For airlines in Latin America (LATAM) and the Caribbean, growth in commercial aviation is closely tied to economic development between the regions (international banking, liberalization and “open skies” initiatives), as well as airlines’ ability to engage in localized ecommerce (displaying their websites in Brazilian Portuguese, for example). Equally as important is the leading role played by payment service providers (PSPs) in the region, helping airlines reduce the costs and complexities of cross-border transactions and making it easier for more people to pay for airline products online or in-app.
With so many countries spread across a vast continent, and island economies uniquely dependent upon air travel, the only way to grow commercial aviation in Latin America and the Caribbean is through greater financial inclusion. LATAM and Caribbean airlines are struggling to make cross-border payments technically and financially feasible within the global banking system, but with help, they can achieve this.
Airlines in these regions need access to local, regional and global banks through PSP partners (like CellPoint Mobile), who not only facilitate payment methods relevant to market, but also offer multi-acquiring connections to provide the local presence and global connectivity needed to lower transaction fees and make cross-border payments easier.
To stimulate passenger demand and continue to grow internationally, LATAM and Caribbean airlines will need solutions and alternatives to the region’s underdeveloped and fragmented payment infrastructure. By solving cross-border challenges and expanding payment options, airlines can open up greater market access for their products across countries, markets and channels.
Cross-Border Payments in Latin America and the Caribbean
In South and Central America, regional carriers like LATAM and Avianca have helped consolidate air travel across countries and stimulate greater demand for commercial aviation. But in the Caribbean, no true regional carrier has emerged and national airlines remain heavily subsidized. The level of passenger demand may not be high enough for many Caribbean airlines to establish their own accounts with foreign banks, and the same holds true for smaller and non-regional airlines across Latin America.
And yet these carriers still need to do business in other countries if they hope to compete in a global travel sector. LATAM and Caribbean airlines cannot be competitive today without strong web and mobile payment capabilities that complement and augment traditional banking systems and reduce the average transaction cost.
Aside from lost transactions due to cross-border currency mismatch and other “red flags,” even successful cross-border payments incur significant fees – from interchange fees to local taxes. To mitigate this, airlines should have a strategy to locally acquire transactions from the most important buyers’ corridors. Properly managing the “destination” of funds can also be important. For example, in Belize, about 60% of tourist spending involves credit card transactions settled by U.S. correspondent banks, and yet only two banks in Belize maintain correspondent banking relationships in the U.S. As a result, it can take weeks for Belizean businesses to pay suppliers abroad.
This is the underdeveloped and fragmented economic environment in which LATAM and Caribbean airlines are being asked, unreasonably, to compete with North American airlines like JetBlue and Delta that have easy access to the global banking system. Cross-border payments are a pain point for any airline engaged in global ecommerce – which means any airline in business today – and the global financial system cannot continue to be a source of competitive disadvantage. The business services that PSPs in LATAM and the Caribbean are able to offer will be instrumental in helping airlines become more competitive, by solving the complexities and reducing the costs of accepting payments online and across borders.
PSPs and Mobile Payments in LATAM and the Caribbean
The importance of cross-border payments goes beyond an airline’s ability to do business in other countries. Today’s mobile users expect fast, localized and personalized shopping experiences. If an airline is doing business in their country, they expect the airline to speak their language, support popular payment methods and have direct connections to local banks.
As mobile penetration expands throughout these regions, more users are going from interaction to transaction – progressing from search to purchase – entirely via the mobile device. For these users, any disconnects or friction in the mobile booking process – whether due to poor UI/UX or issues such as payment page re-directs – will result in abandoned carts, transaction drop-outs, and loss of brand equity.
With the emergence of mobile payments in developing regions like LATAM, the Caribbean and Africa, these new markets are signaling that they are open for business, if only fintech companies can build a new payment infrastructure on top of the old one dependent on legacy bank networks. The Inter-American Development Bank published a report on the $750B potential market at the “base of the pyramid” in LATAM and the Caribbean, as the region’s consumers gain access to foreign markets for travel and other products and services.
This population of 405 million – or 70% of the region’s total population – is characterized by consumers with unsatisfied needs and evolving ambitions, preferences and priorities. They want access to global products and services and they can only do business with ecommerce sites that have strong support for cross-border payments – which highlights why PSPs will play a crucial role in connecting LATAM and Caribbean airlines with consumers in other countries, markets and channels.
When it comes to smartphones and other mobile devices, LATAM and the Caribbean are similar to other emerging markets, on the cusp of significant growth in mobile commerce. By 2021, smartphone penetration in Latin America will increase from 245 million users today to 290 million. According to the UN, one-fourth of Latin America’s total population is between the ages of 15 and 29. They are spending their disposable income in a globalized economy where an airline in Colombia can market its products to consumers in Curaçao or China.
As a provider of mobile solutions and PSP services, CellPoint Mobile is helping airlines from Johannesburg to Jamaica reduce costs on cross-border transactions, connect to local, regional and global acquirers and expand their reach to other countries. To find out how we can help your airline or travel enterprise optimize its cross-border transactions, contact us at email@example.com.