A strong growth forecast, paired with rising internet and smartphone penetration, will see increased cross-border trade in the coming years. However, it is worth remembering that forecast growth may be slightly tempered by the effect of a weakening currency, with the peso struggling against a strong U.S. dollar.
Snapshot: eCommerce in Mexico
Total eCommerce sales in 2015 topped USD $11 billion, accounted for by 15.9 million online shoppers. This remains a relatively small proportion of the total population of 123 million (Mexico is the 11th most populous country in the world), which highlights the opportunities in this market as internet penetration – and the number of online shoppers – continues to rise in the coming years.
Although cross-border eCommerce in Mexico lags behind Brazil, around one-third of online shoppers have ordered from an overseas website, and almost half anticipate doing so in the near future. Growth in cross-border eCommerce in 2015 is expected to be 16.5%, almost 6% over the global growth rate. By far the most important market for cross-border purchases is the U.S., but China and Hong Kong also have notable share of the market.
eCommerce sales growth is beginning to slow, but remains in the double-digits.
The potential of the Mexican market is reflected in the number of international players who have already experienced some success. This includes digital goods leaders Netflix, Spotify, and Microsoft, as well as retailers such as Lowe’s, Home Depot, and OfficeMax. Global players including Amazon, Alibaba, and eBay are also investing in the Mexican eCommerce market, which is having the effect of rapidly improving the logistics network, especially in key urban areas.
Determining the right payment mix in Mexico
Credit cards, the easiest payment for international merchants to enable, are the payment method of choice for only 28% of shoppers. There are 30 million credit cards distributed amongst a population of more than 123 million, indicating that penetration remains low compared to other LATAM countries. Interestingly, debit card penetration is high (134 million cards in circulation) but these are used predominantly for ATM withdrawals. This represents an open opportunity, as merchants can negotiate with acquirers to open debit cards for their customers.
For the eCommerce market, local payment methods are important to consider, and this is reflected in the 32% of shoppers for whom cash is the preferred payment method.
Cash payments for online purchases are enabled through either cash-on-delivery, or through convenience store payments. The market leader in this space is OXXO (owned by FEMSA), with 12,853 establishments across the country (73% share of the market). 7-Eleven is the second most important convenience store payment method, with 1,281 establishments (7.3% share). For online purchases, the consumer must select their chosen convenience store at the checkout, generating a voucher with a barcode. The voucher is presented at the convenience store and the transaction is then completed with cash. International entrants need to be aware of the importance of offering such convenience store payments.
Currently mobile commerce accounts for only a fraction of the overall volume of online payments ($146.7 million out of the $11 billion total), but mobile commerce is expected to increase by 40% in 2015. Android is the dominant OS in Mexico, with a 74% share of the market.
Mexican consumers actively use mobile devices (including tablets) to research product details, compare prices, and search for product recommendations. 48% of smartphone users and 54% of tablet users have also used their device to complete a purchase. For merchants and their payment providers, this reinforces the need for responsive website design, including their checkout pages. A seamless shopping experience across devices will increase conversions, and payment providers will also need to ensure that they are able to support their merchants with relevant mobile payment methods as the mobile channel continues to grow.
Payment service providers and acquirers
The main acquirers and card issuers in Mexico are BBVA Bancomer, Banamex (part of Citigroup), Banorte, Santander, and HSBC. These account for 75% of all credit card, and 82% of all debit card contracts. These banks, as the major acquirers (BBVA Bancomer and Banamex alone account for a 60% market share of issuing and acquiring), have defined market rules through the Asociación de Bancos de Mexico (ABM). Card processing is dominated by eGlobal (owned by BBVA and Banamex), and Prosa (connects Banorte and Santander, plus many smaller acquirers).
Mexico’s key acquiring banks are connected to ACI’s global acquiring network, which delivers the technical connectivity needed for payment providers and their merchants to take advantage of eCommerce opportunities in Mexico. In recent years, as eCommerce has steadily grown, a number of payment service providers (PSPs) have established a strong presence in the Mexican market:
- allpago International is an ideal partner for merchants looking for easy access into multiple LATAM markets. A single API simplifies merchants boarding and integration, and makes all relevant payment methods (including PayPal) easily available.
- BanWire is a Mexican PSP that enables card payments, convenience store cash payments (including OXXO and 7-Eleven) and bank transfers. They also have value-added services such as customized anti-fraud solutions.
- Conekta is a PSP founded in 2011, which offers all major payment types, and has a strong integration with Shopify and Magento shop plugins.
- Mercado Pago is a PSP owned by MercadoLibre, LATAM’s largest eCommerce site. In addition to all major payment types, Mercado Pago also provides e-wallet services.
From the perspective of PSPs and merchants, Mexico may represent a smaller market than Brazil, but it is one that is considerably easier to do business in, especially for U.S. companies benefiting from favorable trade agreements. Less red tape makes it easier to repatriate profits, ultimately making market entry a more straight-forward prospect for cross-border players.