ACI Blog

The Rise of “Invisible Payments” in Latin America

LATAM shifts away from cash

Latin America is a region where cash is still the predominant payment instrument when shopping in-store. This is mainly due to having a large population of lower income shoppers who have limited access to electronic payment methods.

Fortunately, several factors are contributing to the shift from cash usage – estimated to be 87 percent in Argentina, 74 percent in Brazil and 86 percent in Mexico according to the 2020 McKinsey Global Payments Report – to electronic payments. First, in their fight against cash, governments in the region are stimulating the opening of free savings accounts, even enforcing the disbursement of economic aid to these accounts. Banks, neobanks and fintechs are also promoting easy access to electronic payments, including digital wallets and pre-paid cards, which are enabled by high smartphone penetration. Finally, the cost for merchants to accept electronic payments has been reduced drastically thanks to the surge of alternative and traditional POS devices, encompassing QR code payments, mPOS and digital wallets, to name just a few.

Having the technology available is, of course, a key factor, but often a catalyst is needed to shift the population towards habitual usage. This is what the COVID pandemic is doing. As a result, I believe that cash usage will reduce to less than 50 percent in the next two to three years.

Specifically looking at retailers, we are seeing that electronic payments are becoming a key factor in attracting and building loyalty with customers.

Due to the pandemic, eCommerce, which was already experiencing steady double-digit growth during the last few years, has become the number one channel to promote sales. And with the proliferation of payment instruments as mentioned, it is key for retailers to have wide acceptance of these in the eCommerce channel.

We also see that in-store payments acceptance is moving towards methods that are as frictionless as possible. For consumers, this means being able to pay the way they want and getting through the checkout as fast as possible, either using traditional cards, smartphones or wearable devices.

Finally, we see retailers developing more and more financial services and gaining added revenue from POS lending and open loop card issuing.

What are “invisible payments?”

Moving to more frictionless methods enable consumers to make payments without unnecessary intervention in the checkout process. It’s a bit like taking desired goods from a physical store and just walking away, with the payment happening entirely behind the scenes, but as secure and accurate as usual. This experience is referred to as an “invisible payment,” pioneered by organizations like Uber.

The obvious benefit is that users who can pay in this manner will save a lot of time avoiding queues. For the retail industry, reducing manual intervention will reduce the chances for errors and staff time spent on payments, leading to a cost reduction. It will also give merchants a chance to scale by reducing bottlenecks at the front of the checkout.

The payments industry faces the challenge of implementing this technology in a way that is as failure-proof as possible. This means ensuring that the right items and prices are charged to the consumer and doing so in a secure manner that can prevent fraud. In terms of emerging technologies, machine learning and more advanced biometric identification are likely to drive the progress of invisible payments.

Invisible payments are already becoming part of our everyday lives

While we saw invisible payments arising first in car-sharing services, we are seeing this concept emerge in other industries as a result of the pandemic, in restaurants for example. You can order from your mobile device and the check will be processed and paid when you leave the restaurant. We have also seen pilots at grocery stores, such as Amazon Go, which automatically adds a shopper’s goods to their virtual shopping cart and completes payment when the shopper leaves the store.

These are just a few examples, and we will soon see further applications where minimizing personal contact and reducing wait times is a key driver. The better the enabling technologies for invisible payments become, the more widespread they will become.

The retailer space is very competitive and has reached the points where the margins are so low that there is little room for further price battles. Under this scenario, retailers can set themselves apart by the service and experience they provide to their consumers. Allowing customers to pay the way they want and making this as smooth and secure as possible is a key differentiator in building customer loyalty and keeping up the fight for market share. It also brings additional benefits, from reducing the cost of fraud and excessive chargebacks to optimizing the cashflow by streamlining payments acceptance.

Until now, retailers have mostly adopted new payment technologies using different solutions that often work in silos. These silos not only create an ecosystem that is hard to maintain and upgrade, but also experience a disjointed customer journey. This will be a critical piece of the puzzle for retailers that are investing to address market challenges.

ACI Omni-Commerce offers retailers a secure payment processing platform that allows consolidated support for in-store, online and mobile payments. ACI Omni-Commerce enables merchants to offer true multi-channel customer journeys with a consistent, seamless payments experience that is guaranteed to perform and scale to power sales today and in the future.

Solution Consultant

Juan Beck has over thirteen years’ experience in the payments industry working with banks, acquirers and payments networks across Latin America. His experience spans both online authorization and back office operations of financial transactions. He’s a consultant leader in customers’ modernization journey towards real-time payments processing, and interoperability with emerging alternative payment methods. To do this effectively, he leverages both his academic and field expertise, with a Master’s Degree in Business Administration and extensive payments experience.