As always, I am not alone. I'm joined by two fantastic guests. First up, we have Motti Brink, Chief Executive of P-Pro. Motti, welcome to the show. So please, would you tell us a little bit about you and about your role at P-Pro?

2:57I mean, your chief executive. So it's sort of obvious, but tell us a little bit about what you do there. Yeah, I'm happy to. I'm thrilled to be here. I started my career in payments 24 years ago, working in setting up payment systems and risk and fraud management for merchants, and then moved into working for payment providers in 2011 after the divested world for RBS and Y4 WorldPay for seven or eight years, then I joined Nuve for three, joined PIPO three years ago, first as chief commercial officer, and then I took over as a CEO the second half of 2023. So I've been here for probably some time.

3:33Throughout my career, I always worked in payments and very much focusing on understanding the nuances of either different countries or continents when it comes to how do you reach consumers, how you get them to pay in methods that they prefer, how do you help businesses, global businesses, to go into different countries. You know, my kind of last 12, 14 years focusing on the payment provider side has been very much a journey of understanding and discovering the different continents and the nuances and how payments work. And that kind of fits really well, both with the Almanac that we just published, discussing the APAC to LATAM corridor, but also what we do as a business.

4:16So P-Pro, we are a payment provider. we have two core arms, a European one when we are the leaders in processing local payment methods in European markets and a second one which is Latam proposition where we work both as the merchant of record acquiring or offering local payment methods again to global players who require access to domestic markets. Our job is to simplify their access to those markets so we do the heavy lifting and they get the benefit of a trusted partner. Fantastic. Well, welcome to the show. And we are also delighted to welcome back to the show Bruno Diniz, managing partner at Spirala.

4:59Bruno, it's great to have you joining us. Thank you so much. Could you remind our listeners who've not come across you before a little bit about you and the work that you do across Latin America? Fantastic, Ben. So it's a pleasure to be here and join you guys again. So I basically run my own consultancy firm called Spirland. We basically help corporates and also governmental bodies and regulators, not only in the region, but in other places in the world, to better innovate and better comprehend the local environment for financial innovation. Besides that, I'm also a teacher at the University of Sao Paulo.

5:36The MBA course is there teaching about financial innovation fintechs. and general topics around that. I'm also a writer, so I have three best-selling books locally published in Brazil. And there's one which is a global collaboration with Brad King and Paolo Cironi and some other folks, which is called Branch Tomorrow. So it was recently released. It's about basically how is the rise and fall of the bank branches all over the globe. So I give them the context of the Latin American context on the book. And last but not least, I'm also, I was appointed last year as advisor for Open Finance in Brazil.

6:24So I'm part of the board as an independent board member at Open Finance. And there's a lot of cool stuff there, especially also related to payments, which is the integration of the smart brails from Open Finance along with Pix, which is a very interesting combination. So it's good to be here again and to chat about FinTech, which is something that I absolutely love. Indeed. It was great to have you back. And yes, there's a ton of things going on. FinTech is never dull, is it? All right. Well, let's dive in. So let's start by setting the scene and talking about why sort of Latin American e-commerce markets are so interesting and right now.

7:07So why don't we maybe start with the sort of scale of the opportunity. So according to P-Pro's report, you know, the Latin American e-commerce markets collectively are currently worth around 770 billion US dollars, growing rapidly to 20 % plus per year. Bruno, why is, I mean, e-commerce has grown fast across the world, but why is it growing particularly fast in Latin America now, do you think? Fantastic, Ben. Well, I think there are many factors to consider in this discussion. But the first one is we see and we have a very fragmented space in Latin. So when you talk about Latin, I think it's important to understand that all the different countries are moving at different speeds in terms of local infrastructure, in terms of capital regulation, in terms of FX regulation, which is a little severe for some of the countries.

8:06But the fact is, we've been improving a lot. And there is a cool story for all that. When you think about the evolution of local e-commerce, there are some players like Mercado Libre that really are definitely winners. When you think about the region, how they basically brought in some of the Brazilian consumers to the digital space, especially when you're talking about e-commerce. But the foreign players, like the Chinese, which I think would play a very important role on the development of the whole e-commerce locally as well, it trace back to 2010, especially for Brazil in this case. And there's a cool story on that.

