¡Bienvenido a México! The digital economy south of the border is growing by leaps and bounds. For the e-commerce retailer, Mexico represents an exciting opportunity to enter a new market of consumers eager to do business online.
But while e-commerce brings international reach to merchants around the globe, it also brings challenges – specifically, the challenge of adjusting to the customs, regulations, and languages of a foreign country.
If you’re thinking about e-commerce in Mexico but aren’t sure what to expect or prepare for (or if you don’t speak Spanish), this article is for you.
We’ll take an overview of the Mexican market and examine the behavior of Mexican e-commerce consumers. Then we’ll uncover e-commerce fraud trends in Mexico and explain how they differ from those in the United States. Finally, we’ll suggest some strategies for preventing fraud while selling into the Mexican market.
Mexican Market Overview
Latin America, as a whole, is an emerging market for e-commerce. Latin America is third only to Asia/Pacific and Middle East/Africa in internet users, with more than 360 million. That puts Latin America ahead of North America and Europe in terms of pure opportunities for e-commerce sales.
Within Latin America, Brazil leads in e-commerce sales, with 36.3% of the market. Mexico is closing in, with 24% of the e-commerce market, Mexico saw an annual retail e-commerce sales growth rate of 16.3%, exceeding Brazil’s growth rate of 12.2%.
The growth of e-commerce in Mexico is driven, in part, by a well-connected populous. 63% of the Mexican population has internet access, the third-highest penetration rate in Latin America. To put that in context, the penetration rate in the U.S. is only about 10 points higher.
The number of internet users in Mexico is expected to grow to nearly 72% by 2021. Already, Generation Z and Millennials represent 63% of the Mexican population. Members of these two age groups are much more likely than older generations to use the internet and make purchases online. For example, the internet penetration rate for Millennials in Mexico is 70%; the rate is only 24% for Baby Boomers.
(All the statistics we’ve shared so far can be found in BlackSip’s “Reporte de Industria: El eCommerce en México 2018/2019.”)
5 Quick Stats: E-Commerce in Mexico
According to Statista:
- Revenue in the Mexican e-commerce market hit $10.13 billion in 2020.
- Growing at a rate of nearly 6% per year, the Mexican e-commerce market will reach $12.7 billion by 2024.
- The largest market segment in Mexican e-commerce is fashion, with a market volume of $2.7 billion in 2020.
- In 2020, user penetration for e-commerce in Mexico is 53.2%. It’s expected to exceed 60% by 2024.
- The average revenue per user (ARPU) for e-commerce in Mexico is currently $147.66.
To put that last statistic in context, Statista reports the ARPU for e-commerce in the United States is currently $1,568.87. So, while e-commerce is growing rapidly in Mexico, the financial value of each individual customer is still much lower than in mature markets.
Fraud Facts About Mexico
Fear of fraud is the leading reason Mexicans cite for choosing not to shop online.
In a 2019 survey of 1,001 Mexican internet users, the Asociación Mexicana de Venta Online (Mexican Association of Online Sales) found:
- 35% of Mexican online shoppers (more than one in three) said they had fallen victim to electronic fraud or a non-recognized charge in the last year.
- 45% said their payment card had been cloned, and 30% said they had been double charged for a purchase.
- 6 out of 10 Mexican buyers say they feel the risk of electronic fraud has increased.
Types of Online Markets in Mexico
Robust markets for online sales of both products and services exist in Mexico. In a survey of over 2,000 Mexican internet users (reported on in the BlackSip report referenced above), 61% said they had purchased products online in the past year, and a little over half said they had purchased services.
Products bought and sold online in Mexico include clothing, shoes, electronics, appliances, and furniture. Services include ride-sharing services (such as Uber), food delivery, travel, and event tickets. Half of survey respondents said they had purchased digital content or content subscriptions (such as ebooks, streaming video sites, app downloads, video games, and music) in the past year.
The top e-commerce sites in Mexico are (based on estimated monthly traffic):
- Mercado Libre Mexico, a general online marketplace for the Latin America region.
- Amazon Mexico, the e-commerce giant’s Mexican presence.
- Coppel, the e-commerce operation of a Mexican department store chain.
- Walmart Mexico, the American retailer’s Mexican site.
- Liverpool, a retail company that operates a chain of department stores in Mexico.
Common Challenges Selling Into Mexico
Speaking during an event christened e-Retail Day in Mexico City, AMVO president Eric Pérez-Grovas noted, “eCommerce in Mexico has enormous potential, but is underdeveloped as compared to other countries in the region with similar income.”
One of the main challenges accessing the Mexican e-commerce market is the relatively low level of internet penetration into the population compared to North America, Europe, and Asia. But as we pointed out above, that appears to be changing.
In addition, mobile connectivity is also on the rise. Whereas in 2009, only 44% of the population were mobile phone users, in 2017, over 72% of Mexicans used mobile phones.
Another challenge is the banking and payment habits of Mexican people. Many Mexicans do not possess credit cards, debits cards, or even bank accounts.
Only 47% of the Mexican population has a bank account, Reuters reports. “Steep fees” and “past scandals” make Mexicans wary of financial institutions, the report says. Only 31% of Mexicans have credit.
