Last modified: April 2, 2019
Brazil offers ecommerce businesses tremendous growth opportunities. But with opportunity comes a number of challenges, from unique payment preferences to complex tax laws. Here are 5 things brands should keep in mind when looking to expand their footprint into this growing market:
1. Brazil has the largest and fastest-growing ecommerce market in Latin America
The Brazilian population has experienced substantial changes in recent years, including increased internet access, an explosion in mobile penetration, and a rise in purchasing power. These changes have led to a massive increase in the number of Brazilians that make purchases online.
Brazil is Latin America’s largest ecommerce market by a wide margin, and the ninth-largest economy in the world. The ecommerce market is expected to continue to grow significantly in the coming years as the number of online buyers increases from 55 million this year to an estimated 75 million in 2022. And while Brazil’s economy continues to improve after a significant recession, ecommerce growth will outpace economic growth in this market.
Brazil’s online buyers shop across product categories and span social classes. While ecommerce is heavily concentrated within upper and middle classes in many markets, 46% of lower income Brazilians in urban areas have purchased a product online in the past three months. The key to reaching these shoppers is offering alternative payment methods they feel most comfortable with.
2. Offering local payment methods is crucial for success in Brazil
Local payment methods unique to this market are important to providing a convenient and trusted buying experience to shoppers in Brazil. Offering these on checkout pages can help brands stay ahead of the competition and result in higher conversions. To be successful in this region, domestic credit cards, such as Elo and Hipercard, are a must as only 30% of Brazilian-issued cards are cross-border enabled. Furthermore, offering the ability to split purchases into monthly payments is crucial – almost 60% of online shoppers in Brazil pay with installments when using a credit card.
Merchants also will want to enable cash-based Boleto Bancário payments, which involve a printable, bar-coded invoice that the customer uses to pay online or offline. This payment method can be difficult for foreign brands to accept but is widely embraced by brands and consumers alike in Brazil. Many consumers in Latin America don’t own a credit card and many don’t have a bank account. However, millions of Brazilian shoppers prefer to pay with Boleto Bancário even if they do have a bank account. Almost 40% of these shoppers use this payment method because they fear credit card fraud, which emphasizes the need to offer the local payment methods and shopping experiences that make local consumers feel safe and secure.
3. Complex tax management and regulatory compliance present challenges for entering this market
As consumers continue to expect flawless ecommerce experiences, it’s crucial for merchants to calculate tax quickly and accurately no matter where in the world they do business. Furthermore, keeping up with the constantly evolving landscape of local rules and regulations in new markets like Brazil is crucial to avoid potential damage to your brand image.
Dynamic Tax and Financial Legislation
Tax management is one of the most challenging intricacies of selling products online, and Brazil has one of the most complex tax structures in the world. Each of its 26 states and the Federal District has their own legislation, making 27 regulations on indirect state (VAT) taxes and varying compliance rules. All local sales also require a Nota Fiscal (an electronic invoice) to be filed with the Brazilian government. And to add to the complexity, foreign exchange rates in Brazil are extremely volatile.
A local payment infrastructure is the most effective way to collect payments when selling in this market. Due to the current financial regulations in Brazil, international merchants are required to establish a legal entity in Brazil in order to enter into a merchant agreement with Brazilian acquirers. Because of this complexity, it is advantageous for brands to partner with a commerce provider who has a local entity and is familiar with tax nuances in this market.
Local Regulations and Compliance
Making sure your brand is compliant with current laws and regulations is a tremendously complicated and time-consuming part of having an ecommerce operation in this market. One example is Brazil’s General Data Privacy Law. Following in the EU’s footsteps, the country’s own data protection regulation was passed in August 2018 and closely mirrors the GDPR in terms of scope and rules for data processing.
Tailored ecommerce solutions, extensive knowledge and local experience in navigating the Brazilian regulatory landscape are crucial. Local regulations are very complex and consumer lawsuits are common, so partnering with an ecommerce provider that can take on all the risk and responsibilities is key to maintaining a pristine brand image when selling in Brazil.
4. High levels of fraud continue to affect the growing ecommerce sector
Security, particularly regarding ecommerce fraud, continues to be a top concern for consumers in this region. Brazil is one of the countries with the highest rates of fraudulent ecommerce activity in the world. As a result, international fraud prevention services are likely to deem transactions from Brazil as high-risk. This leads to a higher rate of false fraud alerts and lost revenue for merchants due to incorrectly rejected credit card transactions.
Trust is extremely important for both consumers and brands across this region, which emphasizes the need to form trustworthy relationships that foster brand loyalty with Brazilian shoppers. Offering the payment methods that they trust is one of the best ways to do just that. Consumers who are wary of fraud prefer Boleto Bancário as a secure payment method over high-risk credit cards.
5. Holiday promotions will maximize consumer engagement
Especially in more mature Latin American markets, such as Brazil, brands must implement key ecommerce features to optimize the customer experience and differentiate their offerings from competitors. In addition to offering things like alternative payment methods, special holiday promotions can attract new customers and maximize consumer engagement.
Brands should make sure their holiday promotional strategies are global and emphasize what is most important to shoppers around the world: discounts. 95% of the population in Brazil is aware of Black Friday & Cyber Monday and awareness of these days is growing each year. Other holidays – such as Christmas, Valentine’s Day and Mother’s Day – are responsible for a significant portion of ecommerce revenue in Brazil and should be kept in mind by brands selling in this region.
The Bottom Line
Selling online in Brazil is a challenge that shouldn’t be underestimated. Brands are expected to comply with all local rules and regulations while delivering a local experience with the language, currency and unique payment methods that shoppers prefer. Our recommendation? Don’t do it alone.
Partnerships play a prominent role in global ecommerce expansion efforts. Look for a partner whose knowledge extends beyond “today” and who can help grow your business at the remarkable pace of ecommerce. Reliance on a partner that can take on the risk of regulatory compliance and tax requirements is especially helpful when expanding globally.
Interested in selling in Brazil and other emerging markets? Contact us to learn more about how Digital River can help take the complexities out of global ecommerce so your brand can focus on delivering superior experiences to your customers.
Disclaimer: This article is intended for informational purposes only and not for the purposes of providing legal advice as Digital River is not engaged in rendering legal, tax or other professional advice and this article is not a substitute for the advice of an attorney or other expert. If you require legal or other expert advice, you should contact an attorney, tax advisor or other expert to obtain advice with respect to any particular issue.