We’re just a couple of weeks away from the FIFA World Cup in Brazil, and we’re bound to see new economic opportunities emerge. As the global population counts down the days for the most popular sporting event in the world, Brazil is also becoming the competitive field for companies to do business, specifically e-commerce. Online marketing activities, such as PPC and SEO campaigns, with “Brasil” as a main keyword will surely intensify as we lead up to the event.
Brazil is the epicenter for e-commerce in Latin America, responsible for 59% of Latin American e-commerce revenues. As the next big e-commerce opportunity, it has a population of approximately 200 million and one of the top 10 largest world economies. Millions of Brazilian consumers are buying via digital channels, and they account for more than one-third of all digital buyers in Latin America.
But navigating the complexity of international online markets requires some insider knowledge into the local customs, legislation, taxation, cross-border purchase implications and more.
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Some of the challenges for businesses entering Brazil include:
- Legal and banking regulations
- Closed and restricted currency market implications
- Restricted access to domestic payment methods
- Complex and dynamic tax legislation
- Finding the right local marketing partners
Here are a few rules and best practices for doing business in Brazil:
1. National cards and local currency support (Brazilian Real)
Due to local taxes and legislation, Brazilian payment methods are preferred over international alternatives. Consumers in Brazil use credit or debit cards for 70% of online purchases, with at least 80% of these cards supporting only Brazilian Real and issued by local banks. Only 20% of the cards support international currencies and can be used for cross-border transactions. Another catch is that the processing of cards issued by the local banks is restricted to domestic processors. Therefore forging local partnerships to access the Brazilian market is essential.
2. Payments in Installments
Installments, or parcelas, are a big part of paying with national cards in Brazil. A portion of the total price of products for single installment value is typically advertised to buyers. According to e-Bit, approximately 63% of online card payments in Brazil are made in installments.
Transactions with Brazilian Reals are preferred over international currencies. In September 2013, Brazilian banks declined Dynamic Currency Conversion transactions (DCC), which made card transactions in international currencies difficult. More than 7 out of 10 DCC transactions fail, and for those that succeed there is an increase of up to 8% of the purchase price due to the tourism exchange rate. On top of that, there is a 6.38% Financial Transaction Tax. All these taxes that increase the price of products make paying with international cards and currencies unattractive for Brazilian online shoppers.
4. Boleto Bancario
Boleto Bancario is a commonly used alternative to card payments that involves customers making cash payments in physical locations, rather than online. It is considered very secure with no associated risks and a safe payment method for international companies due to low chances for chargebacks. You’re able to cover more than 90% of the payments market in Brazil just by supporting Boleto Bancario in addition to national cards that support installments.
5. Recurring Charges Retry Logic
According to the Brazilian Institute of Economics, approximately 60% of Brazilians pay installment debt monthly. In combination with other expenses and low credit card limits, you risk recurring charges being denied due to lack of funds. By customizing the authorization retry logic and scheduling the recurring payments properly, you can increase the conversion rate for subscriptions renewal payments.
Scoring Goals in Brazil
Applying best practices for payments in Brazil makes a difference in the online sales conversation rates. Below is a graph showing the positive change in sales conversion rates over a five-month period for three companies that followed domestic rules.
The graph illustrates the increase in Brazilian sales conversion as a result of the activation of national cards. Copyright 2014, Avangate.
Revenue increased approximately 200% across the board by simply supporting national cards with or without installments, enabling payments to be made in the local currency, avoiding inflating prices artificially through unnecessary taxation, allowing Boleto Bancario as a valid payment method, and improving the card authorization process.
It may not be easy to score goals against Brazil in the World Cup, but by having a better understanding of the Brazilian e-commerce market, you can better score revenues for your business.
Carl Theobald is the CEO and President at Avangate, a digital commerce solution for software, SaaS and online services companies. Avangate serves thousands of clients, many of them already tackling the Brazilian market or looking to do so with Avangate’s help, expertise and platform localization capabilities. Prior to Avangate, Carl served as a SVP at Serena Software and a VP at Oracle where he helped establish the CRM division.