Buying online has become a habit for most of the population in rising markets

After years of expanding internet connectivity and unprecedented financial access, buying online has become a habit for most of the population in rising markets — and cards (credit and debit) are playing an increasingly pivotal role in creating access for digital consumers. 

Card ownership jumped from 35% to 55% worldwide between 2011 and 2021, according to the World Bank Global Findex. In emerging economies, the leap was equally significant, going from 33% to 57% in Latin America, 8% to 23% in Southeast Asia, and 15% to 25% in Sub-Saharan Africa. In total, almost 1 billion people have become card owners in rising markets in the past ten years – compared to 130 million new card owners in developed economies.

The arrival of new competitors, such as digital banks and fintechs, and incentives from local governments and regulators have pushed card adoption. With more competition, companies invest in loyalty programs and give generous cashback offers and other perks to attract new customers.

In Brazil, card issuance has increased by a staggering 130% in four years. "We used to have five main players in the card arena in Brazil: the five incumbent banks. Now, we have about 20 competitors," said Rubens Fogli Netto, Head of Payments at Itaú, one of Brazil's largest banks, during EBANX's Payments Summit. According to Itaú projections, Brazil should have almost 550 million credit cards at the end of 2023, accounting for 40% of household consumption in the country.

In India, the government has been the leading force in driving card adoption. Card volume has increased by 30% per year since 2021, according to data from the Reserve Bank of India and credit cards were the main growth drivers, with a 50% annual expansion. RuPay, a government-led card scheme with over 300 million users, has a 70% share of card ownership, with widespread acceptance by both offline and online merchants.

Today, even though credit cards are used by only 5% of the Indian population, roughly 70 million people in the country own one, a market size surpassing that of France or the UK. Estimates suggest that by early 2024, this number would reach 100 million, which shows the burgeoning growth potential of rising markets.

A similar process has happened in Egypt, with Meeza cards. Created in 2019, the local card scheme was backed by the government in an initiative to promote financial inclusion and modernize the country's payment systems. The focus has been on prepaid and debit cards, which were first used for government payments and are now spreading to online shopping. Currently, there are about 31 million Meeza cards in the country, which has about 110 million inhabitants.

Cards dominate digital commerce sales in most rising markets

This booming moment is reflected in digital commerce: cards are the number one choice for buying online in many rising markets, despite the relevance of alternative payments.

In major markets such as Brazil, Mexico, and Chile, cards are essential. Combined, credit and debit cards represent 51% of digital commerce volume in Brazil, 66% in Mexico, and 75% in Chile, according to PCMI data (Payments and Commerce Market Intelligence).

Even in countries where cards have a negligible penetration, they account for a significant share of digital commerce. In India, cards make up 43% of the value of online transactions; in Morocco, 42%; in Nigeria, 36%. In India, online spending represents 60% of all credit card transactions, per RBI which puts online shopping as the primary use case for credit cards in the country.

"In most countries, cards are the most widely known and the most widely accepted payment method. There's just a long history and infrastructure built around cards and credit cards. For most parts, they work well," explains Lindsay Lehr, Managing Director from PCMI. 

According to PCMI, cards will continue to be the leading payment method for online commerce in Africa and Latin America by 2026, competing head-to-head with mobile money and instant transfers, respectively. In Latin America, 57% of online consumers said cards were their preferred payment method for any type of purchase, according to a recent survey by PCMI.

"In most countries, cards are the most widely known and the most widely accepted payment method."

Lindsay Lehr

Managing Director at PCMI

Ubiquity, ease of use, installment plans, and the possibility of earning rewards are some of the reasons card preference is high and, in the case of online commerce, high acceptance rates from merchants. In Brazil, 97% of vendors accept credit cards; in India, 82%; in South Africa, 78%, per a Salesforce report.

"There is nothing quite like a credit card when it comes to cashless payments: the potential for rewards, the potentially significant credit limit, and in some cases, the prestige of holding a specific card," reads a recent article from Kapronasia about the credit card momentum in India.

Another factor that helps to explain the card’s relevant share in rising markets is the consumer cohort. Card owners are usually from higher-income brackets, who are not only used to buying online, but also spending more.

Cards in rising markets, mode of use: domestic brands and debit first

Consumers in rising markets have their own preferences and purchasing behaviors when it comes to cards. Major emerging markets are seeing a growing inclination towards domestic cards, known for their broader acceptance when compared to international schemes.

Homegrown card brands have a relevant share in India (RuPay), Egypt (Meeza), and Brazil (Elo). Most of them are government-driven, with public banks promoting their adoption.