(The Reuters article notes, however, that the Mexican government is pushing mobile payment as an affordable, accessible alternative to banking.)
The landscape may soon change, however. In 2018, the Mexican Congress approved a bill regulating financial technology (“fintech”) institutions such as electronic payment companies, crowdfunding firms, and cryptocurrency providers. The law – which will go into full effect in March 2020 – is expected to spark the expansion of Mexico’s already-formidable fintech industry, making financial services more accessible and affordable to unbanked Mexicans.
One of the more notable features of the fintech law is its embrace of open banking. Open banking is a system in which banks release open application programming interfaces (APIs) that allow third parties to access their customers’ financial information – with their customers’ permission. The idea is to give consumers greater flexibility in their choice of financial services and to encourage competition and growth in the fintech industry.
“The system promises to spark a new wave of innovation and transparency in the financial sector,” writes Craig Dempsey, CEO and co-founder of Biz Latin Hub. “Over 22 jurisdictions around the world have implemented or are working towards implementing Open Banking, and Mexico is among them.”
Key Opportunities and Benefits of Selling into Mexico
Biz Latin Hub (a company established in 2014 to support local and foreign companies doing business in Latin America) cites Mexico’s “welcoming business environment and progressive government” as reasons to do business in the country.
“Mexican law allows 100% ownership and no capital controls for foreign businesses. Foreign entrepreneurs can establish a limited liability company, and enjoy the country’s strong property laws and protections,” writes Biz Latin Hub.
Biz Latin Hub also praises Mexico’s “highly capable” professionals, who give the country an edge over its neighbors in Latin America.
Mexican Consumer Behaviors
Mexican consumers may have different habits and expectations than you’re used to from buyers in the United States. To succeed in e-commerce in Mexico, you must understand these differences.
Here is what to expect from the typical Mexican e-commerce customer:
Like buyers elsewhere in the world, Mexican shoppers go online in search of savings. According to an AMVO survey (included in the BlackSip report), 50% of Mexicans who shop online do so for “promotions/discounts.” Other motivators include:
- To access products that aren’t available in stores (45%).
- To save time (41%).
- The shipping (40%).
- To purchase products that are not available in Mexico (34%).
According to the same survey, about half of Mexican internet users made a retail purchase online in the past year. About 20% characterize themselves as “recurring” buyers, while 30% say they are “sporadic buyers.”
Of those who do shop online:
- 5% buy something online every week.
- 15% make an online purchase at least once a month.
- 8% buy online every two months.
- 8% buy online every three months.
- 9% make an online purchase every six months.
- 6% buy online once a year.
- 5% have bought online only once ever.
Among Mexicans who have never participated in e-commerce, 25% say it’s because they prefer the in-store experience, 23% say they don’t trust online shopping, and 19% dislike the complex payment process.
As we noted above, smartphone penetration in Mexico is strong and growing. By the end of this year (2020), there are expected to be over 90 million smartphone users in Mexico.
But mobile commerce has not quite taken hold in Mexico as it has in other parts of the world. According to a report by IAB Mexico (El Interactive Advertising Bureau), the close-transaction rate for mobile devices in Mexico is only 29%, compared to 40% in Latin America, and 49% worldwide. Mexicans are much more likely to finish up their purchases in physical stores (44%) or on desktop or laptop computers (32%).
When asked about their reasons for shopping via their smartphones, Mexicans cite the time-savings, convenience, and immediacy of mobile commerce. 28% of Mexicans say they don’t trust the safety of mobile shopping.
Top Payment Methods
At 84%, debit card is the preferred payment method for e-commerce in Mexico. But, as we pointed out above, many Mexicans do not have bank accounts or credit cards. Cash upon delivery (67%) and cash payments in commercial chains (64%) are the next two most popular payment methods. These two methods barely exist at all in the United States.
(For the cash in commercial chains method, consumers pick up their purchases at physical stores and make their payments in cash there.)
Cash upon delivery is also considered by Mexican consumers to be the safest form of payment. 77% rate cash upon delivery as “very safe/safe,” while only 59% consider credit cards to be safe.
Services – such as transportation, music and video streaming, event tickets, and digital downloads – dominate the most popular e-commerce shopping categories in Mexico. Among physical products, fashion is king.
Comparison of E-Commerce Fraud in the United States vs. Mexico
E-commerce fraud in Mexico is, in many ways, similar to fraud in the United States and anywhere else in the world. Fraudsters target items they think will be easy to sell for a profit. These include high-demand products such as smartphones, flat-screen televisions, video game consoles, laptops, and watches.
However, fraudsters tend to go after low-cost items more frequently in Mexico. In July 2018, about half of e-commerce purchase complaints in Mexico were for amounts of less than 200 pesos (about $10). The majority of complaints were related to digital purchases — like downloads, music, and movies — and charges on private transportation platforms like Uber.
E-commerce fraud in Mexico differs from fraud in the U.S. mainly in volume and velocity.
When U.S. merchants start to market their products in Mexico, they are often surprised at the number of rejected transactions. About 14% of orders in Mexico are rejected due to suspicion of fraud.
