E commerce Colombia

Prepay Technology Boosts Retail in Colombia

The impact of prepay technologies on retail in Colombia is becoming stronger as the government works to promote digital procedures, and the millennial population gains more purchasing power. 

Technologies that facilitate online payment for businesses and consumers play an important role in e-commerce adoption and creates an optimal environment for commercial activities.

Learn how the government is working to promote digitalization and find about the main players in online retail in Colombia.

Online Retail in Colombia: A look at statistics

According to a report developed by SAP (Systems, Associations and Products), a leader in enterprise software services,  Colombia is fourth in e-commerce sales in the region. The country is behind Argentina, Brazil, and Chile. However, this represents an opportunity in the remaining sector of the e-commerce market share.

This report also stated that by the end of 2019 Colombia’s e-commerce activity will account for US$6.6 billion. From the total online purchases 73% are made through desktop computers and 27% through smartphones. The future prospects also indicate substantial growth, online retail in Colombia is expected to increase by 39% up to 2022.

There are many factors that can impact online commerce including payment security, accessibility and smartphone immersion in the country. 

Colombia’s’ efforts to promote a digital government

Colombia's flag
In November of 2019, the decree Law 2106 enforced that all State entities must provide electronic access to their services.

The Colombian government produced a policy named “Digital Government” (Gobierno Digital) which establishes guidelines for the strategic use of technology in public management and interactions between citizens and the State. The goal of this policy is to familiarize Colombia’s population with technologies in order to promote and utilize them to make competent and innovative citizens. 

In November of 2019, the decree Law 2106 was expedited. It enforces that all State entities must provide electronic access to their services. Colombia has diverse governmental entities that provide their services in different websites, with the new policy the goal is to channel all transaction through a single digital counter or platform.

Government efforts to digitize channels, transactions and society strongly support the commercial activities that utilize fintech technologies and other types of digital tools. 

Online retail in Colombia: Increasing millennial purchasing power

The number of millennials classified as wealthy is expected to increase by 87% over the next decade. Additionally, the middle class will increase by 7%. Currently, millennials represent 35% of Colombia’s middle class.

Having grown up accustomed to technology’s everyday uses, Millennials are known to have higher technological adoption rates in their generation. As their purchasing power increases, online payment and demand for other digital services in Colombia is likely to increase.

How does prepaid technology fit in with fintech?

Person exploring options for online retail in Colombia
The most popular fintech service is payment and this sector plays a key role in digital transactions.

The main services in the fintech scope are payment and remittance, consumer lending, corporate lending, scoring identity and fraud, personal financial management, wealth management, crowdfunding, trading and markets, and enterprise financial management. 

The most popular fintech service is payment and this sector plays a key role in digital transactions. There are many factors considered when deciding which payment platform to use, including technologies to be utilized in the platform, accessibility and developers’ input. 

Businesses that seek to offer digital payment options to customers will likely utilize fintech companies that will handle these digital transactions. For instance, when a customer buys a product or service online the fintech company will handle the payment method the customer utilizes, whether is visa, MasterCard, e-wallets associated with cards, QR, etc.  Fintechs will be the intermediaries for digital payment. 

Payment fintechs utilize payment gateways. These gateways are systems that authorize credit card or direct payment processing for online retail. 

Two main pathways for digital payment platforms

There are two ways in which online payments are handled.  The first one is based upon a direct gateway system and the second is based upon an aggregator model, known as PSP (payment service provider ). The main difference between these two is that the first payment systems directly transfer payments to the product seller company, whereas, in the second case, the system acts as an intermediary and payment passes through them before being delivered to the seller company. 

Both systems have their own perks. The advantage of utilizing a direct payment gateway is that money is received directly and can be accessed almost immediately. Additionally, the seller company can negotiate costs directly with the corresponding bank, which can spare costs that intermediaries may apply.

On the other hand, the PSP allows seller companies to offer a wide range of payment methods through a  single channel. Furthermore, this system usually utilizes cutting edge technology to provide security and availability worldwide. It can be faster to implement and offers businesses’ clients a wide range of local and international options.

In 2019, there were a reported  97 available payment fintechs in Colombia. Fintechs charge a fee to seller companies using their services to provide digital payment options to buyers.

Main digital payment providers in Colombia

The main payment providers are PayU, Mercado Pago and  Place to Pay.

  • PayU: Offers the direct gateway system and the PSP model. This company owns 70% of the market share in Colombia and has no registration fee. Its rate is  3.49% + US$0.27(+VAT) per successful sale.
  • Mercado Pago is the leader in Latin America, has no registration fee and has the same rates as PayU.
  • Place to Pay registered 12.4 million in transactions during 2018.

There are a variety of payment methods that payment fintech can take. These can include e-wallets, QR payment and more. Currently, Mercado pago takes QR and ewallet payments.

The company specializes in cross-border payment, thanks to its presence in Asia, Central and Eastern Europe, Latin America, the Middle East and Africa.

PayU business model allow customers payment through its global network. The company specializes in cross-border payment, thanks to its presence in Asia, Central and Eastern Europe, Latin America, the Middle East and Africa. The payment service provider connects enterprises to 18 markets and grants access to 250 payment methods. This, in consequence, allows small business to better reach international customers. 

Technologies and business model are important to drive more customer engagement. Security and fraud prevention are becoming increasingly important. Additionally, international accessibility is also key, depending on regions and customers’ international purchases. 

We can support your business in online retail in Colombia

Colombia’s policies and technology adoption support fintech and commercial activities through the internet. 

Additionally, the country is growing at a rate above 3% having a lead position in the region. With online commerce growing rapidly, there are commercial opportunities for early movers.

To incorporate your business in Colombia it is strongly recommended to be knowledgeable about local legislation regarding company incorporation and employee hiring. At Biz Latin Hub we have vast experience helping entrepreneurs from around the world to enter Colombia. Our team of local lawyers and accountants is ready to help you with employee hiring, visa services, company formation and more. Contact us at here and get started. 

Learn more about our team and expert authors.

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The information provided here within should not be construed as formal guidance or advice. Please consult a professional for your specific situation. Information provided is for informative purposes only and may not capture all pertinent laws, standards, and best practices. The regulatory landscape is continually evolving; information mentioned may be outdated and/or could undergo changes. The interpretations presented are not official. Some sections are based on the interpretations or views of relevant authorities, but we cannot ensure that these perspectives will be supported in all professional settings.
Legal Team Colombia

Legal Team Colombia

Legal Team Colombia is the Biz Latin Hub leading experts on doing business in Colombia The Team writes on the news, doing business, law, and changing regulations. The team are experts in corporate law, Administrative law, Employment law, Immigration law and legal advisory services. Read more about them here. You can contact Legal Team Colombia via our "contact us page".

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