"RuPay is the homegrown competitor for Mastercard and Visa," says Mahesh Swaminathan, a senior consultant from PCMI and a specialist in India's payment market. According to him, India has a silo approach when it comes to the transfer of data, which is one of the reasons the card scheme was created — in addition to boosting domestic consumption and account ownership. Today, RuPay cards have a 70% market share.

Consumers in rising markets also get access to debit cards first, as it comes with their account. This is why, for some consumer segments and in some countries, debit cards are actually the preferred payment method for buying online (especially for lower-income customers who do not own a credit card). 

In Peru, where credit card penetration is at a low 13%, debit cards account for most of the online sales volume, having a 45% share and being a critical instrument for attracting new consumers to e-commerce. They are also relevant in the Bahamas, Jamaica, Dominican Republic, and Mexico, with over 25% share of transaction value.

In Mexico, debit card volume actually surpassed credit cards during the country's leading shopping holiday, El Buen Fin. This results from a boom in the number of issuers and account holders in the country, with telecoms and department stores playing a pivotal role in providing access to digital accounts. Thanks to that, instead of cash, people are using money electronically — through debit cards.

"Debit cards are becoming more ubiquitous, with issuances more widespread," says Andreas Farge, director of PCMI. According to him, government-mandated issuers drive card adoption. In addition, fintech companies, department stores, and even mobile companies are also promoting their own cards and helping to boost card adoption in countries like Mexico and Chile. 

With more widespread adoption, debit cards might become a relevant avenue for growth – and for attracting new consumers – in some rising markets. An analysis based on EBANX internal data shows that in Peru, Mexico, and Chile, debit cards have been the primary source of new clients in the past years. In total, they have brought 25 million new customers to EBANX merchants since 2020.

Debit card purchases have a particularity, though: usually, they are for low-ticket items. Since the cards pull funds directly from a bank account, with no credit offer involved, customers tend to use them for low-ticket or more day-to-day purchases. At EBANX, the average order value for debit transactions is almost 40% lower than for credit transactions, when considering Brazil, Chile, Colombia, Mexico, and Peru.

"Credit cards are concentrated among a few, with higher volume; debit cards are spread out, with lower volume. That rule applies throughout the region," says Farge from PCMI.

In order to increase card volume, banks and issuers are actually using debit card data to build customer behavior and credit history so they can later offer credit cards to those who started with only debit. Once credit is available, consumers can jump to one of their favorite card features: paying in installments.

Installments drive consumption for higher-value orders

Paying in installments is the ability to split up the total amount of one purchase into monthly payments. In rising markets, installments are a vital component of the shopping experience whether through cards or Buy Now Pay Later solutions since they increase spending power and allow consumers to buy high-ticket items.

In Latin America, installment payment plans emerged in the 1980s to stimulate consumption during a hyperinflationary period. Since then, they have become a cultural preference in the region and essential during economic crises or periods of restricted cash flow. 

"In Latin America, consumers don't necessarily look at the price tag. They consider whether or not an installment plan fits into their monthly budget," says Sebastian Fantini, director of Product at EBANX.

Currently, most banks and credit card brands in Latin America offer the possibility to split purchases up to 36 times. At EBANX, currently, around 20% of all transaction volume is paid in installments a share that reaches 43% within credit card transactions. The practice is becoming more common as interest-free credit card installments grow throughout the region, reaching countries like Colombia and Peru.

More importantly, paying in installments raises order value by an average of 61%, according to EBANX internal data. The increase is directly related to the number of installments and is particularly important for industries with a higher average ticket, like travel. Because they raise the consumption appetite, installments are often used as a promotional resource, helping to bring more revenue and consumers.

Paying in installments is also becoming a more common practice in India and Africa, thanks to the growth of Buy Now Pay Later. Installment-based payments have been present in India for quite some time. Known as equated monthly installments (EMI), these payments are widespread for both online and offline purchases. EMI can work on either debit or credit cards, and it's offered under merchant-issuer tie-ups. In some cases, interest rates charged by the bank are deducted from the total order amount.

As in other countries, in India BNPL seeks to disrupt the legacy consumer lending landscape by offering quicker access to credit, smooth onboarding and user experience journeys, and (often, but not always) no-interest repayment plans. 

BNPL's share of digital commerce is still negligible (only 1%), but popular homegrown companies in the space include LazyPay, Slice, Simpl, and ZestMoney. Other e-commerce giants have also launched their own solutions Flipkart, owned by Walmart, has Flipkart Pay Later, and Amazon rolled out its own BNPL plan.