8:55In 2010, players like AliExpress tried to enter the Brazilian market And they put together like their own page for people to pay. And the thing is, Brazilians access a lot of the websites and stuff like that. And it was like we were like fourth in terms of access because Brazilians have been like in the digital place for a long time considering e-commerce locally. But the thing is, we rank it like 27th in terms of basically the access, in terms of sales, in fact. The problem is, the Chinese used to think that it was a problem of fraud. Why people, Brazilians access that much our website, our page, but it's not converting.

9:48But then they realized that, and the Brazilians thought it's a UX problem. It's something maybe we're lost in the translation here, but it was a payment problem. And I think from 2010 up until now, and it was a pre-PIX era, the foreign players understood how to play it locally. So we've been growing a lot because of this understanding. There's still space for improvement in terms of how well it's done. But I think we've come a long way and every and each country is moving at a different speed. So that's my general take on how it's evolving. But I think we're going to have the chance to discuss some of the details next.

10:39That's a great introduction. Monty, I'd love to bring you in. I mean, Bruno is making a really important point there. There sometimes is an assumption among people who haven't really thought about it. the way people pay in another country is just kind of like how they pay in their own country. And so you might assume that people in Uruguay or Suriname or Brazil or wherever, you know, all have credit cards or all have debit cards and that paying online is super easy. Tell me that that's the case across Latin America. Yeah, well, I wish I could, but I can't. And actually, I have a similar story to Bruno.

11:13I was actually that international merchant almost 20 years ago. They assumed that everyone should pay in the way they wanted. And I actually worked for a company that targeted Brazil. And we had Visa Massacre, the kind of global payment methods available. And the problem was no one was using it. And when people were using it, it was really not successful. And it was my job to do the research of what payment methods are available in Brazil. And that was pre-pix. So this is a long time ago. And there was a payment method called Boleto, which is still around. And I was explained how the letter works.

11:47And it made no sense to me because we were asked to create a code online that people will be able to print out and go to a shop and pay in the shop for the code you create and then come back home to finish transaction. And we said, absolutely not. We would never, this is not a payment method that we can adopt or recommend to anyone to use because it just negates any logic that existed in how we wanted to process payments. You want to do something, you do it now online. So I flew out to Brazil and I was taken by a bellator person and he showed me exactly the flow and also showed me how popular it was at the time as a payment method in Brazil.

12:29And people were doing it all the time. And people didn't question it as like, is this the right flow of making a transaction? It was just culturally accepted that that's how you do it. And then reluctantly, we decided to give it a go. And it was a huge success for us because Brazilian wanted to use a payment method that we're familiar with. And I think that was my first lesson in understanding and respecting the nuances in every country. So assuming every country will use the same payment method and everyone behave in the same way, doesn't work in any continent and certainly not in Latin America.

13:06I think Latam is very interesting as well because in most countries, people speak Spanish. And because of that, there's the assumption if they speak the same language, they all behave in the same way, which is, again, not the case. There's cultural nuances, government health, Polish, they're done differently, different habits and experiences. So it is not just on the payment side. I think it's across the board. And I think respecting the nuances of different countries, if you are really serious about targeting that time is really important. But yeah, Ben, I unfortunately cannot tell you that you could use the same on everyone.

13:41So let's move to this shift we've seen in the past few years where we've seen this rapid growth of e-commerce players, particularly e-commerce platforms coming from Asia Pacific. And they're mostly Chinese, while we have seen firms like Shopee from Indonesia and so on operating in some of the Latin American markets, it's primarily the Chinese platforms, Temu, Sheen, AliExpress, TikTok, Shop, and so on, have all moved into Latin American markets in a big way and had a big impact. So, Moti, according to the work by your team, those platforms account for 20 % of Latin American e-commerce already.

14:23Why is this happening? what's encouraged these predominantly Chinese platforms to expand into Latin America? I mean, apart from the fact it's there, there's also people. I mean, apart from the obvious things, why are these Asia-Pacific platforms moving into Latin America? Well, my take here, very quickly, and I'm going to pass to Mori, they know a lot about growth, and they do that very well, and how to also gamify some of the experience on buying and stuff like that. And also, I think that adds also to the fact that some of the countries in the region are trying not to be so dependent on US or even European markets.

