In 2024, more than 110 million people worldwide will join the consumer class – of which 88 million will come from Asia and a further six million from Latin America where income levels are also rising rapidly according to World Data Lab.
The EBANX Beyond Borders 2024 report refers to continued strong growth in digital commerce with sales in Latin America alone expected to reach around $950 billion by 2026.
One of the main drivers factors underpinning the growth of direct-to-consumer (D2C) e-commerce is financial inclusion. The growth of instant payments, as well as e-wallets, allows the hundreds of millions of people in Asia and Latin America who don’t have a bank account to pay for goods and services. Worldpay estimates that digital wallets’ share of global transaction volume will increase from 49% in 2022 to 54% by 2026.
The success of the Pix instant payment platform in Brazil, and India’s unified payments interface (UPI), illustrates the level of demand for affordable digital payment methods.
Economic growth is also boosting demand for goods produced by Asian manufacturers, whose competitive pricing makes them attractive to consumers across the world including Latin America.
Why go directly to the consumer?
There are many ways for merchants to access consumers. However, D2C e-commerce allows them not only to build a direct relationship with the person buying their product – it also enables them to reduce distribution chain costs and get a better understanding of the consumer.
Merchants typically struggle to figure out what the average consumer is purchasing in a particular region because the information gets lost along the distribution chain. Going direct to the consumer, means the merchant knows exactly what is being purchased and where. Effectively, selling direct to consumer is not only helpful in growing sales, but also to develop a better understanding of the customer.
There are many sectors where D2C has become the most important sales channel. A recent conversation with an Asean CFO of one of the biggest cosmetics companies in the world revealed that the company was now selling 40% of all its products online.
Because of infrastructural challenges, corporates may need to work through other marketplaces – especially for relatively low value items. But where the value of the product is higher it makes sense for them to control the entire retail experience.
Merchants also need to be aware of the growing influence of social commerce, which is creating some interesting challenges where influencers decide to sell products directly rather than routing sales through their supplier.
Which sectors have most to gain?
There are many industries that did not appear to have obvious potential for D2C e-commerce but are going directly to the consumer successfully. One of the most interesting is agrochemicals.
In this sector, products are typically sold through a layered distribution network. We now have clients offering mobile apps, where a farmer can enter the coordinates of their land, the company will provide a quote for spraying pesticide on that specific area and the payment is made via instant payment/QR code.
In Latin America, we see D2C e-commerce being increasingly deployed across the retail and travel sectors, in addition to cosmetics and beauty products.
Another area with potential is the public sector. Singapore, Brazil and India are three examples of countries where almost all public services are delivered online and new instant payment infrastructure is improving financial inclusion. Other governments can learn from countries that have successfully engaged with their citizens directly.
How to provide a uniform experience
The D2C model enables merchants to offer a standard interface for consumers across multiple markets. Getting paid has been a challenge in the past, especially in countries where credit card usage is low, so supporting alternative payment methods is vital – which is where wallets and instant payments come into their own.
The settlement process (specifically getting funds out of highly regulated markets) has also been an issue for merchants. In this context, it is significant that in recent months both Brazil and India have published legislation effectively allowing merchants to leverage bank infrastructure to collect money in local currency onshore without having to open a bank account.
This ‘no-account’ based solution is only available in Brazil and India. However, in other markets, merchants can use non-resident account-based solutions.
What can we expect in the future?
The greatest scope for development in D2C e-commerce lies in cross-border payments. But another interesting trend is for companies that have their own brand and product when they launch their online shop front to think ‘Why don't I make that shop front something my competitors can also use to see their products?’
Latin Americans have a positive perception of brands originating from Asia Pacific. This appreciation stems from exposure through media, trade, travel, and international business relations. Trust in established global brands often translates into a market primed for their products or services.
One of our Asian clients is looking to make its marketplace for spare parts and accessories a third party marketplace where others can come in and sell.
This is the approach taken by the telecommunications industry, where the mobile network operators realised that the towers and other equipment they had installed was really just infrastructure and that by sharing it across the industry they could bring down their cost of doing business.