Ecuador Lagging Behind in Digital-Payment Transition
Introduction to Ecuador
An overview of Ecuador's currency, population and key statistics.
Ecuador underwent significant changes in its currency system. The country previously used the sucre, named after Antonio José de Sucre, a respected Latin American leader in the early 1800s.
The US dollar ($) became Ecuador's official currency in 2000 due to economic instability in the country toward the end of the previous century.
The country used its trade surplus in making the switch to the dollar. It sold more commodities for dollars, particularly oil, to bring more money into its market. The switch has stabilised inflation in the country and stimulated economic growth.
Ecuador does not consider digital currencies such as Bitcoin legal tender, reasoning that its value is based on speculation. However, Banco Central del Ecuador (BCE) does not prohibit online trading in cryptocurrencies.
The BCE circulated a digital currency known as dinero electrónico (DE) between 2014 and 2018. This currency allowed users to transfer funds through a mobile app. Despite interest by various central banks around the world in adopting central bank digital currencies, Ecuador remains concerned about the adverse impacts of reactivating the DE or establishing a new digital currency.
Ecuador had a total population of more than 18.2 million people as of July 2023. Located in the northwest of South America, the country has a total land area of 248,360 square kilometres, which means it has a population density of 73 people per square kilometre. Most Ecuadorians live in urban areas, with around 2 million inhabiting Guayaquil and another 1.4 million living in Quito.
The official language of Ecuador is Spanish, spoken by approximately 97% of the population. Many indigenous people in Ecuador still speak Quechua, the language of the Inca Empire. English has become more common in recent years, especially in major tourist destinations.
Ecuador had a gross domestic product of $115.05 billion in 2022, according to World Bank data. Experts estimate that the country's GDP will continuously expand by an average of 21.11% until 2028, when its total economic output is estimated to be $146.91 billion.
The gross savings rate is the total gross income less consumption. Ecuador's gross savings rate stood at 25.96% in 2022. Economists expect the country's gross savings rate to increase by 2% between 2023 and 2028. However, this will not be continuous, especially in 2027 and 2028.
Internet & mobile phone trends
Ecuador had an internet penetration rate of 81.3% in early 2023, amounting to more than 14.72 million people. According to Kepios, the figure represents an 8.2% increase from a year earlier. At the same time, the country had 16.70 million active cellular mobile connections.
The country also had 13.30 million social media users in early 2023, with Facebook and YouTube among the most popular platforms. Ecuador did not have 5G network coverage as of 2021. Analysts noted that internet speeds in Ecuador are slower than the global average.
Like some other countries in Latin America, Ecuador has a rapidly growing e-commerce market, with total revenue expected to hit $3.43 billion in 2023. The country's e-commerce market is projected to expand at a compound annual growth rate of 12.46% between 2023 and 2027, when it will be worth $5.49 billion.
According to analysis, mobile e-commerce accounts for a significant share of Ecuador's e-commerce market. It is even expected to eventually surpass desktop use. Groceries, pharmaceuticals, and food deliveries are among the most popular online purchases in Ecuador.
Summary of fiscal policy
The country's decision to use the US dollar is one of its most significant policy moves. This has helped to stabilise the economy and increase revenues from oil. However, the International Monetary Fund (IMF) pointed out that Ecuador's fiscal policies are inconsistent with its dollarisation system. This resulted in wage increases outpacing the country's productivity growth.
In 2014, low oil prices and US dollar appreciation showed the economy's underlying weaknesses. The government at that time resorted to central bank financing to fund its fiscal imbalances. This caused a surge in public debt and a decline in the country's international reserves.
Ecuador received an extended fund facility worth $4.2 billion from the IMF and financial support from other countries in 2019. It aims to support sustainable growth by resolving underlying economic vulnerabilities. The plan includes improving the country's social welfare programs and education and healthcare systems.
How people pay in Ecuador
An overview of how people in Ecuador choose to make payments.
Most popular payment methods
Traditional payment methods
The primary traditional payment methods used in Ecuador
It is worth noting that only around 54% of the country's population has bank accounts. Meanwhile, only 10% own credit cards, although the number is expected to increase. Despite being less dominant than Visa, Mastercard accounts for a significant share of the Ecuadorian payment market. Most vendors with point-of-sale systems accept cards with this brand's logo.
