The power of installment payments in Latin America

In the ever-evolving landscape of eCommerce, one payment method has quietly taken center stage in the emerging markets of Latin America: installment payments. These small but powerful loans have been a game changer in the region since the 80s, revolutionizing how consumers shop, pay, and increase their purchasing power.

Understanding installments

At its core, installment credit refers to credit card-based small or micro-loans designed explicitly to purchase consumer goods. While this concept is familiar in many parts of the world, it takes on a unique characteristic in the Latin American region. Localized versions of international credit card schemes are the norm, with countries such as Argentina, Brazil, Chile, Colombia, Mexico, and Peru having their own variations. However, these local cards have limitations - they're primarily for local purchases and can only be used internationally if they carry international brand names.

The widespread use of installment plans

In Latin America, the adoption of installment plans is nothing short of astounding. 60% of all eCommerce payments in the region are made through installment plans. But installment plans aren't just for big-ticket items; they're woven into the fabric of the everyday shopping experience in Latin America, both online and in physical stores.

The why behind the importance

Why are installments such a vital part of the Latin American payments landscape, especially in emerging markets? Let's explore some of the key reasons:

• Increase purchasing power: In Brazil, where the minimum wage for 1.2 months is equivalent to the value of a smartphone, installment plans play a critical role. These payment plans increase the purchasing power of 80 million Brazilians, making big-ticket purchases accessible and affordable

• Boost online spending: Credit card installments remarkably affect average online spending. They can increase it by as much as $300, resulting in an overall increase in sales of nearly 12%. This is a significant revenue driver in a region where eCommerce is booming

Installments across Latin America

Installment payments play a significant role in the purchasing habits of several Latin American countries:

• Brazil: A staggering 79% of consumers typically pay in installments

• Argentina: 77% of Argentinians have used installment plans in recent years

• Repu?blica Dominicana: With a rate of 74%, installment plans are a dominant force

• Colombia: An impressive 70% of eCommerce purchases in Colombia are made through installment plans

• Peru: 68% of consumers choose installment plans as their preferred payment method

The Buy Now Pay Later wave

As Latin Americans increasingly turn to digital commerce for their shopping needs, the Buy Now, Pay Later (BNPL) trend is beginning to make its mark in the region. While traditional installment payments have long been a staple in Latin America, BNPL is gaining momentum, with a projected global transaction volume of $400 billion by 2026. In 2022, the region experienced a remarkable 300% year-over-year growth in BNPL adoption, signaling a promising future. BNPL is an attractive option, especially for consumers without credit card access or limited credit limits who still want the convenience of splitting their payments.

Argentina, in particular, is poised to see significant growth in BNPL payments, with an expected annual increase of 54.6% to reach a total value of US$2,070.9 million in 2023. Similarly, Mexico's BNPL industry expects a steady expansion over the medium to long term, with a projected compound annual growth rate (CAGR) of 31.8% from 2023 to 2028. As BNPL continues to weave its way into the Latin American payments landscape, businesses looking to capitalize on this trend should ensure that they offer preferred local payment methods, recognizing the region's diverse and evolving payment preferences.

In the emerging markets of Latin America, installment payments are more than a payment method - they're a transformative force. Installments empower consumers to drive online spending and overall revenue growth. As these markets continue to evolve, businesses that understand and embrace the power of local installment payments are well-positioned to thrive in this dynamic region.