Cross-border's e-commerce players risk getting lost in translation
The complexities associated with online payments, such as data collection and security, credit card processing and accounting, and customer preferences only increase when expanding into global markets.
While global e-commerce is a difficult landscape to navigate, investing time and resources to offer the payment preferences of your global consumers will help you lock in sales and scale your international business.
As an e-commerce store operator, finding efficient methods to facilitate payments is an essential and crucial part of improving the user experience. Customers must be able to trust your store’s payment options and their preferred method must be available at checkout. The payment methods you offer will vary based on the market you’re serving. For some countries, payment preference may be a credit card, while others will require cash on delivery, regional e-wallets, etc. Offering a range of options is crucial because, after all, you won’t make money until your customer completes their purchase.
But with cross-border e-commerce set to grow 17% per annum from 2017 to 2020, compared with 12% in the sector overall, global expansion isn't something you want to lose in translation. Understanding the obstacles of payment gateways and how to navigate them can help you expand your business and scale profits efficiently.
The big picture here is that payment preferences vary by region, and offering consumers the payment options they like is vital to your growth and success. For example, just a quarter of German consumers use credit cards when shopping online, whereas most American consumers prefer using credit cards.
Let’s look at some of the regional differences in payment preferences and how you can meet consumer demand across borders.
Asia Pacific: Asia Pacific (APAC) is the most dominant segment of the global e-commerce market. According to the E-commerce Foundation, the region spent over $1 trillion and grew by more than 28% in 2015 with China leading the way.
At the time of the study, just 39% of people in APAC had access to the internet, leaving ample room for growth as more consumers appear online.
According to the payments platform Adyen, digital shoppers in Australia, Hong Kong, India, Japan, the Philippines, South Korea, Taiwan and Thailand most frequently use Visa or Mastercard to make online purchases, but local payment methods such as cash on delivery and e-wallets are also popular.
In China, only 1% of e-commerce transactions are made with an international credit card. Instead, shoppers utilize payment systems such as Alipay, WeChat and UnionPay, which digital commerce companies must accommodate to penetrate the market.
APAC is a particularly attractive region for e-commerce brands to expand not only due to its massive market share and growth potential, but also because foreign companies don’t have to establish a local business entity to sell online in most of the region.
Europe: Europe is the third-largest segment of the online marketplace. In 2016 the region generated €530 billion in online transactions and grew by 15%. The U.K. holds the largest marketplace and eastern European countries like Romania and Slovakia showcased the most expansive growth at over 34%.
Although the EU is poised to form a unified e-commerce market, payment preferences vary significantly within its geography.
For instance, online consumers in Spain, the U.K., Ireland, France and Italy favor Visa, Mastercard and PayPal, whereas digital patrons in Germany, the Netherlands and Russia gravitate toward localized systems. Specifically, over a third of German online transactions are made with the Continentwide SEPA direct debit system, roughly 60% of purchases in the Netherlands are made via a Dutch banking transfer method called IDEAL, and nearly half of Russian digital commerce is conducted using one of the country’s e-wallet platforms (Qiwi and Yandex).
The European market presents attractive growth potential and many shoppers are already used to purchasing from international brands; however, it’s crucial to meet consumers with payment gateways they prefer to win sales. Also note that while a local entity isn’t required for local payments, companies must establish an EU entity to service credit cards across countries.
North America: North America has the second-largest online marketplace predominantly driven by the United States. Both the U.S. and Canada favor credit cards, although PayPal in the States and Interac in Canada represent 5% and 7% of transactions respectively.
While credit cards are the preferred payment gateway, new payment options such as Apple Pay, Android Pay and Samsung Pay have generated hype in recent years.
Latin America: Although the Continent has experienced a slow start to e-commerce with just over of $57 billion in 2016, the increasing adoption of smartphone technology and a growing middle class presents potential for growth.
Brazil has the largest online marketplace, which generated more than 16.5 billion in 2016 and is expected to reach $29 billion annually by 2021. It’s worth noting that while Brazilians tend to use credit cards for online purchases, about 15% of digital commerce is conducted with a cash transfer system called Boleto, which enables people without credit cards or bank accounts to buy online. Further, roughly three-quarters of Brazilian e-commerce purchases are made on credit and companies must have a relationship with a local financial institution to offer installment options.
Mexico has the second-largest e-commerce infrastructure, which is dominated by mobile and cash-based payment options. Installments are widespread, and companies must also establish a local entity to process this type of payment.