The Leapfrog Effect - Overcoming Barriers in Payment Infrastructure

  • Steve Villegas, VP Payment Partnerships, North America at PPRO

  • 10.02.2020 09:00 am
  • Payment innovations

Over the last decade, we have seen an explosion in FinTech usher in a new era of commerce. Payment innovations and new solutions have closed the technology gap and have connected consumers all around the world — even those without bank accounts — to the digital marketplace. Many fast-emerging markets across Asia and Latin America have seen breakthroughs in delivering pragmatic payment solutions to meet the needs of their region’s consumers.

These local payment methods – formerly known as alternative payment methods until they ceased to be the alternative – have adapted to the cultural and economic factors of these geographies to offer a seamless and catered payment experience. FinTech innovations have enabled shortcuts in building infrastructure, allowing many countries to achieve fast results. Some regions have altogether leapfrogged certain legacy financial systems. And digital progress across the globe isn't slowing down.

The Importance of Cash-Based Payment Solutions

The transformation of payment technologies provides solutions for those regions missing what was once considered fundamental infrastructure. But these solutions still have to apply to the needs of specific consumers.

For example, research shows that 38.3% of the population of Latin America, is unbanked. This makes it essential to source payment solutions that aren’t tied to banking institutions or credit cards. Further, 17% of online transactions in Latin America are cash-based. The region has adopted many cash-voucher payment methods to give unbanked and cash-dependent consumers access to global e-commerce. These solutions, like RapiPago in Argentina and BoletoBancario in Brazil, are a product of the leapfrog effect. Because of this and many other factors, the region has seen a 22.9% increase in B2C e-commerce growth in the last year.

Mobile Device Penetration Has Transformed E-commerce

This phenomenon is not just limited to the LATAM region. In China, credit card usage for online transactions is fairly low at 22%, compared to mobile e-wallets at 55.7%. Chinese consumers went directly from paying with cash to using mobile payments, skipping over the widespread adoption of credit cards in the process. The creation of QR codes and payment platforms like WeChat Pay and Alipay were developed in direct response to consumer needs and preferences.

Further, across the APAC region, there is a 50.1% internet penetration and 51.4% smartphone penetration, which jumps much higher in markets like Hong Kong (89.4% and 76%) and South Korea (95.1% and 94%). Consumers across APAC have embraced mobile technologies faster than many other regions. 57.5% of e-commerce transactions in APAC are completed on a mobile device.

Payment Adoption is Inherently Tied to Consumer Needs

A key reason many countries like China were able to leapfrog card-based payments was the mobile phone. There is a low barrier to financial entry now, as anyone with a mobile device is able to participate in the exchange of funds. A smartphone is essentially a virtual bank account. A great example of this is Southeastern Asia’s payment method GrabPay. What started out as food delivery and on-demand taxi app has now become a payment method ingrained in the lives of 115 million consumers in that region. 

Similarly, in China, WeChat Pay, Alipay and UnionPay dominate the market share as they have become a part of many consumers’ daily routines. While in Mexico, Oxxo is a widely used cash-voucher system that gives consumers access to e-commerce through their local convenience store.

Unbanked, underbanked and cash-preferring consumers face challenges buying online. But instead of the intensive process of developing nation-wide banking infrastructure with the uphill battle of adoption, these regions have created payment solutions that leapfrog this step to give consumers a viable payment method for their needs today.

Local payment methods were born out of the needs of consumers, and are specific to the economic and cultural factors of their region. On the global stage, card-based payments will not be effective. Around the world, local payment methods comprise 77% of total e-commerce spend, and that number will only continue to rise.


Other Blogs