Merchants must embrace payments diplomacy to succeed at cross-border expansion
Global buying and selling represent an opportunity for any merchant with products or services that appeal to people in other places. However, their payment strategies must include the payment methods that people are familiar with and use most often in their local markets.
Whether a mom-and-pop store, a multinational or an online-only shop, no merchant can ignore the global economy. At a time when buying goods or sending money can be accomplished in a few keystrokes, more shoppers are reaching beyond their regions and countries for specialty products that can’t be found locally or are simply cheaper or better than in their home countries.
Global e-commerce rose by 25% in 2017, according to eMarketer, surpassing $2.3 trillion. A rise in global buying brings an increase in alternative payment methods (APMs), ways to pay beyond the credit card. The payment landscape is highly regional, based on historic, economic, technical and political factors. Top payment methods in Europe, or even Southeast Asia, are generally unheard of in many other parts of the world.
Recent research shows that 56% of consumers shop far beyond their geographic boundaries. What’s more, half of consumers have abandoned an online shopping cart because their preferred payment method wasn’t supported. By 2020, nearly 80% of all global e-commerce purchases will be made using APMs.
In the United States, card-based transactions represent 75% of all e-commerce purchases. But that’s not the case in the rest of the world.
According to PPRO research, the top three e-commerce growth markets (by percentage) are Indonesia (78%), Mexico and the Philippines (both 59%). In Mexico, 36% of transactions are card-based. But in the Philippines, just 5% of transactions use cards, meaning that 95% of all transactions utilize alternative payment methods such as cash and bank transfers. Credit cards are used in 27% of transactions in Indonesia. Factors that influence local payment methods include the penetration of bank accounts and credit cards, as well as the development of locally and regionally accepted payment methods such as the Single Euro Payments Area (SEPA) among European Union countries.
But lack of credit cards does not stop people from shopping. A popular payment method in Mexico, for example, is paying for goods at Oxxo convenience stores, which are ubiquitous in that country. For merchants that offer Oxxo as a payment option, Oxxo appears when a customer reaches the payment page, as do other payment methods the shop accepts. By clicking on Oxxo and completing the transaction, the customer receives a purchase-pending email with the amount owed, instructions on how to pay and a unique code.
At an Oxxo store, an employee types in the code and accepts the payment method. At that point, the customer receives a second email that indicates the transaction is complete — and the merchant can now send the goods or services to the shopper.
Merchants that find success with cross-border selling accept the payment methods preferred in local markets to reduce the incidence of abandoned electronic shopping carts. By working with their payment service providers (PSPs), merchants can refine their strategies to match products and payment methods to markets.
Merchants that want to find success in the global e-commerce market should heed these five tips:
Identify the customer segment. Not all products and services will resonate in every market. No one would expect a huge demand for ice scrapers and ski boots in the Philippines, for example. Consider the cost of shipping to a new market. Clothing likely isn’t cost-prohibitive to ship, but furniture probably is. Retailers should work with their PSP to help determine what will work in the cross-border market(s) under consideration.
Create a targeted strategy. Brick-and-mortar retailers that expand beyond their borders carefully contemplate both new locations and products that will be offered. E-merchants should do the same. A high-end merchant that expands to a country with a lower per-capita income will find the new market challenging if people can’t afford the goods on offer.
Determine customer payment preferences. Retailers should ask their payment solutions provider about the payments landscape in any new countries the merchant is considering selling into. As shown earlier, the amount of alternative payment methods used in a particular country can vary widely, and shoppers tend to be loyal to the payment methods they’re familiar with.
Ensure your payment provider can meet your needs. The types of payments a merchant accepts can be as important as the product selection. Merchants should ensure that their PSPs can accommodate the preferred payment methods in a target geography. If not, the merchant may need to find another processor.
Align the customer experience. Global consumers use thousands of alternative payment methods, but only 350 or so have gained any prominence and are made for online shopping. A merchant doesn’t have to (and shouldn’t!) offer every payment methodology with any traction in a particular geography. Rather, the merchant should offer those that cover the majority of the market. In some markets, two or three payment methods should suffice. Other markets may require double (or triple) that number.
Payment service providers can provide a wealth of information for merchants interested in cross-border selling. Merchants will have a much better chance of global e-tailing success if they carefully consider new markets, offer goods and services targeted to that market and provide preferred local payments options.