COMMENTARY: How To Leapfrog Barriers in Payment Infrastructure

Over the last decade, we have seen an explosion in fintech, ushering in a new era of commerce. Payment innovations have closed the technology gap and have connected consumers all around the world—even those without bank accounts—to the digital marketplace. Many fast-emerging markets across Asia and Latin America have seen breakthroughs in delivering pragmatic payment solutions to meet the needs of their region’s consumers. 

These local payment methods, which were formerly known as alternative payment methods until they ceased to be the alternative, have adapted to the cultural and economic factors of these geographies to offer a seamless and catered payment experience. Fintech innovations have enabled shortcuts in building infrastructure, allowing many countries to achieve fast results. Some regions have altogether leapfrogged certain legacy financial systems. And digital progress across the globe isn’t slowing down. 

This transformation of payment technologies provides solutions for those regions missing what was once considered fundamental infrastructure. But these solutions still have to apply to the needs of specific consumers. 

For example, research shows that 38.3% of the population of Latin America is unbanked. This makes it essential to source payment solutions that aren’t tied to banking institutions or credit cards. Further, 17% of online transactions in Latin America are cash-based. The region has adopted many cash-voucher payment methods to give unbanked and cash-dependent consumers access to global e-commerce. These solutions, like RapiPago in Argentina and BoletoBancario in Brazil, are a product of the leapfrog effect. Because of this and many other factors, the region has seen a 22.9% increase in business-to-consumer e-commerce volume in the last year.

This phenomenon is not limited to the LATAM region. In China, credit card usage for online transactions is fairly low at 22%, compared to mobile e-wallets at 55.7%. Chinese consumers went directly from paying with cash to using mobile payments, skipping widespread adoption of credit cards in the process. Quick-response codes and payment platforms like WeChat Pay and Alipay developed in direct response to consumer needs and preferences.

Further, across the APAC region, there is 50.1% Internet penetration and 51.4% smart-phone penetration, which jumps much higher in markets like Hong Kong (89.4% and 76%) and South Korea (95.1% and 94%). Consumers across APAC have embraced mobile technologies faster than those in many other regions. Indeed, 57.5% of e-commerce transactions in APAC are completed on a mobile device. 

A key reason many countries like China were able to leapfrog card-based payments lies in the mobile phone. There is a low barrier to financial entry now, as anyone with a mobile device is able to participate in the exchange of funds. A smart phone is essentially a virtual bank account. A great example of this is GrabPay, a payment method in Southeast Asia. What started out as a food-delivery and on-demand taxi app has now become a payment method ingrained in the lives of 115 million consumers in that region.  

Similarly, in China, WeChat Pay, Alipay, and UnionPay dominate market share as they have become a part of many consumers’ daily routines. In Mexico, Oxxo is a widely used cash-voucher system that gives consumers access to e-commerce through their local convenience store. 

Unbanked, underbanked, and cash-preferring consumers face challenges buying online. But instead of tackling the intensive process of developing a nationwide banking infrastructure and fighting the uphill battle of adoption, the regions discussed here have created solutions that leapfrog these steps to give consumers a viable payment method for their needs today.

Local payment methods were born out of the needs of consumers and are specific to the economic and cultural factors of their region. On the global stage, card-based payments will not be effective. Around the world, local payment methods account for 77% of total e-commerce spend, and that number will only continue to rise.

—Steve Villegas is vice president for  payment partnerships, North America, at PPRO Group, Atlanta.