If markets like Brazil, Colombia and Argentina are digitising their financial services sector faster than anywhere else on Earth, then they are also experiencing rampant fraud attempts in digital channels.
Indeed, the growth in Latin American digital business provides a valuable lesson in how criminals will target rapidly-growing sectors, in part because they realise these sectors are less likely to be adequately protected.
First of all, the good news: thanks in part to its young, tech-savvy population, Brazil is home to the fastest-growing instant payments app (Pix) on the planet.
Data from the EBANX study reports that more than half of Brazil’s 214 million people now use Pix, which is now used for more transactions than credit or debit cards – or digital wallets.
Pix is now so popular that it’s predicted it will see volumes rise 85-fold in the three years between January 2021 and December 2023.
E-commerce explodes across LatAm
Latin America as a whole is now classified as a “hyper-growth” region, with e-commerce by volume rising at more than 30 percent per year – more than twice the global average, and almost four times as fast as the growth rate of developed regions such as North America and Europe.
While Brazil accounts for more than half of the region’s digital commerce, some Central American markets are recording growth rates of more than 50 percent per year in digital business, led by transactions undertaken on mobile devices.
Taken as a whole, e-commerce accounted for around 16 percent of the region’s retail sales in 2021, up from between three and seven percent just two years ago.
Bank transfers are the fastest-growing form for digital payments, while domestic and international cards are most commonly used at present.
However, all this good news hides an uncomfortable truth, namely that fraud has posed an intractable challenge to the development of Latin American digital business in recent years.
Bad magic: fraud in LatAm e-commerce
Much of the positive data reported by EBANX in their study is drawn from work undertaken by Americas Market Intelligence (AMI), a regional market research organisation.
In a separate study available on the AMI website, they describe 2020 as “the worst year on record for e-commerce fraud in Latin America”, noting that “this … erodes trust in e-commerce overall and affects user experience”, even going so far as to speculate that, longer term, an unchecked rise in e-commerce fraud could lead to the current rise in digital being a passing fad, rather than a permanent change.
“One in five Latin American digital transactions reviewed were declined as fraudulent – twice the rate of anywhere else on Earth.”
Statistics from online security specialists Ravelin paint a telling picture.
After South-East Asia, Latin America had the highest percentage of overall revenue lost to fraud (20 percent), and one in five e-commerce transactions declined as fraudulent – twice as many as anywhere else on the planet.
Statistics such as these help to explain why Forbes Business Intelligence predict the market for e-commerce fraud prevention in Latin America will quadruple between 2020 and 2028 to reach $2.9 billion.
Most recently (December 2021), major global payments networks Mastercard and Visa have announced that they will join forces with the region’s leading banks to combat online fraud.
Whether this will be enough for Latin America to continue on its impressive growth trajectory remains to be seen.
PCM SAYS:
It’s hard to see current growth rates in digital commerce continuing for much longer in Latin America. That said, specific verticals such as gaming (pegged for 400-plus percent growth in the years ahead) might help to boost numbers for a while longer.
It’s also interesting that consumers are turning to bank transfers and peer-to-peer apps to settle transactions as trust in the bank and card network is severely challenged by burgeoning fraud.
The next five years will be vital to the long-term future of Latin American e-commerce, as banks and the card networks redouble their anti-fraud efforts, while the fast-rising market affords criminals ever more opportunities…
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