eCOMMERCE IS READY FOR LIFTOFF IN LATIN AMERICAThe channel is the primary source of fraud

2

EXECUTIVE SUMMARY

Technology workers in Latin America are at the forefront of a burgeoning eCommerce trend.

An ACI Worldwide and ATEFI survey of 120 technology workers in Spanish-speaking Latin

America found that 90% of respondents shop online and 49% shop via mobile phone. It is

expected that both retail channels will see future growth.

Technology workers, a key demographic for banks and merchants, have responded to the

evolving fraud threat with a lack of trust in non-bank entities to securely handle payments

data. They have also shown they have lost the fear factor of buying online and are fast

adopters.

The group surveyed represents the ideal target for merchants and banks — upwardly mobile,

affluent and willing to embrace new commerce channels and payment methods. There were

two key themes revealed during the research — omni-channel payments as well as fraud and

security.

Of the technology workers surveyed, 80% hold a higher education degree or a master’s

degree. Furthermore, the average salary of those surveyed is $15,000-20,000 per year,

compared with an average annual salary of $6,000-14,000 depending on the market.1 The

survey respondents represent an attractive and lucrative segment.

Thirty-six billion dollars are spent online in Spanish-speaking Latin America. Growth is at

10%+ in all markets and is 22% for the region.2 eCommerce is a global market, with local

nuances — eCommerce merchants and acquirers have to support a dizzying array of

payment methods. Transactions need to be frictionless to reduce checkout abandonment

and secure so that consumers will become repeat purchasers. The Latin American market

is no different, sharing these traits, but is perhaps even more complex for new international

entrants. Newcomers to the region often treat each market the same, but they have different

payment needs.

Although the media hype is around eCommerce, and rightly so given its rapid growth, 99% of technology workers shopped in a store within the last 30 days. Among those surveyed, 90% have shopped online, and 49% have shopped from their mobile device.

1 KEY TAKEAWAYS — ALL COMMERCE CHANNELS, TRADITIONAL PAYMENT METHODS, INTEGRATED FRAUD PREVENTION

These shopping habits across both physical and digital retail channels demonstrate the need for a true omni-channel approach to retailing and payments. Merchants, payment service providers, acquirers and banks in Latin America who want to grow market

3

share must support payments across all commerce channels — in store, online and on the mobile device.

Alternative payment methods are the preferred payments choice for only 14% of technology workers when they purchase goods online. Traditional card-based payment methods rule online and in store.

Fraud prevention should be a central part of a bank’s and retailer’s payments strategy. With 17% of technology workers experiencing fraud in the last 12 months, payment providers will need to deploy fraud prevention solutions or risk losing market share. Fraud puts a strain on customer relationships, and customers are likely to leave en masse if they are a victim of fraud.

Today there are approximately 8.3 billion electronic payment transactions annually at the point of sale in Spanish-speaking Latin America, and this is growing at a compound annual growth rate (CAGR) of 12.8%. Additionally, there are an estimated 5.5 billion withdrawals at the ATM, growing at a CAGR of 3.7%.3 As previously stated, eCommerce has a lot of hype, justified with sales growing at a CAGR of 22%4, with the market value reaching $100B in 2021. It will take a long time for eCommerce to surpass in-store transactions, but the value and growth of the eCommerce market demonstrates the importance to merchants today of having a comprehensive omni-channel and eCommerce strategy in place as this market rapidly grows.

The consumer, at the heart of the move to eCommerce, is driving change. Today’s consumers want to buy anytime, anywhere. This has been proven out in our survey of technology workers: 90% shop online each month, 99% shop in store and 49% shop from their mobile device. This demand is changing the way merchants design creative options for selling goods and services in a cost-effective way that maximizes sales, delights the consumer and minimizes risk.

Given the high-frequency and low-value transactions conducted via the mobile device, it will behoove merchants to provide in-app payments for smartphone users. In-app payments might be the easiest type of purchase for shoppers because preauthorization is completed when the shopper first downloads the app. In addition, in-app payments

2 OMNI-CHANNEL PAYMENTS

CASH IS NOT KING For P2P transactions, banks

reign. Sixty-two percent of P2P

transactions are conducted through

a bank’s website or through a user’s

mobile application.

KEY STATISTICS

OMNI-CHANNEL IS NOT JUST A BUZZWORD

There is high usage of shopping

channels — POS, eCommerce and

mCommerce. Retailers must have a

consistent and compelling experience

across all interactions with consumers.

ALTERNATIVE PAYMENTS ARE THE FUTURE

Thirty-one percent of shoppers online

use alternative payments such as

e-wallets, cash on delivery and PayPal.

Volumes of these alternative payment

types are expected to increase in the

future.

FRAUD IS LOOMING

Seventeen percent of

technology workers surveyed have

experienced personal payments fraud

within the last 12 months. eCommerce

was the primary source of the fraud.

