Brazil ranks 9th in the world for GDP and is the largest ecommerce market in Latin America. Moreover, the Brazilian population is highly connected and eager to attain the best of what the world has to offer.
However, there are systemic barriers that block Brazilian consumers from dominating the ecommerce market globally; primarily, obtaining sufficient credit. According to the National Confederation of Retail Leaders (Confederação Nacional de Dirigentes Lojistas), or the CNDL, in 2015 only 52M of an adult population of approximately 148M used a credit card as a form of payment. There are several factors that contribute to the minimal use of credit among Brazilian adults:
1) Exorbitantly high interest rates and low caps on limits
To put things in perspective, the average interest rate, or APR, on credit cards in the US is 15.07% per year; whereas, the national average in Brazil is 15.12% per month. Many Brazilians who own a credit card have experienced burying debt with fast accumulation of interest and avoid using their cards. Furthermore, the average credit card limit is about 1,401 BRL or ~437 USD, which is insufficient to make sizable purchases such as a new television or laptop. To compare, an American with credit score of 661 or higher tends to have a limit of over 5,200 USD.
2) Lack of Financial Education
Further research by the CNDL concludes that 1/3 of Brazilian cardholders do not know their credit limit and 96% are unaware of the interest rates they pay on their card each month. Nearly all cardholders are uninformed regarding basic credit information. This obscurity in combination with exorbitant rates significantly contributes to the number of people who experience overwhelming debt.
3) Many apply for credit, few are approved
Four out of every ten Brazilians are denied credit because they belong to a class of informal workers. In Brazil, every employee must have their worker’s passport signed in order to be considered officially employed and 40% of workers do not have this document signed for various socioeconomic reasons. This worker’s passport with a statement of monthly income is required to apply for credit.
4) Fraudulence is a major concern for consumers & issuers
Latin America is known to have a high fraud risk. Brazil has a chargeback rate of 1.6% for online purchases and 3.8% of orders are rejected because of fraud suspicion. In comparison, only 2.3% of orders are rejected in the US and Canada combined. The average Brazilian is aware of the fraud risks and tends to avoid providing information online, using their cards in stores they are unfamiliar with, and paying with card in cities that are known for committing fraud on tourists.
Credit card issuers avoid issuing cards that are enabled to make international transactions to prevent fraud. Usually, consumers that are approved for credit are given a card with a domestic brand that can only be used locally. Even when consumers apply for an international card and are approved, they must request the international purchasing capabilities be activated before they can complete a cross-border transaction. Consequently, of the few Brazilian card holders, only about 30% own or have access to an international credit card.
6) Most Brazilians use local credit cards or domestic brands
Ever heard of Elo, Hipercard, or Aura? They are local credit card brands that can only process transactions in Brazilian Real (BRL). These cards are normally issued to bank account holders over international credit cards because they are less likely to suffer fraudulent transactions. Usually the limits on these cards are relatively low so many are applications are approved. However, Brazilians are unable to make ecommerce purchases using these credit cards.
If you're an ecommerce merchant that is concerned about low approval rates in Brazil, make no mistake that Brazil is a valuable market; but you should consider accepting these local cards on your website. By doing so, you can easily double your approval rate.
Despite the numerous credit barriers that Brazilians face, Brazil is the leading ecommerce market in Latin America and among the top ten countries in world for GDP. Brazilians evade these systemically-created economic barriers by using various local payment methods to complete purchases on and offline. These methods include: domestic credit cards, online debit transfer, and boleto cash payment.