How COVID-19 triggered an e-commerce boom in Latin America

Mirroring global trends, the coronavirus pandemic led to a rapid increase in online payment activity in Latin America over the course of 2020, making the region one of the fastest growing e-commerce markets in the world.

Prior to the virus outbreak, e-commerce penetration was comparatively low in Latin America, and uptake was hampered by the region's significant unbanked population, complicated logistical connections and a general lack of trust in online methods.

However, with many shops forced to suspend physical operations, COVID-19 has helped drive significant growth in this area.

It has been estimated that 13 million people in Latin America made an online transaction for the first time last year, while retail e-commerce grew by 36.7% to around USD 85 billion, according to data company Statista. At the national level, particularly significant growth was seen in Argentina (79%), Brazil (35%) and Mexico (27%).

While still well below comparative figures in Asia-Pacific ($2.4 trillion), North America ($750 billion) and Western Europe ($500 billion), Latin America made significant gains throughout 2020.

"Quarantine and social distancing measures greatly accelerated trust and adoption of digital platforms, helping Latin America reach more digitally mature markets such as the US or China," Carlos Garcia Ottati, founder and CEO of Mexican online platform Kavak, told OBG.

While multinational e-commerce and digital payments companies have experienced rapid growth throughout the pandemic, in Latin America a number of local options have taken advantage of the shift in demand.

Chief among them is the online marketplace Mercado Libre, which allows individuals and businesses to buy, sell, advertise and pay for products on its online platform.

First established in Argentina in 1999, the company now operates in 18 different countries in the region. Dubbed the "Amazon of Latin America", it is the largest e-commerce company in the region.

Mercado Libre has been one of the big winners of the pandemic, more than doubling in value over the past year.

"At the beginning of the pandemic, sales were driven by COVID-19 related items such as protective equipment and hygiene products, while, as of May, most other categories also experienced sustained sales growth," David Geisen, country leader for Mercado Libre Mexico, told OBG.

"In the second quarter, not only did we register three million new customers on our platform, but purchase frequency increased dramatically, with customers transacting in a quarter more than they used to in a year," he explained. 

During the first nine months of 2020, the number of unique active users increased 84.3 per cent year-on-year, from 61.1 million to 112.5 million, and gross merchandise value increased 41.8 per cent, while total payment volume grew 71.5 per cent to $33.8 billion.

This saw the company increase its share of the Latin American e-commerce market to 28%, according to Morgan Stanley estimates, up from 19% in 2015.

Another key player is Colombian super app Rappi, which is active in nine countries in the region.

Established in 2015, the company offers a variety of services that allow consumers to order groceries, restaurant meals, medicines and fashion, among other things. It also allows users to transfer money and has its own delivery service.

Rappi is valued at around $3 billion and, in a sign of its potential, has been backed by Japan's Softbank, in the company's first investment in Latin America.

Other major players in the region's e-commerce space include Caribbean-focused payments platform WiPay, Mexican online marketplace Linio and Mexico City-based grocery delivery chain Jüsto.

Several e-commerce companies in the region have expanded into services beyond shopping and delivery.

In 2019 Rappi announced a partnership with Visa to offer prepaid cards linked to its digital wallet in Brazil, Colombia and Mexico, while in June last year the company created a financial services joint venture with Mexican bank Banorte.

Mercado Libre has also expanded beyond its core online marketplace business in recent years, and the company now consists of a logistics division, a credit service, a financial technology platform and an advertising agency.

In fact, in November last year, the company's credit arm received a permit to operate as a financial institution in Brazil, a move the company says will allow it to expand its credit and financial services offerings in the region's largest market.

Elsewhere, investments have gone into developing Mercado Libre's logistics capabilities following increased demand in 2020.

"We have significantly expanded our warehousing and distribution footprint in Mexico, increasing our warehousing capacity from 30 square kilometres two years ago to 200 square kilometres in 2020," Geisen told OBG.

The expansion of services and markets has been seen across the board, with Mexico's Kavak becoming the country's first tech unicorn in September after reaching a $1.15bn valuation in its funding round. The company also expanded into Argentina through a merger with used car platform Checkars.

While the e-commerce market is currently dominated by regional operators, recent growth, coupled with substantial potential, has already attracted several international competitors.

Among them is US giant Amazon, which has been active in the region since 2015. Although it has so far been kept in check by local players, the company has doubled its market share in Latin America over the past five years, to around 4%.

In an effort to increase the company's presence, last year Amazon announced plans to open its largest distribution centre in Brazil and launched Amazon Cash in Mexico, a payment option that allows customers to make purchases with cash at participating convenience stores.

Meanwhile, Shopee, Southeast Asia's largest e-commerce platform, owned by Singapore-based Sea, also recently increased its presence in the region.

After initially establishing operations in Brazil in 2019, in February Shopee announced the launch of an app in Mexico, with plans to offer online sales in the near future.

In a bid to gain market share, the app claims Shopee will offer free shipping throughout Mexico. It comes as shares of parent company Sea surged 400 per cent last year and market capitalisation reached around $130 billion.