Local retailers have a huge opportunity to take advantage of cross border shopping. The first step is to ensure your technology is aligned, writes John Banfield.
The unprecedented growth in cross border e-commerce will see 16 percent of all online shopping transactions made with foreign retailers this year, totalling an impressive $112 billion. By 2018 this is expected to rise to over $320 billion annually, however, many merchants in Australia, New Zealand and across Asia will not see any benefits from this because they are being held back by complex factors, such as multiple currencies, security and speed.
Recent research by The Paypers found:
- Australian online shoppers spent more on average per order than anyone else in the world ($142) in 2013
- 79% of Australians who shop online currently purchase from overseas sites
- Over 25% of Australian online expenditure goes to overseas-based websites
- Australia’s import policies are favourable for cross border commerce
- Online spending in the international market is growing at a faster rate (15% a year) than domestic online sales (10% a year)
Why Has Cross Border E-Commerce Grown at Such a Rate?
Cross border transactions have been fuelled by a mix of globalisation, which has driven businesses to transact more frequently with overseas companies to get the best deals, and changing consumer behaviour which has led to an increasing willingness to buy from foreign sites and travel, live and work abroad.
There is a Lot of Hype Surrounding the Potential Rewards for Retailers, What is the Reality?
The strength of the Australian dollar has given domestic shoppers increased purchasing power on overseas sites and foreign retailers would be wise to move swiftly to cater for this market. As mentioned before, Australian shoppers spend more on average per order than anyone else in the world so should offer a great attraction for overseas businesses, particularly those based across Asia.
According to Paypal’s Modern Spice Routes report in 2013, Australian consumers currently make cross border purchases most frequently with American retailers but 31 percent of Australian cross border shoppers have purchased from China and 29 percent from Hong Kong. PayPal estimates there were 6.3 million Australian online cross border shoppers in 2013 who collectively spent $6.6 billion. This could rise to 8.4 million people spending over $16 billion a year by 2018. Clothes, shoes and accessories are the most popular items, followed by books, airline tickets, health and beauty products and personal electronics.
When we consider the reverse – overseas consumers making transactions with Australian retailers – we see potential too. Almost 40 percent of Chinese online cross border shoppers have purchased from Australia, says Paypal, as well as 18 percent of US shoppers.
More than half of Australian retailers have a website, but only a third accept orders online and even less are set up to sell to overseas customers. Taking steps to enter this market would provide a significant opportunity to get ahead of your competition and take a strong foothold in this growing area.
Does the Profile of a Cross Border Shopper Differ from Normal Consumer?
No, not at all, however, PayPal presents an interesting summary of the five distinct types of cross border shopper in its Modern Spice Routes Report. It suggests consumers fit one of these groupings:
- Fearless Adventurers – like to be different and search out new overseas websites, love shopping on mobile devices and are happy to pay more for unique items not available locally. Make up 13 percent of all cross border shoppers and 30 percent of overseas online spend.
- Efficient Explorers – busy people where convenience is key, mostly buy from overseas sellers they know and trust, will spend a lot for an online purchase, such as entertainment or air tickets. Make up 16 percent of all cross border shoppers and 27 percent of overseas online spend.
- Value Voyagers – love shopping and keeping track of trends, check and compare overseas purchases using online tools to ensure they find the best quality and value products. Make up 25 percent of all cross border shoppers and 21 percent of overseas online spend.
- Safety Seekers – shop online more for leisure, but like the variety and brands found on overseas websites, careful what they buy and only use trusted sellers or those with a returns policy. Make up 23 percent of all cross border shoppers and 12 percent of overseas online spend.
- Deal Hunters – do not shop online often and when they do it is typically with domestic websites, but if they spot a bargain or lower price from a foreign retailer they will snap it up. Make up 23 percent of all cross border shoppers and 10 percent of overseas online spend.
What Cross Border Challenges do Retailers Face?
Traditional payments infrastructures and regional payments systems do not often easily lend themselves to handling cross border transactions. They can be cumbersome, error prone and expensive to adapt, making many retailers decide against cross border trading because of the daunting and complex task ahead of them.
In addition, there can be issues around the ability to handle multiple currencies, the lack of foreign exchange fee transparency, the time required for funds to clear, difficulties tracking payment progress and challenging in-payment reconciliation.
Normal concerns, such as security, reliability and speed, also extend to cross border trading so retailers have a lot of things to consider.
Consumer confidence is also a factor with as many as 70 percent of consumers fearing identity theft and fraud so much so that they have abandoned shopping carts on websites that could not offer them what they perceived to be a safe way to make a cross border payment.
How Can Retailers Overcome These?
It’s not as complicated as you might think. There are a range of options, with the simplest being to use a single payment gateway technology to manage your entire payments infrastructure. By using one which includes links to multiple acquirers in different regions, can process transactions in all the major currencies and provides good reporting insight into your data, you can take control of cross border payments quickly and easily, leaving you to focus on your core business.