The Subscription Economy Is Poised for Growth: Latin America Reaches an Inflection Point
Subscription service adoption in Latin America is accelerating to catch up with the global pace. Catalyzed by the pandemic, the surge in SaaS and digital subscription payments, along with non-traditional credit, public cloud expansion, and the need for local currency settlement, will collectively drive the proliferation of subscription models in the region over the next decade.
Editor's note:Adonay Cervantes is the Global Sales Director at CloudBlue Connect. The views expressed in this article are solely those of the author.
Latin America once lagged behind regions like Europe and North America in adopting subscription services, but it is now catching up quickly. Even before the pandemic, the region's Software-as-a-Service (SaaS) market was projected to grow at a compound annual growth rate of nearly 25% between 2018 and 2023. As the pandemic drove up technology adoption rates, the number of businesses shifting to subscription-based services only increased. Brazilian fintech company Vindi reported that digital subscription and SaaS payments grew by 31.5% in just the first few months of the pandemic—a trend that continued as social digital services became more widespread.
Despite the region's vaccination progress and the lifting of restrictions, the surge in subscription adoption is set to persist. Subscription models offer multiple benefits for both providers and customers, including deeper customer relationships, more precise insights into product usage, and more reliable business forecasting. While the pandemic was a significant catalyst for the spread of subscriptions in Latin America, the foundation for sustained growth has already been laid. Here's why.
Emerging credit opportunities
Access to credit in Latin America presents a very different picture from the Global North. Many people do not operate within the traditional financial system—37% of Mexico's population over 15 years old is unbanked, and nearly 60% of the workforce is employed informally. At the business level, only 45% of small and medium-sized businesses (SMBs) in Latin America can obtain credit from financial institutions.
To overcome these barriers, many non-financial institutions are beginning to offer credit lines to residents in the region. For example, Mexican convenience store chain Oxxo offers customers loans of up to nearly $2,500.
In the SMB sector, telecom companies and technology distributors are also offering credit lines for subscription services to businesses that lack access to equivalent financial services through traditional banks. Telecom providers like TelMex and Telcel are offering customers digital services that can be paid for on a monthly basis.
Credit lines provided through non-traditional lenders are making subscription services more accessible, which will drive further adoption of subscription models in the region in the coming years.
Accelerated public cloud adoption
Beyond public utilities, subscription models remain relatively new in the Latin American market. Over the past decade, as cloud service providers expanded their coverage in the region, more businesses have come into contact with subscription services and begun to leverage their advantages.
Cloud infrastructure services like AWS have established a strong presence in the region, and cloud computing is expected to grow at a compound annual growth rate of 22.4% between 2019 and 2023. IDC also predicted in 2020 that cloud adoption would rise in the post-pandemic era. According to Alejandro Floreán, IDC's Vice President of Consulting and Corporate Research for Latin America: "Cloud providers will have greater influence over data centers, and businesses will increase their use of public cloud during the pandemic to take advantage of its flexibility and scalability."
The arrival of these major players will mean broader, more powerful, and faster cloud infrastructure in Latin America. This increases opportunities for SMBs to use cloud-based subscription services like SaaS. In turn, SMB customers will enjoy greater flexibility, being able to scale the services they consume up or down on a monthly basis, thereby deepening commercial customer relationships and ultimately driving subscription adoption.
Currency devaluation factors
Although conditions for subscription model growth are in place, the ability of major cloud players to truly disrupt the market is still constrained by one factor: the currency in which they transact. In fact, 54% of Brazilians will not purchase digital products priced in US dollars.
Latin America-based technology infrastructure companies have long dominated the IT infrastructure services market, with many providing on-premises data center services to large enterprises for decades. New cloud players pricing in US dollars may struggle to attract businesses that are accustomed to paying rates in local currency and cannot afford AWS or Azure fees.
Once these major cloud companies begin offering infrastructure services in local currencies, they will disrupt the local IT infrastructure services market and bring more intense competition for local players.
Over the next decade, we should expect Latin American technology companies to become a more important part of the global IT products and services ecosystem. This will be largely driven by the growth of subscription models in the region, while also fostering more marketplace platforms and ecosystems built on cloud infrastructure featuring Latin American companies. The more digital-forward businesses shift to subscription models, the more traditional businesses will follow suit, and cloud-based subscription services will soon become ubiquitous in Latin America's digital economy.