Visa is widely accepted at large retailers in mainland Ecuador and the Galapagos. This payment solution dominates the Ecuadorian market in terms of cards in issue and billed volume. Most commercial banks in the country provide debit and/or credit cards with the Visa logo, including Banco Pichincha and Banco Pacifico.
Alternative payment methods (APMs)
Alternative payment methods
Originating in Peru, PagoEfectivo has become an increasingly popular alternative payment method in Ecuador. It is especially popular in e-commerce. In online checkout, a buyer can select PagoEfectivo as a payment method. The user will receive a code that they will use to make payment via bank transfer or mobile banking. PagoEfectivo also has a network of agents that can accommodate cash payments.
BIMO, which stands for Mi Billetera Móvil, is a mobile wallet operated by BANRED. This wallet allows users to make payments or request other users to send money. To use BIMO, users only need to enter the amount they want to transfer. They can choose receivers from their contact lists or use QR codes to pay. This wallet serves customers of various banks in Ecuador.
PayPal is a popular payment method worldwide due to the ease and speed of transactions. It is a cost-effective online payment choice, especially if used for personal purposes like sending money to family or friends. In Ecuador, users cannot transfer their PayPal funds into domestic bank accounts. However, it is possible to use PayPal to pay a credit card balance. Alternatively, Ecuadorians can use Xoom, which is a service offered by PayPal.
Google Wallet began operating in the country in early 2023. It partners with payment technology companies Visa and Mastercard to serve Ecuadorian customers. This application lets users make contactless payments with their mobile devices or wearables. Money will be taken from debit or credit cards they add to their Google Wallet accounts.
Accepting payments in Ecuador
A guide to accepting payments in Ecuador.
How to accept online payments in Ecuador
Ecuador is a country with great prospects for digital payment and e-commerce. Businesses that operate in the country must understand the steps of online payment processing. It will help businesses navigate through the complexities of the payment market.
Various payment gateway and authorisation service providers operate in Ecuador. They offer specific solutions to help merchants manage payment systems. The costs also vary widely among providers.
However, these service providers generally follow a similar procedure for online payment processing.
The customer selects their preferred payment method, such as cards and electronic wallet, at checkout.
The merchant's system records the customer's payment details and sends them to the payment processor.
The payment processor, like Visa and American Express, sends a payment request to the card issuer or digital wallet service.
The issuer will authorise the customer's payment based on several factors, like the availability of funds in their account. It will forward an authorisation code to the payment processor if the transaction is deemed valid.
Funds are sent to the merchant's account, less the transaction fee, and the transaction is completed.
How long does it take to make an international payment from Ecuador?
Unlike domestic transfers, international transfers may require hours or even days to complete. It depends on the payment method used for the transfer. Here are some common international payment methods used by Ecuadorians.
Wire transfers: International wire transfers from and to Ecuador may take three to five business days. Customers should send their money before the bank's cutoff time to ensure the transaction processing starts on the same day.
Online money transfers: Many Ecuadorians use digital payment services to send money domestically and internationally due to their speed and ease. It takes hours to a day for the provider to complete transactions.
All businesses that offer digital payments to their customers must include payment processing costs in their operational funds. As mentioned previously, the costs are not included when customers make purchases. Merchants usually pay them by the end of the month.
These fees affect the profitability of businesses. Some merchants inflate their prices, passing the payment processing costs for customers to cope with those expenses. The following are common fees imposed on merchants for using payment services.
Interchange fees: The buyer's card issuer charges this fee to merchants for processing payments. The fee covers handling costs, bad debt costs, and risks associated with payment approval.
Payment gateway fees: The merchant pays gateway providers for safely forwarding the buyer's payment details to their card issuer. Gateway providers may charge a setup fee and incur usage fees, other based on transaction values or a flat fee.
Cross-border fees: In 2020, the average cross-border fee in Ecuador was 7% of the total transaction value. Due to the high costs, various businesses are looking for alternative payment methods with lower fees.
Monthly minimum fees: This fee applies to merchants not meeting the transaction volume agreed upon in the payment processor contract.
Retrieval request fees: The merchant should pay this fee when the cardholder does not recognise the transaction and the card issuer must collect evidence to prove the transaction.
Assessment fees: Payment services may charge this fee to merchants for conducting fraud prevention practices and network maintenance.