Meanwhile, Africa is experiencing a rise in the number of BNPL players. According to Farge from PCMI, this payment method has been especially beneficial for low-income consumers who are using BNPL to increase their purchasing power for a short period of time, aiming for a specific purchase or need. 

As alternative payments surge, cards revamp and add new features

With growing competition from alternative methods such as instant transfers and mobile-based payments, cards are reviewing their value proposition and aggregating more services and products to entice and retain customers in rising markets. 

"Cards and alternatives are actually learning from one another, paying attention to the needs of merchants and consumers," says André Allain, from EBANX. "Cards are adding a lot of features to catch up with alternative payments, whereas alternatives are growing to become more than a one-time payment."

Betting on a more seamless experience for the customer, cards are integrating with other payment methods, embedding card payments in apps and other digital services, improving customer service and communication, and tailoring products to different spending categories.

"We are working on customers' pain points, and this is what allows us to be innovative," said Fogli Netto, from Itaú, during the EBANX Payment Summit. 

The executive presented a roster of recently introduced features for the bank's credit card users, covering the entire consumer experience from pre to post-purchase. These features include advanced functionalities such as customer-initiated future purchase notifications (ensuring transaction approval), virtual cards, integration with digital wallets, an on-off button for online purchases, and even a WhatsApp confirmation for suspicious transactions.

"The WhatsApp feature is a very dear one, with more than 80% of responses," he said. Besides improving customer satisfaction and communication, it prevents fraud attacks and, in the end, enhances performance.

In India, credit cards are seamlessly integrated with UPI, the world's leading instant payment system. Customers follow the traditional UPI flow (in a fully mobile experience, with QR code reading and authentication through UPI PIN) and choose to pay with their RuPay credit card.

The connection with a widely accepted payment method, with an astounding 73% share of digital transactions in the country, has pushed credit card adoption in India. Particularly in smaller cities, the widespread acceptance of UPI QR codes, even by street vendors, has shifted small payments from cash to credit cards, contributing to financial inclusion and digitization.

"Agnostic is probably the best word to describe UPI. You will utilize UPI to do everything, including credit card purchases," says Mahesh Swaminathan, from PCMI and a specialist in India's payment market.

A Simple Guide to Enjoy Seamless Payments - Credit: NPCI Youtube Channel

There are even credit card companies in rising markets that are building alternative payments: that's the case of Nubank, the largest digital bank in Latin America, which created NuPay. It is a payment method tailored for online purchases, integrated with app checkouts, online stores, and digital services. Customers are automatically redirected to the bank's app to complete payment, without having to provide credit card data or use up credit card limits. 

"Alternative payments are evolving faster than cards, from a technological standpoint. Now, cards are trying to keep up," says Juliana Borges, director of Operations at EBANX.

Specialists interviewed for this study were unanimous in saying that there is space for both cards and alternatives to grow and the line between different payment methods is getting blurred, as they learn from one another and, even more so, integrate with one another.

"More and more, we see the mixture of payment solutions like Pix and debit cards as a breach to further develop opportunities in the credit card space," said Alexandre Zancani, director and executive committee member of Itaú bank, during the EBANX Payments Summit. Banks like Itaú are using transactional information from Pix and debit cards as a way to capture consumer behavior and build credit history, especially for lower-income customers.

"There's space for both to grow because the pie is getting larger," says Fantini from EBANX. "Alternative payments are growing, and cards too. It's not a battle."

Actually, collaboration is the word of the moment. As the payment ecosystem in rising markets evolves, card companies will work more closely with partners either PSPs, anti-fraud companies, banks, fintechs, or alternative payment players to develop seamless solutions and reach a larger addressable market of both vendors and consumers. That way, cards move closer to solving two of their main challenges in rising markets: interoperability and affordability.

Why it’s so difficult to approve card transactions in rising markets

The approval of card transactions is a particularly challenging topic in rising markets especially for online purchases, where conversion rates are even more daunting. Overall, the card industry is still maturing in these markets, lacking technological features or adequate levels of financial inclusion to ensure performance, besides facing increasing competition from alternative payments. 

"It's a whole different world," says Borges from EBANX. "Global companies are used to more mature markets when it comes to technology, authentication, financial products and services. Transactions flow very smoothly — and when these global accounts come to emerging markets, they get somewhat startled."

