A Depreciated Colombian Peso Opens Buying Opportunities in the Payments Industry

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The recent drop in the Colombian peso is not indicative of a decline in the economic or political environment, but instead may offer interesting opportunities for payment companies in the e-commerce space.

From mid-2014 to mid-2015, the Colombian peso depreciated 54%, largely the result of a global plunge in oil prices. The oil shock has slowed government spending and consumption. As a result, GDP growth will barely reach 2.8% in 2015 versus 4.6% in 2014. However, one sector that continues to growth impressively is e-commerce, which analysts predict will expand close to 20% in 2015.
And there is still plenty of room for growth. B2C ecommerce volumes in Colombia, including air tickets (the largest category) reached US$3.5bn in 2014, or less than 1% of GDP versus 2% in the US and 3% in Korea’s economy. Growth will come in part by efforts to chip away at the many obstacles to wider e-commerce use. Some of those obstacles include:
  • Too many steps in the check-out process
  • High fulfillment costs, often involving imported products
  • Limited card ownership and usage
Getting around the E-Commerce Obstacles
These and other market impediments will be overcome through partnerships that combine specialized skillsets. A clear example of such necessary collusion involves Servientrega, Colombia’s largest logistics provider and Mercado Libre, the leading e-marketplace platforms. Together, they will provide a seamless payment + delivery solution to facilitate B2C and C2C.
The challenges of fulfillment help explain why virtual products sell best in Colombia. The leading product categories are airline tickets, hotel reservations, coupons, electronics, clothing and footwear. Recent studies show that 29% of Colombian internet users make at least one online purchase weekly while another 29% do so once a month. Marketing campaigns such as Cyber Monday and Black Friday help online merchants to create consumer awareness while offering steep discounts to buyers and educate customers about the advantages of using e-commerce over traditional brick and mortar stores.

Lots of Players in Colombian E-Commerce Payments
The e-commerce in Colombia remains fragmented, including the payment industry servicing it. So-called “payment gateways” provide an application service that authorizes non-present card payments for online merchants being the equivalent of a physical POS terminal at retail outlets. In 2014, there were more than 15 payment gateway platforms in Colombia. Leading the group was Payu Latam, formerly known as Pagos Online, with more than 15 million transactions and a presence in five LatAm markets, followed by PSE, owned by ACH, with more than 10 million transactions. After these two dominant players the market is more competitive, with companies such as Mercado Pago, Place to Pay, Zonavirtual, Avisor and Multipay. Finally, the third set of companies are much smaller in size (less than 500,000 transactions) and are led by En Línea Pagos, Pago Ágil, Interpagos and Pagos Inteligentes.

Possible Acquisition Opportunities
As e-commerce retailing consolidates behind value price leaders and more marketing spend is needed to penetrate deeper into the potential market pyramid, it’s likely that smaller players will be forced out or gobbled up by dominant players. In fact, in the fragmented field of payment gateways, at least half of the 15 are potential acquisition targets. For example, in July 2015, ID Global Solutions Corporation acquired the company Multipay, which had annual revenues of US$800 million and operations in Colombia and Peru. The acquisition marked ID Global’s entry into the Latin American payment gateway industry.

Another link in the supply chain of Colombian e-commerce that may be targeted by investors is the field of bank and non-bank correspondent networks, both of which enable financial transactions that are far removed from a bank branch. The two market leaders (of non-bank correspondents) are Baloto and Punto Red, and together they handle near $1 billion in annual transactions. Their networks are ideal last-mile solutions for ecommerce, particularly for the uncarded market.

Ultimately, Colombia’s embattled currency suffered the fate of global resource pricing. Its bargain pricing does not reflect a deterioration of the political or economic environment. For that reason, investing now in growth industries like Colombian e-commerce makes a lot of sense.

Contact Americas Market Intelligence to learn more about opportunities within the payments industry of Colombia and Latin America, as well as for competitive intelligence and strategic data analytics for Latin America’s healthcare, logistics, industrial, natural resources, consumer and automotive sectors.
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Diego Rodríguez

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