15:02And they are open up to APAC more and more. I think there is this will of the Chinese to come to the region and grow. And there's also the will for some of the countries trying to have some type of bilateral agreement, which also helps in some sense. But that would be, I think, my general take on that. Yeah, I agree with Bruno here. I think that it's a bit more complicated, more high points for that. I think there's nuances between LATAM and China specifically that make it easier for those economies and cultures to align in many ways. I think that the marketplaces you mentioned, like Temurashin, for example, cater for a wider range of prices.

15:50And in cultures or countries or economies where people are more price sensitive, I think that works really, really well. And I think it allows them to capture a significant part of the market fairly quickly. They're very tech savvy, both the consumers as well as the product producers, if you're on an east coast. So the Chinese businesses and the consumers they're targeting in LATAM. I think LATAM, there's a huge use, for example, of social media services like TikTok or others, you know, Instagram, etc., which has been hugely popular to promote some of the products from the different platforms as well and been very successful.

16:30Also, there's a proximity, which makes it easier, I think, in many ways for goods to be delivered into China if you compare it to Europe, for example. and the cost and sensitivities from North America to get to LATAM. It looks very close, but it's not. So I think you have that element as well. I'm laughing a little bit when you're saying proximity because the Pacific Ocean is quite wide. But I take your point that actually the journey from China to Europe via the Suez Canal is as long or longer. It is much longer, yes. But I think all of us sometimes, you know, if you go on a plane and you go to some countries like LATAM, America, you're always really surprised how long the flight is.

17:10If you do it from North America, you're even more surprised because there's the assumption that North America and South America will be a lot closer than it really is. But I think there's an element of how they target the Latam market, which is really, really interesting. I think there's also the political point which is really important to touch. I think Chinese businesses come to Europe and to North America, but there's some level of hostility in the way they're being welcomed here. And I think LATAM does it differently. And so if they need to diversify, that's a really good region for them to go into.

17:47So, Motti, last very quick question to you in this section. Do you see this as a sort of a short-term scenario maybe caused by, I don't know, Trump introducing all sorts of tariffs in the States that makes the US less attractive to Chinese merchants and is encouraging them and other Asian firms to expand into Latin America? Or do you think this is a long-term structural shift because the Pacific is narrower than I thought it was? We're going to see, this is going to continue. This is a trade that should have been going on for decades and it's entirely natural and it will continue to grow. What's your take on it?

18:18Yeah, I think it's entirely natural. I think that this is a trend we're seeing that is not going to stop. Global businesses will always try to go into more regions and more countries they can find attractive. with LATAM, you know, 680, 700 million people, it is not going to be a short-term blip. It's going to be something that's going to grow. I think the technology shifts in the region as well, the adoption of mobile phones, infrastructure changes, payment methods are changing. All that's helping in driving more into the region. And I think the growth within the region is very attractive to Chinese businesses or from other countries in the APAC region.

18:59So I don't think that's a short blip. I think this is here to stay and probably even accelerate over the years to come. Yeah. So there's a huge opportunity. As you say, there's a huge number of people in Latin America. Okay, so what we'll come on to next is that capturing that opportunity isn't necessarily straightforward. So stick around after these short messages.

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20:10There's quite an interesting statistic in the report where the team at PrePro report that one in five Latin American consumers abandon purchases if their preferred payment method isn't available. Personally, I'm a bit surprised it's as low as one in five. But, you know, Motti, what is that telling us? How much abandonment are we getting? I mean, you were talking about, you know, when you were first working in Latin America, you know, you're saying massive abandonment rates. And Bruno, you have a lot of examples of how, you know, Brazilians were looking at these websites, longingly wishing they could find a way to pay.

20:49What's going on here, Motti, in terms of payment systems? Yeah, I mean, I think the good news is the Latin American population is no different to any other part of the world. People would like to pay in a way they're familiar with. I think if you're an international business and you want to attract consumers in Brazil, Mexico, Peru, Suriname, part of it is also gaining their trust. And to gain trust, you need to feel familiar and offering payment methods that you're familiar with is part of it. If you're in Brazil and you don't offer the local population picks, there would be that questions the reliability of your website or services you try to offer because you don't offer the most popular payment methods in the country.

