Local players can gain significant market share and raise barriers to entry to their market when they have a good alignment between their operating and business models. In this article, we will review Conekta, an online payments solution, that strayed from their original value proposition and has left them at risk with the entrant of new global players.<\/p>\n
Conekta was born as the Mexican Yelp, tried to be the Mexican Shopify, and was finally the first mover in the online payments aggregator space in Mexico1<\/sup> and had a great position to take the Spanish-speaking Latin American market by storm. However, after some initial success, Conekta is now facing their biggest challenge yet. Stripe, the world\u2019s easiest to implement online payment solution, began this year a private beta to enter the Mexican market.2<\/sup><\/p>\n Conekta\u2019s business is to facilitate small e-commerce players to connect with multiple payment providers. The key to Conekta, is that not only they solved the immediate credit card processing needs the new players demanded, but also permitted customers to do online banks transfers, and cash payments in Oxxo, Mexico\u2019s largest convenience store with 12,000 points of sale around the country and with plans to expand to 17,000 by 2017.3<\/sup><\/p>\n Even though cash payments are attractive, 78% of e-commerce transactions in Mexico are paid with payment cards across different types of solutions4<\/sup>, which makes it the most important payment type to pursue for active E-commerce users in the country.<\/p>\n Conekta also offer their customers a fraud prevention solution powered by U.S. startup Sift Science, this is critical to provide online payments without using 3-D Secure authentication through Verified by Visa and SecureCode by MasterCard, this piece is critical since acceptance rates using 3DS authentication in Mexico is 18%. Conekta also added the Interest-Free Deferred Payments feature which is typically used for ticket sizes over $1,500 MXN.<\/p>\n While the focus on alternative payments and Interest-Free Deferred Payments feature could potentially help Conekta serve bigger clients in the future, Conekta has seemingly forgotten to serve its current clients, like Yaxi, an on-demand taxi booking service, Cabify, a private driver marketplace, and Fondeadora, a crowdfunding platform for project with social impact. There are three common factors of these services and other Conekta clients: small ticket sizes, service driven (high percentage of refunds), and impulse-driven sales process.<\/p>\n By focusing on low-impact projects for their current clients, such as adding alternative payment methods and deferred payments, Conekta has triggered a number of customers, like Cabify and UnDosTres.mx, to cancel their contracts and try other solutions.5<\/sup><\/p>\n Failure minimize credit card fraud<\/strong> \u2013 Conekta has maintained relatively high fraud levels vs. its competitors. Some of its former clients report that fraud was relatively high at 2% or higher of total sales while other e-commerce players have reduced fraud to 0.5% levels. Conekta does not allow its users to fine tune the fraud prevention model used in their business, however, Conekta also does not take responsibility for fraud prevention performance, and chargebacks are directly billed to their customers. This failure to minimize fraud prevention also translates to general credit card acceptance rates. In Mexico, the typical acceptance rate for a $100 MXN transaction is about 85% and former users report a 65% acceptance rate using Conekta.5<\/sup><\/p>\n Inability to add new debit card providers<\/strong> \u2013 While the active credit card penetration in Mexico is 15%, the active debit card penetration 43% increasing the potential market reached by almost 3x. However, Conekta has failed to process debit cards of a significant number of institutions achieving a coverage of only 42%6<\/sup> of available funds in savings accounts whereas other e-commerce players not specializing in the field have achieved a 92% coverage. This failure is driven by not adding the number 1 and 3 players in the space, BBVA Bancomer and Banorte respectively7<\/sup>, which would increase their coverage to 78%, but typically require better fraud prevention performance from their customers.<\/p>\n Conekta has disconnected it operating model from their business model, which is serving small and starting e-commerce companies to set-up online payments quickly. By focusing their attention to adding new alternative payment methods and other features tailored for big ticket merchants, Conekta has lost sight of their target consumer and leaving them vulnerable to market entry of new competitors like Stripe, which will enter the market by focusing on making payment card payments for small e-commerce ventures their biggest strength.<\/p>\n Sources<\/strong><\/p>\n Local players can gain significant market share and raise barriers to entry to their market when they have a good alignment between their operating and business models. In this article, we will review Conekta, an online payments solution, that strayed from their original value proposition and has left them at risk with the entrant of new global players.<\/p>\n","protected":false},"author":980,"featured_media":7219,"comment_status":"open","ping_status":"closed","template":"","categories":[49,874,119,341,247],"class_list":["post-7218","hck-submission","type-hck-submission","status-publish","has-post-thumbnail","hentry","category-e-commerce","category-emerging-markets","category-loser","category-mexico","category-payments"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-rctom\/assignment\/the-tom-challenge-tom-winners-and-losers-assignment\/","yoast_head":"\n\n