As cross-border e-commerce continues to grow, merchants need to understand the the complexities of local payment preferences before expanding overseas.
In recent years, there has been a gradual breakdown of international trade barriers, with initiatives like the Trans-Pacific Partnership (TPP) between the US and several markets in Asia, spearheading the process. The emergence of fintech solutions designed to ease the flow of cross-border transactions has also led to a booming global e-commerce landscape.
According to a Nielsen report, cross-border payments are set to grow to US$307 billion by 2018 across six key markets (the US, the UK, Germany, Brazil, China and Australia). With hundreds of millions of new shoppers within reach, going global is a tantalising prospect for Australian merchants.
As with all aspects of international expansion, there are issues such as diverse cultures, languages and currencies to navigate. Here are some factors retailers should consider before going global.
Support local payment methods
Since the earliest days of commerce, when traders used seashells or precious stones, there has never been a uniform way to pay. Today seashells have been replaced with cash, mobile wallets and online banking, to name a few. International credit cards, which are often presumed to dominate Western markets, can account for as little as 20 percent of online transactions in some markets.
In many advanced economies, accessing local customers could be as simple as offering their preferred method of payment. Of course, preferred payment options vary significantly from country to country. Merchants should ensure their payment provider has good local knowledge and the ability to support a diverse selection of payment methods.
Build on what you know
Not all markets were created equal. Some have low entry barriers, whereas others can be considerably more complex. Therefore, merchants would do well to work on what they already know.
In China, 300 million people shopped online in the last year, spending over US$500 billion. Jack Ma, CEO of Chinese e-commerce giant Alibaba, is justified in noting, “In other countries, e-commerce is a way to shop. In China, it’s a lifestyle.” Alipay is leading the online payment market, making it the largest payment platform in the world.
Western Europe also represents rich pickings for merchants. Statistically shoppers in Germany, Belgium and the Netherlands are open to purchasing from foreign websites, making them relatively easy markets to enter. It is important to know, however, that each country has its preferred method of payment. In the Netherlands, for example, iDEAL accounts for over 60 percent of online payments; in Germany online banking methods SOFORT and Giropay make up the bulk of online payments; and in Belgium Bancontact/MisterCash has more cards in circulation than there are Belgians.
And more good news for Australian merchants: There are many quick-wins to be had from an English-language website, which provides access to some of the world’s most enthusiastic cross-border shoppers. The leader is Canada, where cross-border orders account for 75 percent of the country’s total e-commerce market. Further, international credit cards dominate in this market, making for low barriers to entry. For other markets like the Netherlands, Germany and Scandinavia, the level of English is sufficient for customers to be undeterred by an English-language site.
Maximise the opportunities of emerging markets
Beyond the established markets, merchants should consider emerging economies, where credit card penetration is low and growth opportunities are high.
Despite volatility in the Russian economy, both the volume and the average transaction value of cross-border shopping are growing. Last year 160 million packages were shipped to Russian online shoppers from overseas — a 10 percent increase from 2014. China has driven this trend, accounting for 55% percent of Russia’s cross-border e-commerce. Contrary to popular opinion, Russia is open to trade. Local entities are not required and, again, the key to success lies in supporting local payment methods. Digital wallet Qiwi, for example, accounts for 26 percent of online purchases and is used by 16.5 million shoppers.
Brazil is one of the few countries in the Latin American region considered a middle-class nation, and is forecast to become the world’s fifth-largest consumer market by 2020. While predominantly purchasing from the US, China comes in second, followed by Hong Kong and Japan. To succeed in these markets, merchants must support local payment preferences such as paying in instalments and methods like Boleto Bancario.
These are just a few of the countless opportunities available in the global e-commerce arena. Whichever country merchants choose to expand into, a clear understanding of the local payment environment is crucial. Accommodating local payment and language preferences will ensure a frictionless payment experience, which in turn leads to higher conversion rates and increased revenue on a global scale.