News Column

Challenges of Online Retailing in Latin America

Jan 31 2001 3:57PM

By Christopher D. Lancette

January/February 2001 - A recent Visa International-sponsored analysis, compiled by Boston Consulting Group (BCG) and published in Online Retailing in Latin America: Beyond the Storefront, estimates that online retailing in Latin America amounted to $580 million in 2000. But that figure represents only a fraction of e-commerce potential, according to executives at Visa International ĘC the largest credit card player in the region, with more cards in circulation than all of its competitors combined.

"We are building toward the future more than anything else," says Ricardo Gonzalez, senior vice-president of e-commerce for Latin America and the Caribbean at Visa's Miami headquarters. "E-commerce in Latin America is just starting to get off the launch pad."

Nevertheless, Visa officials recognize that they will not be able to capitalize on e-commerce unless they take an active role in building the industry. Specifically, they say it's imperative that they help retailers and consumers address the major operational difficulties documented in the BCG report. Such hurdles include:

* Late fulfillment of orders. During an experiment conducted by BCG, 42 percent of all goods arrived after the promised delivery date.

* Poor response to customer service requests. Many e-mail messages and phone calls go unanswered, and some sites have no phone support at all.

* Poor product selection. Variety in some popular categories is still meager compared to U.S. offerings.

* Alternative payment methods. Credit cards account for only 62 percent of transaction volume, since a host of alternatives meet local needs.

* Financial security. Latin American consumers are more concerned about it than their North American counterparts are.

Nonetheless, Mario Mello, a Visa International senior vice-president, sees such obstacles as opportunities. "Latin America remains a wide-open and viable e-commerce market," he says, "a market offering a wealth of possibilities to those online retailers with vision -- those who see poor customer service, lack of varied product selection, and lack of efficient delivery systems as operational challenges to be met head-on and ultimately overcome by innovative and cost-effective solutions."

According to Mr. Gonzalez, Visa International's Miami-based seminars, which draw hundreds of merchants and bankers from Latin America, are a key to helping retailers over the top. "Miami definitely plays a significant role in our success in the region," he says. "We have 350 staff members who travel a lot, and this is the city that provides us access to our clients in Latin America."

The Miami headquarters serves some 44 countries and territories, with a combined population of 495 million people. On the technical side, it oversees the routing of transactions in the region and is responsible for certification of new member banks.

Mr. Gonzalez expects the Miami office's role to expand as Visa International grows. The company is seeing a huge demand for debit cards in addition to its basic line of credit cards. Because Latin American consumers tend to pay as they go rather than run up interest-ridden accounts, debit cards constitute 80 percent of the company's 120 million cards in circulation.

Pre-paid cards also could be a boon in countries such as Peru, where, Mr. Gonzalez has recently observed, more people are gaining Internet access thanks to a flourishing new industry -- computer rental. "Entrepreneurs are seeing a great opportunity in setting up PCs in a small office and renting out use for less than a dollar an hour," he says. "Now, people who can't afford PCs can get access to the Internet. If they had a secure way to make purchases, either a credit card or a pre-paid product, I think they would use it."

Still, the BCG report found that only a small segment of Latin America's 428 million people can afford to go online at this time. And of the 71 million people age 15 or older who live in households that can afford Internet access, only 13.2 million (19 percent) are actually online. Brazil represents the largest market, accounting for 43 percent of Latin America's online population. Mexico and Argentina are home to 21 percent and 10 percent, respectively.

"I think you'll see the number of PCs sold in Latin America grow," Mr. Gonzalez predicts, "but I would guess the number of Internet users will increase at a higher rate. Critical mass might happen faster than anyone expects -- and Visa wants to be there as it happens. It' s much better for us to invest in the market now than to have to try to catch up later."

Source: Hispanic Business magazine

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