In fact, these low approval rates in Mexico may mask the level of fraud that occurs. Companies tend to have very strict approval criteria in Mexico, which may indeed prevent fraud, but it also blocks legitimate transactions.
Some companies may say they see no fraud at all, yet, their approval rates are only 40%. ClearSale conducted an informal poll of 14 e-commerce merchants at a recent event in Mexico; among them, the average approval rate was between 58% and 65%. The average chargeback rate was between 3% and 6%.
As we stated above, more than 1 in 3 Mexican e-commerce customers say they have been victims of electronic fraud. 78% of internet users in Mexico say they are very concerned about identity theft due to increasingly frequent data breaches and leaked personal information.
It’s worth noting, however, that approximately 80% of online purchases in Mexico are legitimate.
The speed at which fraudsters overcome fraud protection measures can be stunning to American merchants. As e-commerce in Mexico grows and evolves, so does the sophistication of fraudsters.
In Mexico, the information required to make an electronic purchase is minimal, and it does not need to be verifiable. Mexicans are allowed to have unlimited unregistered cellphone numbers, which can make it difficult to connect phone numbers and identities to purchase orders.
How to Prevent Fraud When Selling Into Mexico
Given the high rate of online payment fraud in Mexico and the high level of concern Mexican consumers have about fraud, merchants entering the Mexican e-commerce market should be prepared to secure themselves and their costumers against fraud.
Wherever in the world card-not-present fraud originates, it can harm your business. It’s not just the cost of lost merchandise and shipping. Chargeback fees can reach $100 per transaction, and banks increase their fees depending on how many chargebacks you accrue each month.
Plus, fraud can damage your reputation with buyers – especially Mexican consumers who are already skittish about sharing payment information online.
A fraud solution is critical for doing e-commerce in Mexico. But it’s just as crucial not to be overzealous about preventing fraud. Legitimate buyers can get swept up in the process and may get turned off your brand forever.
La Asociación Mexicana de Venta Online reports that 34% of Mexican online shoppers say their payment card has been declined at least once without any explanation. 44% say they decided not to complete their purchase after their payment was rejected.
According to the same AMVO report, the top reasons for online card abandonment among Mexican e-commerce users are:
- The website required a lot of information to validate my identity (36%).
- I decided not to buy at the moment (36%).
- The website took too long to load (30%).
- I tried to buy, but the site refused my order (29%).
- It was mandatory to create a user profile, but I wanted to buy online only once (28%).
To protect against fraud in Mexico, a fraud solution must reliably stop increasingly sophisticated fraudsters, while providing a low-friction, frustration-free shopping experience to genuine customers.
What Fraud Analysts Look for in Mexico
Fraud analysts who specialize in the Mexican market understand the behavior of legitimate Mexican buyers, as well as the tricks and techniques of fraudsters, and are trained to differentiate between the two.
Fraud analysts in Mexico watch for:
- The lack of a second last name. (It’s customary in Mexico to have two surnames.)
- The use of a very common last name, such as Hernández, González, or García.
- Recently created email addresses that share composition traits with known-fraudulent addresses.
- Frequent purchase of high-risk products.
- Fast purchase speed, with changing items and amounts.
- Delivery addresses located in high-risk areas or areas that don’t exist.
- Lack of purchase history.
- Data changing from one order to another.
- IP addresses that are located in different states from the billing and delivery addresses.
The Best Fraud Solution for E-Commerce in Mexico
Conventionally, there are two ways to combat card-not-present fraud. Automated fraud prevention tools analyze transactions and reject orders based on pre-determined characteristics. Or, human fraud analysts use their expertise and instinct to assess the risk of fraud.
The advantage of automated tools is that they are fast, and when they’re configured correctly, they can be very effective at stopping fraud. However, automated tools have difficulty adjusting to unexpected circumstances and tend to reject many legitimate transactions.
Human analysts are slower than machines. But their flexibility, knowledge of human nature, and ability to keep up with the latest fraud trends help them tell the difference between fraud and transactions that are merely uncommon.
You don’t have to choose between these methods. At ClearSale, our fraud prevention solution draws its power from the best of both worlds. We combine advanced statistical and artificial intelligence technology with the world’s largest team of specialized fraud analysts to deliver a balanced, real-world approach that is unlike anything else in the Mexican e-commerce market.
With ClearSale, e-commerce merchants receive:
- Simple e-commerce integration. Our fraud protection solutions quickly integrate with all major e-commerce platforms via an easy-to-install plugin.
- Near-immediate order approvals. Even our human analysts are fast.
- Comprehensive protection against fraud. ClearSale’s Chargeback Insurance program offers 100% guaranteed coverage of all fraud-related chargebacks.
- The highest approval rates in Mexico (and anywhere else). Our system will never auto-decline an order.
- An innovative approach. Our multitiered team approach to fraud prevention lets us continually calibrate our proprietary statistical model as new fraud patterns emerge.
With our headquarters in Latin America, ClearSale knows Mexico. If you’re thinking about expanding the reach of your e-commerce business into Mexico, get in touch with us today to talk about keeping your business, your reputation, and your customers safe from fraud.