Despite the pandemic, there is a huge opportunity for SaaS companies in Latin America. Just take a look at the numbers:
- The Latin American SaaS market is predicted to reach a valuation of $5.31 billion by 2022.
- The market for tech companies in Latin America is predicted to grow by tenfold in the ten years.
- Venture capital investments in the region have doubled year on year for the last three years.
So, what’s creating this opportunity-rich environment for SaaS businesses in Latin America? And how can SaaS companies based outside Latin America get a bite of the pie?
Market Drivers for the Upcoming SaaS Boom in Latin America
The exponential growth of the digital industry in Latin America has been enthusiastically supported by local governments. A case in point – the recent introduction of PIX, the instant payment service created by the Central Bank of Brazil. The growing popularity of SaaS tools and other digital products generated an increased demand for digital and mobile checkouts. In response, the Brazilian government moved to offer an innovative fintech solution to the population. PIX allows everyone, including those without a bank account or a credit card, to become digital consumers.
Additional government measures across the region as a whole have focused on reducing the time and complexity of opening a new business, and enabling foreign-owned companies to expand into Latin America more easily.
Rising Digital Penetration
Internet use and access to mobile technology are soaring across the whole Latin American region. Even with recent tech growth, there is huge untapped market potential for new SaaS tools. Latin American businesses are increasingly turning to digital technologies to reduce fixed costs and increase efficiency, to improve their competitiveness on the global stage. This digital transformation has been boosted by the fallout from Covid-19, which has driven Latin American consumers online at record rates.
A Market Ripe for Expansion
Technology companies represent less than 3% of the Latin American GDP – in stark contrast to the US, where they make up nearly 40%. This lack of market penetration is changing fast, and the accelerating uptake of digital products across the region represents a huge opportunity for SaaS companies. Despite the Covid-19 crisis, the region remains on track for robust growth in the next few years.
There are also socioeconomic factors driving technological progress – what TechCrunch calls the “unique mix of large opportunity and critical problems waiting to be solved.” For instance, the combination of a huge population and economic inequality has created a rich field for digital platforms supporting the gig economy – Brazil is Uber’s largest market, and local food-delivery service Rappi is now worth over $3 billion.
How to Expand your SaaS into Latin America
If you’re thinking about expanding your SaaS into Latin American markets, your timing couldn’t be better. However, you’ll need to do your homework or you can run into frustrating and costly roadblocks. Make sure you’ve found answers to the following questions:
How will you accept online payments?
For SaaS businesses, you don’t need us to tell you that the user experience is everything – and nowhere more so than in ease of payment. Your customers must be able to move seamlessly from a free demo to a purchase in a few clicks, whether you’re offering a B2B or B2C product. Customers will be judging the quality of your SaaS product by how effortless it is to buy.
When it comes to the Latin American market, you need to be able to offer your customers the payment options they’re used to. Many users will not have credit cards at all, and those that do may not work for payments in other currencies. You will need to be able to provide the most common cash-based payment methods, like Boleto in Brazil or Oxxo in Mexico. If your SaaS is at the higher end of the pricing scale, your customers will also expect to be able to pay in instalments, which usually requires that you open a local branch and hold a local bank account.
The good news is that you can provide this experience by partnering with a payment solution that offers cross-border payment options and local payment methods. For instance, at PrimeiroPay, you can offer all of the most common payment methods used by Latin America customers, including payment instalments, under a single contract – without any need for a local entity.
How will you handle pricing? Will you require payment in your own currency, or will you allow your customers to purchase in their local currency?
This can be a tricky issue for SaaS companies as they expand. For instance, if you only offer pricing in dollars, then you lose the option of localizing your prices – meaning that your Latin American customers will see the same pricing as your customers in the US, despite the difference in purchasing power.
However, if you offer the option to pay in local currencies, then your profit margins are vulnerable to fluctuations in the currency conversion rates. Given the volatility of currencies in emerging markets, these fluctuations can be both sudden and dramatic. Suddenly, your Brazilian customers may be paying a fraction of what you expected to be charging.
Again, there are solutions to the issue that are easy to put in place, as long as you get ahead of the problem. For instance, one of the most popular features we offer our clients is the option to lock in a conversion rate (based on standard commercial rates) for 24 hours. In other words, you can offer your customers the best possible payment experience, purchasing in their own currency – and still make sure you don’t get any nasty surprises when local currencies take a tumble against the dollar.
If you’d like to know how PrimeiroPay can help you protect your profits as you expand your SaaS company into Latin America, please just click here to set up a consultation with one of our local payments experts. We’d love to hear from you!