21:31So I think offering the local payment methods is really, really important. And I think understanding the fragmentation in the region is key. We touched on it before. The different countries have different payment methods. They have different, some have government-led initiatives like in Mexico's Bay or PICS in Brazil that have been hugely popular. And consumers expect to have it because it's been promoted in a country just about everywhere by the government as a preferred way to pay. So creating, I think, the infrastructure that offer that to consumers is really, really important. understanding, for example, the nuances on how the tax systems are working in each country and how to charge for it is really important as well.

22:17And then also understanding how if you need to manage the disputes and the chargebacks and the fraud checks you need to do, the identity checks you need to do when you board customers and consumers is also key here. Let's talk about fraud and identity checks just for a minute, because my understanding is one of the problems in some Latin American countries in the past was because many Latin American countries don't have the same kind of credit records and so on as some other countries, you're getting a lot of sort of credit card declines and so on just because the payment, the company processing the payment didn't necessarily recognize the customer or couldn't prove the customer existed.

22:54Bruno, is that something that is easing? Are we seeing that starting to get fixed, that sort of failed payments, declines, you know, false positives. Is that going away a little bit of firms finding ways to solve some of those issues? Sure. Yeah. And as as multi highlighted, it's like we have a very fragmented space here. And the thing is, when you look at the past 15 years, we saw a lot of fintechs and regtechs trying to solve this problem locally. So there's a lot of very localized players that understand well the dynamics. And it varies a lot when you compare it to Mexico, Brazil. There are nuances here that need to be taken into consideration.

23:43And I think that's the case. As we have social, we have cultural differences. some of the local players are really good at trying to capturing this. And, you know, as we have this, the evolving payment ecosystem, it also brings along all this, you know, all these other aspects like fraud and document and ID and verification and all of that. It's a matter of orchestration, you know. When you're trying to tap into the market here, you really need to, First of all, and adding on the last question that Moody responded, you need to have the different possibilities for the consumer to pay with their preference and try to be as broad as possible on that.

24:38and try to orchestrate also with some local player on all these fraud-related aspects to really optimize the whole offering. So it's important, and I see the evolution. There's a very interesting evolution in the past five to eight years in each country here in the region. If I can add a little bit here, I think the percentage of people that aren't banked in the region is also fairly significant compared to other regions. So that makes it tougher a lot of the time to do verification on people. I also explained why in some countries, Mexico is a great example. Actually, the more popular payment methods will fall under more of a cash type payment method.

25:21So these are payment methods that are required to have a bank account because, you know, majority of the population do not have access to it. So I think that's also one way where countries dealt with the inability to do some verifications on people because a lot of it is still offline if you want. But I think another element is interesting because fraud in some areas is more prevalent and more, you know, for example, phone theft and access to some of your data. Brazil is one of the leading countries, from my experience, when it comes to running some identity checks on you. including if you need to check a person's face, for example, they check for the movement of the face, so you're not using someone's selfie to try and portray to be that person.

26:11So I think actually there's a lot of fantastic innovation coming out of the region to help mitigate some of the real challenges, perceived challenges that come out of the region. I think the rest of the world is probably very likely to adopt very quickly. Marty, I want to pick up on something you said in your introduction. You talked about being a merchant of record. How is that helpful to, you know, a merchant that is coming from, you know, it could be Germany, could be Indonesia, could be, you know, wherever in the world, trying to sell in Uruguay, Brazil, Bolivia. What is the merchant of record and how does that help merchants that are moving into new markets?

26:51Yeah, so it's a really good question. I think, you know, at the start, as I said, there's a perceived assumption that because most countries speak Spanish, it'll be fairly easy to get into the region. And as Bruno highlighted before, every country in the region has its own taxation system, payment methods. The nuances are vast when it comes to restrictions on, you know, movement of money, etc. So, and movement of money, for example, would be making an international transaction. Can you pay an international company who will come from Germany in Brazil or do they need to be local in the country?

27:28The notion of merchant of record is a way where instead of having those companies having to set up business in every country and adhere to the local rules in every country, you have the creation of a company, we do it, but other companies do it as well, where you are the merchant of record. So you take the heavy lifting of understanding the nuances of the different countries and help businesses to process locally. And the money to process locally, you have many advantages. Some of the advantages will be you process in local currency, which sometimes cross-corder is hard to do. So there's ease on the FX fluctuations.