Security challenges of online payments in Ecuador
According to PaySafe, 64% of Latin Americans are not comfortable with sharing their personal and financial information online. The PaySafe survey also showed that 75% of people in Latin America are concerned about the possibility of fraud when conducting online transactions.
Previously, Ecuador was less susceptible to fraud than countries with higher banking rates. It was because most transactions in Ecuador were cash-based. However, digital payments have steadily increased in recent years. This has increased the prevalence of fraud in the country.
Ecuadorian consumers may encounter several forms of fraud, such as card-not-present and account takeover fraud. Many businesses implement fraud prevention strategies to avoid this condition.
However, e-commerce businesses implementing fraud prevention may also tighten their policies so much that they flag legitimate transactions as fraud. In Latin America, a false decline rate has hovered around 30%, which is significantly higher than in other regions. It can reduce consumers' interest in online shopping.
Key sectors & industries in Ecuador
Several sectors contribute significantly to the Ecuadorian economy. According to experts, these sectors also have promising growth potential.
BMI Research projects Ecuador to become a mining investment hub in Latin America due to its promising mining sector. The industry attracts foreign investment because of relatively supportive regulations.
Oil is one of Ecuador's most significant natural resources, contributing about 50% of the country's export earnings. The country produces around 500,000 barrels of crude oil per day. State-owned companies such as PetroEcuador and PetroAmazona dominate the sector. Besides oil, the country has large gold, silver, and copper deposits.
The Ecuadorian government has made the tourism industry one of its top priorities. In 2021 the sector contributed $1.06 billion to the country's economy. This figure represented 11% of international tourism revenues across South America.
Ecuador offers land and sea biodiversity. Among the most popular tourist sites in the country are the Amazon rainforest and the Galápagos Islands. The government also supports the development of high-end tourism, such as luxury hotels and restaurants.
Ecuador's textile sector accounts for around 15% of its non-oil revenues. The country's dollarization has helped the industry to prosper. Textile exports increased at an annual rate of 30.5% since 2007. Before the country used the dollar, the textile industry mostly catered to the domestic market.
The industry's highlight is its fabric and yarn outputs, which are significantly higher than neighbouring countries. The textile industry is one of Ecuador's largest employers, accounting for 50,000 direct and 300,000 indirect jobs.
The food processing industry is Ecuador's largest non-oil source of revenue, accounting for about 55%, or equivalent to $1.8 billion annually. Data showed that the industry contributes up to 8% of the country's total GDP. It is also the biggest job creator in Ecuador.
About 21% of the industry consists of shrimp processing, 18% of meat, and 16% of fish. The industry also includes beverage production and packaging, sugar processing, and cereal production. The country mostly exports its shrimp, tuna, and sugar outputs. Other processed food products are sold domestically.
Due to its rich biodiversity, Ecuador has a strong agro-industrial sector. For domestic consumption, its main agricultural products are corn and rice. Meanwhile, palm oil, fruits, vegetables, and sugar are in high demand for exports.
The US and the European Union are the main markets for Ecuadorian agricultural products, according to the Ministry of Agriculture, Livestock, Aquaculture and Fisheries. The government agency reported that banana exports contribute $3.2 billion and cocoa $806 million to the economy per year.
Ecuador's telecommunications sector has seen stable growth in recent years. The Ministry of Telecommunications and Information Society has implemented a multi-year plan to increase the accessibility to digital telecommunications services, enhance infrastructure, and boost technology competence.
Ecuador plans to become a regional benchmark in connectivity and production of IT services. Experts have noted growing demand for products and services in the IT industry, such as mobile devices, mobile networks, optical fibre, and multiservice access nodes.
Regulation in Ecuador
The regulatory environment of Ecuador.
Summary of the regulatory environment in Ecuador
Ecuadorian authorities have established regulations to safeguard the economic activities within the country, while still ensuring growth. These laws protect businesses, consumers, workers, and shareholders.
Company law: Compared to other countries in Latin America, the Ecuadorian company law is less strict. The law regulates business structures, minimum capital requirements, and taxes for business entities.
Employment law: Companies' compliance with the employment law is overseen by the Ministry of Labour. The law regulates employees' working hours, forms of working contracts, salary systems, and other human resource-related issues.
Product liability law: The Organic Consumer Protection Law is the reference for product liability cases in Ecuador. According to the law, consumers have the right to receive optimum-quality products that are fit for their advertised uses.
