Local Payments Make the Difference in Brazil

By: Wade Pylka

In area and population, Brazil is the largest country in Latin America and has the fifth largest population in the world. With over 100 million Internet users Brazil has become one of the most important ecommerce markets in Latin America generating $15 billion in online sales in 2013.

Expanding your ecommerce business into Brazil is a decision most companies will have to evaluate at some point. Successful ecommerce expansion into Brazil depends on many factors, but most importantly at the end of the consumer shopping and purchasing experience, your customers must be able to pay.

At first glance, it may seem easier to enter the Brazilian market by using your current U.S. or European acquirer to sell cross border. Although you may see some traction with that strategy, you can improve your results even more by taking a domestic approach.

There are two common ways to enter Brazil using a domestic payments strategy: Build your own payments program and establish individual relationships with local institutions, or partner with an established onshore acquirer. Either domestic strategy will open up your business to a larger number of online shoppers. Failure to provide a local payments experience to Brazilian buyers will leave any company at a disadvantage.

A domestic payments program provides you many benefits in comparison to an offshore payments strategy. Specifically, localized payment solutions offer significant advantage over offshore solutions. As the Brazilian market matures, and as consumers have more choices, localizing payments is the best way to help your consumer pay using their preferred payment method. Here are three ways you’ll win with onshore processing in Brazil:

  1. Higher approval rates
    1. Some Brazilian credit cards are restricted for cross-border transactions. Because of this restriction, merchants will experience higher conversion rates when processing domestically. If you use a domestic payment program, decline rates can range between 15-30 percent. In contrast, decline rates in Brazil are on average 50-80 percent when using a U.S. or European acquirer for Visa and MasterCard payments.
  2. Reach more people by offering local payment methods
    1. National Cards – These cards can only transact in Brazilian Reals and be acquired domestically. Therefore, if you chose an offshore payments strategy, all national cards will be declined.
    2. Installments – Brazilian merchants have established a long history of offering installments and this cultural behavior has transferred over to online credit card payments. More than 50 percent of all online card transactions in Brazil take advantage of installment credits. Brazilian shoppers commonly use installments to purchase higher priced items. The only way to offer installment payments is through an onshore Brazilian domestic acquirer.
    3. Boleto Bancário – When using an onshore vs. an offshore acquirer you are able to reach one-third more of the Brazilian shoppers. By choosing an offshore acquirer, you are unable to process the Boleto Bancario, the second most preferred payment method in Brazil. The Boleto is most popular with consumers who do not have a credit card or bank account, or are near their credit card limit.
    4. Domestic Card Brands – There are several local card brands in Brazil, such as Hipercard, Aura, Hiper and ELO. In specific regions, like the Northeast region, Hipercard had a tremendous penetration for the card brand name.
  3. Avoid additional taxes – When a purchase is made through an offshore acquirer the consumer is charged an additional IOF (Imposto sobre Operações Financeiras) tax. Consumers will see the tax on their banking statements from their issuing bank as an additional 6.38 percent charge.

By selecting an onshore partner that provides payment methods that both you and your consumers can trust, you can minimize many of the complexities associated with expansion into the Brazilian market. Companies that recognize this and tailor their payment methods to the market are likely to have happier customers, higher conversion rates and greater revenue.

 

 

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