Following a wave of interest around accessing emerging international markets, Payment Magnates decided to contact someone who could speak expertly about payment processing in Latin America. With his expertise in e-commerce payment processing in Brazil, Javier Vallaure, allpago’s Director of Business Development, has provided us with key insights into the world of online payments in Brazil and has offered merchants some food for thought in their considered entry into this market
Payment Magnates: Can you please give an overview of allpago?
Javier Vallaure: allpago international operates as a payment gateway and only white label payment service provider (PSP) in Brazil. With one integration only allpago provides access to more than 150 international as well as local payment methods. Withal the processing of local payment methods is crucial in Brazil, since Brazilians use national payment methods for about 80% of their online purchases. Merchants who are not able to offer them can only convert 20% of their traffic and therefore not scale their operation.
allpago’s additional features include one-click payments, recurring payments, installments, a dynamic descriptor and mobile payment solutions. Our html 5.0 code allows multiscreen and is as easy to implement into the store through the “plug and pay” feature. Furthermore, we offer a fully integrated Risk Management Solution with more than 70 checks to guarantee the highest security and safety level. We are very proud that we have recently become the first LATAM payment solution provider of the Merchant Risk Council (MRC).
PM: Are you able to process any industry? For example would a Forex broker or a Gaming operator be able to use your services to process Boleto Bancario? If so, what would be the typical cost?
JV: We are focusing on digital products and services like e-learning, software, dating, and in general subscription services. We are constantly evaluating other industries and I am sure we will increase our reach in the future. We aren’t allowed to process payments for certain industries that aren’t authorized in Brazil. This is the case for example of medicaments or gambling.
PM: Why are multicurrency transactions being blocked in Brazil?
JV: The Abecs took the decision of changing the rule after noticing a growing confusion among Brazilian consumers. Whenever a consumer made a purchase in Reais, he received the invoice in dollars and the debit of the 6,38% Tax on Financial Operations (IOF for its name in Brazilian), mandatory on foreign transactions. According to the executive director of Abecs, Ricardo Vieira, this circumstance generated many complaints at the consumer protection bureau.
PM: How does this decision affect consumers?
JV:Brazilian consumers will have better information about their purchases. They will know in which currency they are making a purchase and are free to decide whether they want to bare the currency exchange risk and pay the Tax on Financial Operations that applies for transactions in foreign currencies.
PM: How does this decision affect foreign online merchants?
JV: The full consequences of blocking DCC (dynamic currency conversion transactions) are still unclear. Our team at allpago predicts an important drop in revenues for merchants converting to Brazilian Reais (BRL). In these cases Brazilian consumers will only be able to purchase through international credit cards. Currently only 20% of Brazilians own cards enabling them to purchase in foreign currencies. Furthermore, we expect a decrease in conversion rates for merchants pricing in foreign currencies. Brazilian consumers are well aware of the risk of a dollar appreciation between the time of the purchase and the actual payment. It is likely that they will avoid the currency exchange risk, which is already 10% higher than at the beginning of the year.
Both scenarios will have an important negative impact for international merchants and payment providers using DCC
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PM: You have featured recently in the news with reports of a solution to the block, for foreign merchants. Can you expand on this?
JV: Merchants with a legal entity in Brazil can switch to a local acquirer and process all their payments in BRL. Merchants who cannot open a legal entity in Brazil will need to find a local payment service provider (PSP) who can process the transactions, collect the funds in local currency and then remit the funds abroad, like allpago does.
PM: Many European and American based e-merchants would like to expand into Brazil and Latin America (generally). What challenges might they face during this quest?
JV: Understanding Brazilian taxes and finding and retaining qualified workforce are probably the main challenges an e-merchant would face in Brazil.
Most of our customers are really interested in the Brazilian market but feel overwhelmed by the tax code. A recent article from The Economist estimates that a mid-sized Brazilian firm takes 2,600 hours to prepare its annual tax return, almost ten times the global average.
The online market in Brazil is still very young and the biggest challenge for any new business is to find a highly qualified workforce in areas such as online marketing, operations, fulfillment and/or payment. Labor law and taxes are sometimes greyish and difficult for foreigners to understand, which causes another obstacle.
However, Brazil bears a huge potential as well: With the enormous expansion of Brazil’s middle class, the purchasing power has risen due to a jump in salaries, a decrease in unemployment, and greater access to education.
PM: What advice do you have for them?
JV: There are only a few acquirers in Brazil and the processes are often unstable, which makes it extremely difficult for international merchants to enter the market. The most important advise is therefore to look for a local partner, who can help you to avoid operational pitfalls, instead of opening your own legal entity. At the same time, the difficulties of entering the market make it impossible to coordinate several service providers at once. It is therefore essential to work with a one-stop-shop partner. But be careful – there are a lot of black sheep out there, so make sure you work with a solid player that is PCI certified and compliant with laws and regulations.
PM: What do you think about Bitcoin? Does this seem to allpago like something which must be considered by merhants or not?
JV: For the moment we haven’t notice a significant demand of payments through Bitcoin. We are closely tracking the evolution of Bitcoin in LATAM but we don’t expect it to be a relevant payment method in the region in the near future.
PM: What do you think is the future of e-commerce in Latam?
JV: LATAM e-commerce has a bright future ahead of it. Due to a growing internet penetration and a rising household income the middle class is rapidly adapting to e-commerce. Not only are consumers finding it quick and more convenient to shop online, but they also start to appreciate the lower prices for many everyday items.
Furthermore the introduction of new and cheaper smartphones is pushing the possibilities of mobile commerce. With 14 million smartphones sold in 2012 the penetration reached 34% and is expected to grow steadily. E-merchants who know how to operate in the market will benefit greatly from this growth