Consumer protection law: Ecuador's consumer protection regulation encompasses transparency provisions, mechanisms for customer grievances, and appropriate customer data collection practices.
Competition law: Like in other countries, the competition law aims to ensure fair business practice across industries in Ecuador. The law listed several activities that are considered anti-competitive, including pricing agreements establishing resale prices.
Data protection law: Ecuador established the Personal Data Protection Act based on European Personal Data Regulation 679/2016. It guarantees customers the right to protection for their personal data.
How card payments are regulated in Ecuador
The BCE has the authority to manage the card payment system in Ecuador. Since 2017, for example, the central bank has mandated all point-of-sale terminals to accept card payments. It is done to boost digital payments in the country.
The BCE and the Monetary Policy and Regulation Board have implemented several other measures to reduce the use of physical cash nationwide. It eliminated the $0.22 fee for receiving interbank transfers. Authorities later established payment for basic services for transaction values over $76.
Financial regulators also encourage commercial banks and other financial institutions to create digital products and services for consumers. Banco Pichincha, Banco del Pacífico, and Diners Club are leading card issuers with a combined market share of over 60%.
Do I need a licence?
All businesses in Ecuador require a licence before beginning operations. There are four legal business structures recognised in Ecuador, namely limited liability companies, unlimited liability companies, mixed capital companies, and limited partnerships. The government allows companies to register offline and online. In Ecuador, a business can be completely foreign-owned.
Payment solutions in Ecuador
An overview of how to accept payments from customers in Ecuador.
Payment gateways and providers in Ecuador
In this era, there is no single payment method that can fulfil customer needs across the board. Businesses should provide multiple payment options to cater to their diverse customer base. Difficulty making payments may hinder customers from closing transactions, which is why businesses should take this matter seriously.
London-based payment tech company APEXX offers an all-around solution to help Ecuadorian merchants enhance their payment systems. It offers the Payment Orchestration Layer (POL), a sophisticated payment solution that connects multiple payment methods in a single platform.
POL uses intelligent routing to choose the right payment services for each transaction case. The technology considers factors like potential costs, currency conversion rate, and risks in orchestrating a customised payment system. The intelligent routing system reduces transaction costs and lowers the chance of payment failures.
The APEXX technology comes with several APIs and pre-built plugins to help merchants integrate POL into their payment systems seamlessly. Because of that, merchants can immediately use POL upon installation without hiccups.
Being an acquirer-agnostic technical payment service, APEXX can give merchants pointers to navigate the complexities of the payment landscape. APEXX experts can advise businesses on merchant fees and provide cost-cutting solutions to enhance their operations.
Cheapest payment solutions in Ecuador
E-commerce businesses in Ecuador can apply several strategies to lower payment costs as much as possible.
Consider alternative payment methods: Compared to traditional payment methods, alternative payment methods are often cheaper and faster. Payments powered by Open Banking are usually the cheapest payment options available today.
Discuss fees with payment providers: Businesses can discuss payment processing fees to get more favourable terms. Most providers display their headline rates on their websites, but these fees are usually negotiable.
Tackle chargebacks: Chargebacks happen when a buyer disputes a transaction and requests a refund from the issuing bank. Using alternative payment methods can protect merchants from chargebacks. Merchants should also establish a solid policy to avoid disputes.
Implement fraud prevention strategies: Merchants must ensure that each transaction is valid. Fraudulent transactions can result in chargebacks and additional merchant fees.
Consolidate payment methods: Many payment processors charge fees based on each merchant's transaction volume. Merchants can consolidate multiple payment methods to get volume discounts. It also helps merchants avoid monthly minimum fees.
Dealing with multiple payment services is challenging for merchants. Each service implements different policies that may complicate the payment procedure. Working with a company like APEXX can help merchants operate their payment systems more seamlessly. Ecuador-based merchants do not need to keep up with the changing policies because the APEXX technology will update the changes automatically.
BNPL in Ecuador
Latin America is a prospective market for the buy, now pay later (BNPL) sector. A significant portion of its population is unbanked, while smartphone penetration is growing at a rapid pace. BNPL companies offer credit to buyers even if they do not have a banking credential. Instead, the credit is linked to the buyer's personal identity.
BNPL players have a great prospect to grow in Ecuador because of its growing e-commerce market, which is largely driven by the coronavirus pandemic. Experts predict that financial authorities will soon tighten regulations regarding BNPL.