Today, the largest e-commerce market in Latin America is Brazil, but when it comes to long-term potential for cross-border merchants, Mexico is the market to watch. Though cross-border commerce is low compared to Brazil, Mexico’s e-commerce market is growing at a rate of over 21%, nearly double the global average.
The second-most populous country in Latin America, Mexico’s inclusion as a member of NAFTA means its economy is strongly linked to the U.S. economy. With the 11th largest GDP in the world by purchasing power parity, Mexico is in a unique position as a global power with a consumer population relatively untapped by outside commercial investment.
Let’s take a closer look at Mexican consumers and the benefits to retailers investing in cross-border e-commerce.
Unless otherwise noted, figures in this article are sourced from:
- ATKearney; 2016: The Tipping Point for E-Commerce in Mexico
- The Paypers; Mobile commerce and online shopper behaviour in Mexico
- Population: 120 million
- Internet penetration: 54%
- Mobile penetration: 37%
- Online shoppers: 16 million
- E-commerce sales: USD 11 billion
- E-commerce annual growth rate: 21%
Behind only Asia-Pacific, Latin America is the region with the fastest-growing e-commerce market. Mexico currently accounts for 12.3% of the regional market, a value of $11 billion USD, or 2.5% of Mexico’s total retail sales.
Though internet penetration is relatively low at 54%, Mexico’s still has the world’s eighth-largest online population with 65 million people. However, only a quarter of active internet users have a fixed broadband service in their home, so access to e-commerce has been historically limited. Because of this, Mexico has the lowest percentage of digital buyers in Latin America (only 22% of the online population).
Today, internet usage is rising rapidly due in part to the falling cost of smartphones. With over half the population under the age of 30, more and more young people will enter the consumer market over the next 15 years. This demographic is also expected to spend more time online and is more comfortable with e-commerce than the previous generation.
Mexico’s retail industry is driven by local payment options. Credit card penetration is low (only 24%) with most consumers preferring debit cards, averaging 3.8 debit cards per household. Most local debit cards can’t be used for online transactions, so credit cards are still the most common online payment methods. However, prepaid cards, direct debit services and e-wallets also hold a significant share of the market.
Economic and political concerns are still holding back e-commerce growth in Mexico. Even though the economy is stronger now than any time in the past decade, many still try to limit household spending. The current political climate in the U.S., with whom Mexico shares its largest border, contributes to this unease, as the American government’s recent threats to pull out of NAFTA could have serious and unforeseen economic consequences.
Drivers and Barriers
Driver: Low Competition
It’s fair to say that cross-border e-commerce in Mexico is in its infancy. Only one-third of consumers having ordered something from abroad, yet more than half of consumers have said they plan to purchase from retailers outside of Mexico. In part, this disparity is due to the relatively low international investment in the Mexican e-commerce market. Cross-border merchants who expand their services into Mexico will find relatively little competition for the attention of consumers.
Barrier: Internet Connectivity
Due to historically low internet connectivity, much of Mexico’s population has had limited access to e-commerce. Combine this with more recent economic and political turmoil, and you’re left with relatively low public trust in online transactions. With most households still lacking a dedicated broadband connection, e-commerce penetration remains the lowest in Latin America.
Driver: Mobile Commerce
More than half of Mexico’s population is under 30. With smartphones now more affordable than ever, most of these people are entering the workforce with a full-time internet connection in their pocket. Mobile commerce has allowed Mexico’s younger demographic to jump straight to m-commerce, which in 2015 recorded a growth of 40% and will continue to grow as more young people enter the consumer population. If you plan to enter the Mexican e-commerce market, having a mobile commerce plan is highly recommended.
Barrier: Security Concerns
A long history of organized crime and limited access to broadband connections has led much of the Mexican population to be skeptical of online transactions. This is often cited as the primary reason why the country’s credit card penetration rate is the lowest in Latin America. Debit cards and Oxxo payment vouchers are seen to be safer, but in most cases cannot be used to make online purchases. Mexicans are particular about which payment methods they’re comfortable with and more than half of them will abandon a shopping cart if it does not offer their preferred payment method.
Mexican E-Commerce Facts
- The second-largest market for e-commerce in Latin America.
- The eighth-largest online population in the world.
- Android is the preferred smartphone operating system, accounting for 83% of smartphones.
- Facebook is the dominant social network, used by over 70% of internet users.
- Digital advertising in Mexico has nearly double the average click-through rate (0.23%) as in the U.S. (0.09%).
- 30% of internet users own a tablet, the highest adoption in Latin America.
- The top destination by far for overseas e-commerce is the U.S., with 87% of cross-border sales.
Some large American retailers have begun to turn their heads to Mexico’s e-commerce market, with Walmart increasing their infrastructure in Latin American and Amazon recently offering its Prime subscription service to users of Spanish-language Amazon.com.mx. But the demand for cross-border e-commerce among Mexico consumers is still greater than the supply.
Local incumbent e-tailer MercadoLibre holds the largest share of the Mexican e-commerce market, but that only represented 9.5% in 2016, so there are no large domestic providers that have a firm grip on the market. With an increasingly young and connected population benefiting from a recovering economy and getting their first taste of disposable income, Mexico’s cross-border e-commerce market is full of potential.
Expanding into a new international market is a risky venture but a very rewarding one if done right. For the latest information about how you can build and maintain a strong e-commerce enterprise and keep it compatible with legislation and buying habits at home and abroad, subscribe to the Payza Blog and follow us on Facebook and Twitter for the latest industry news.