4

typically provide a better experience than online shops, with fewer lags and a more intuitive experience. In-app payments can also utilize stored credentials that rely on device-specific features such as biometrics for access. In short, in-app payments provide a welcome boost to conversion rates; merchants are wise to fully enable them.

The consumer experience is not only limited to the ease of payment and navigating a website —while use of alternative payments is low today and traditional card-based methods dominate, alternative payments will start to grow. Globally, alternative payments are expected to account for more than 50% of eCommerce transactions in 2018.5

Getting the right payments mix is crucial because it has been shown that offering the top three payment methods in a market, rather than only the top one, improves conversion rates by 30%. This is because shoppers want to use what is familiar and what they trust, be it a credit card, a large alternative payment method that conveys a sense of legitimacy or a local brand for shoppers that shun the recognized brands. Offering the right payment methods across all commerce channels, rather than a narrow or random offering, engenders trust and convenience with shoppers and will result in higher conversion rates.

Consumers are demanding and want to conduct commerce on their terms, channel or method.

Among those surveyed, 17% experienced fraud. Card-not-present (online) fraud was the most prevalent type of fraud, with 35% of victims feeling the pain online.

Humans can sometimes be the weakest link in a fraud prevention strategy. Classic phishing attempts are still used today. Fraudsters do research online and gather information from social media and, coupled with a traditional angle, this strategy represents a new danger to consumers.

3 FRAUD AND SECURITY

GROWTH OF eCOMMERCE IN LATIN AMERICA

US

D

50 bn

40 bn

20 bn

0

2014 2016 2018 2020

Peru, eCommerce, value of transactions

Chile, eCommerce, value of transactions

Venezuela, eCommerce, value of transactions

Colombia, eCommerce, value of transactions

Argentina, eCommerce, value of transactions

Mexico, eCommerce, value of transactions

30 bn

10 bn

2012

IN WHICH PAYMENTS CHANNEL DID YOU EXPERIENCE FRAUD?

Point of sale (POS)

Online

Mobile

Bank

ATM

26%

10%16%

43%

5%

5

Card skimming still takes place, and the mobile phone is now viewed by many as more secure than online and POS transactions. Smartphones can offer an additional layer of security with biometric identification needed to unlock the phone and make a transaction.

It is advised that commerce and payment providers focus on fraud prevention. A serious fraud attack could cost an eCommerce, multi- or omni-channel merchant millions. As well as the financial costs, the damage to brand reputation and the resulting potential loss of future sales could be devastating.

With coming growth in eCommerce transactions, there will be a corresponding rise in online fraud. In turn, this has increased interest in a more sophisticated, real time approach to fraud prevention. With the expected growth of electronic transactions in Latin America (12% in store and 22% online) the level of fraud will only increase. There are many strategies merchants can deploy to help reduce fraud online. Two are active payment method selection and embeddable and secure payment forms.

• Active payment method selection

This responsive tool uses a shopper’s shipping address, device information and other data to determine and offer the payment methods most appropriate for the shopper. The result is better security, given that higher-risk shoppers are only offered robust payment methods and high conversion rates.

• Embeddable and secure payment forms The payment form is at the heart of the checkout process; get it right and no one even notices it. Get it wrong and shoppers become uneasy and abandon their shopping carts. Good payment forms have two important aspects. First, they securely handle payments data, often through tokenization. Second, they embed into an online shop, avoiding offsite redirects and adhering to the shop’s look and feel.

These two aspects are sometimes mutually exclusive; secure payment forms often require redirects and embedded payment forms are often either unsecure or look out of place. But embeddable and secure payment forms are available, and by being secure and practically invisible to shoppers, they play an important role in high conversion rates.

Payments are not all about banks, and merchants can no longer afford to ignore the opportunity presented to them online. Today very few consumers agree that merchants, in store or online, will keep their payment details safe. Merchants who can demonstrate the steps they have taken and actually provide fraud prevention will rapidly gain market share.

Whether shopping on a traditional desktop or using a mobile phone, Latin American technology workers want a secure experience and the ability to pay with their preferred payment method. With eCommerce volumes growing rapidly, reaching a value of $100B in five years, merchants who enable their consumers to pay via their preferred payment method will gain market share and loyalty among this highly desirable segment.

4CONCLUSION

1 https://en.wikipedia.org/wiki/List_of_American_countries_by_average_wage

2 Timetric, Payments Intelligence Center

3 Timetric, Payments Intelligence Center

4 Timetric, Payments Intelligence Center

5 Timetric, Payments Intelligence Center

6

ACI Worldwide, the Universal Payments

(UP) company, powers electronic payments

for more than 5,100 organizations around

the world. More than 1,000 of the largest

financial institutions and intermediaries,

as well as thousands of global merchants,

rely on ACI to execute $14 trillion each day

in payments and securities. In addition,

myriad organizations utilize our electronic

bill presentment and payment services.

Through our comprehensive suite of

software solutions delivered on customers’

premises or through ACI’s private cloud,

we provide real-time, immediate payments

capabilities and enable the industry’s

most complete omni-channel payments

experience.

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ATL6267 05-17

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