Most pressing challenges for card performance in rising markets

Higher rates of chargeback

Ever-changing behavior of fraudsters

No authenticated rails for card transactions (in Latin America)

Growing competition from alternative payments

3DS authentication, for example, is an industry-standard protocol for card transactions in more mature markets, where the consumer is asked to enter a one-time code or unique password to confirm payment. This is also true for India, where 3DS became mandatory for all card transactions at the end of 2023, and in countries such as South Africa, Nigeria, and Egypt, which have been adopting the protocol for online transactions for as long as 2014.

However, 3DS adoption still faces challenges in Latin America. Not every issuer is prepared for it, and not every consumer embraces the idea, which creates considerable friction for online payments. Without authentication, card transactions are susceptible to chargebacks meaning revenue and operational losses for merchants. "That's a shock for global companies wanting to operate in LatAm," says Borges.

Furthermore, other specific challenges for rising markets emerge, including the dynamic behavior of fraudsters, abuse of free trials, account takeover, and sophisticated phishing attempts.

Plus, low levels of financial inclusion, with a lack of credit lines available to consumers, are a blocker to card transactions having adequate approval levels. The issue of trust in financial institutions doesn't contribute to customers engaging with cards, with many giving up on a purchase when a transaction is declined. 

At the end of the day, confirming a card transaction quickly and seamlessly in rising markets might be the difference between buying or not buying. "Every point matters. Every transaction matters. It directly impacts business revenue, and it is the most important thing for our operations team," says Paula Bellizia, President of Global Payments at EBANX. 

The best practices to boost approval rates for cards

Given those specific challenges, the payments industry had to adapt to ensure adequate approval rates for card transactions in rising markets. This meant developing proprietary anti-fraud solutions, connecting and sharing information with multiple stakeholders, adapting authentication features, and monitoring the flow of transactions following customer onboarding.

"Processing cards in rising economies requires a deep understanding of the market, including fraudster behavior, payment specificities, and consumer preferences to mitigate the risk of fraud and chargebacks," says Borges.

Card verification, for example, is a simple measure that helps to avoid one of the most critical issues of rising markets: free trial abuse. Before releasing access to a free trial, consumers receive a no-value transaction to validate the card number and eliminate the risk of storing invalid payment information. Since cardholders are notified about the transaction, this also certifies their identity and lowers the risk of chargeback in the future.

"It's a measure that fosters customer loyalty as purchases become more convenient and secure," points out Borges.

Best practices for card processing in rising markets

Card verification

Smart routing

Deep connections with industry stakeholders

Trusted MID channel

Smart use of 3DS*

Solid anti-fraud strategy
* for Latin America

Smart routing (i.e. selecting the best acquirer for each card transaction based on approval rates) also goes a long way. Sophisticated algorithms are employed to optimize payments, routing them to the card acquirer with the highest approval rate for that specific transaction. This depends on the quality of connections with local industry stakeholders, enabling more flexible rails for card processing.

A more sophisticated strategy is using Trusted MID (merchant identification). In this case, online merchants should provide a high-level analysis of their transactions to the card issuer, identifying processing patterns and behaviors based on customer history, type of merchandise, and delivery address, among other information. Transactions are then separated into low-risk and high-risk purchases, and the first group is sent to a trusted channel of the card issuer, with more flexible rules and, hence, higher approval rates. 

This strategy has the highest impact on approval rates for credit card transactions: at EBANX, the average increase is 5 percentage points.

In Latin America, using the 3DS protocol for high-risk transactions only has already been adopted by some online merchants. In suspicious transactions, consumers are asked to identify themselves through an authentication protocol to ensure the integrity of that transaction. "This is 3DS being used as a performance tool, helping to raise approval rates," adds Borges.

Finally, in the backend, there must be a solid anti-fraud solution built on machine learning to evaluate consumer behavior and transaction data. "Fraud is indeed higher in emerging markets because of the lack of authentication. In more mature markets, this is not a concern. In our case, we have to prevent," says Borges. 

EBANX's solution, for instance, analyzes data points such as the customer ID, email, ZIP code, IP address, and purchase amount to assess the risk score of a transaction. The platform also has continuous anomaly detection and AI capabilities that suggest anti-fraud rules based on consumer behavior. Some players also adopt onboarding authentication, asking customers to verify their e-mail and conduct a two-factor authentication before there's even an attempt to purchase. 

In the upcoming years, AI features are expected to improve fraud detection in rising markets, along with anti-fraud interoperability. "Certainly, this will help a lot to reduce false positives," says Fantini. 

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