E-commerce without frontiers? Not when it comes to payment
By Farish Lakhani, VP Sales International at Computop
The world has got smaller, thanks to the evolution of transport and communications technologies, but it’s still a diverse mix of customs, practices and systems. The preferences of consumers vary widely between markets — and so does the way that they choose to pay for goods.
The abundance of payment methods, technical infrastructures and regulatory conditions suggest that we live in a ‘global village’, but the reality is very different and both banks and retailers struggle with the inconsistency of payment types every day. One size definitely doesn’t fit all.
Banks and big-tech companies could take another decade to standardise global payments — and even longer to convince regulators and the public to accept a single system. Meanwhile PSPs (Payment Services Providers) must operate with a global lens — understanding how platforms differ and making sure payment methods can be accepted whatever country the customer is in.
Barriers to international trade
Cross-border consumerism is not new and the Internet connects sellers and buyers sometimes across vast geographical distances. On closer inspection, however, the picture fragments.
Exporting inside the EU, for example, a single market of 27 countries, means grappling with 19 languages in the Eurozone alone, and the need to do business in at least a dozen of them to get a fair slice of European trade. eCommerce has enabled start-ups and smaller merchants to compete in the race for business, but the playing field is not level. In the EU, it’s often the bigger and better-resourced companies with translation budgets that allow them to communicate with customers and networks of local branches that really enjoy the benefits of tariff-free trade. In reality, internationalisation amounts to little more than border traffic between areas that share a common language.
Outside the EU, newly affluent consumers in fast-growing and less-developed economies are hungry for consumer goods. But there’s a flip side to this because, according to the World Bank, more than a third of the world’s population remains “unbanked”. In India and Latin America, almost every second person belongs to this group; in Indonesia it’s 51 percent of the population and in Mexico and Colombia more people have a smartphone than a bank account.
China has done much to bridge the socio-economic and urban-rural divide and 80 percent of its inhabitants aged 15 and over have access to a bank account. However, the simple fact is that one of the most common methods of buying online in many developed countries — the plastic card — doesn’t work for vast numbers of the world’s population.
Flexible and imaginative payment solutions
Retailers and PSPs aim to provide favoured methods of payment to keep customers loyal. While this usually means certain credit or debit cards, in some geographies it is allowing people to pay cash for an online order in a brick-and-mortar outlet. In large parts of Asia and Latin America, paying cash for an online order at the checkout, whether in the small local convenience store or the supermarket, has long been part of everyday life.
Order online and pay in cash options can also be popular in countries where customers have security concerns. In Germany, for example, few people live without a bank account, but many don’t like to leave a data trail behind them and in Romania, which is also a member of the EU, cash is still king. Before the pandemic, only nine percent of sales there were made by card or bank transfer — and 90 percent were made in cash. The payment service provider Zebrapay set up self-service terminals in many places where customers could pay an invoice with banknotes.
Key questions for the exporter
Heterogeneity is the story of the world’s payment systems, just as it is of the world’s economies, and it’s a mistake to think that what works for one country will work in another. The mobile banking platform M-Pesa, launched in 2007 by mobile network operator Vodafone and its African partner Safaricom, revolutionised payment in Kenya. Transactions were made via SMS or, more recently app, giving poorer people access to credit and banking for the very first time. The idea was rolled out successfully to several other countries, including Tanzania, Mozambique, Ghana, Egypt and Afghanistan, but it didn’t work in India, Albania and Romania, where up-take was low and it’s important for retailers to understand this.
Continental drift: lack of consistency in Europe
In Europe international expansion is not easy — even for Europeans and not just because of language barriers. The diversity of shopping — and paying — habits further complicates things. The general preference is for customers to use their own or their bank’s funds, but the specifics vary, and some markets have been more conservative and slower to embrace change than others.
In Germany where hard cash is popular the Covid-19 pandemic has forced a change and more Germans are now swapping cash for debit cards and contactless payments in store. Online, the German digital wallet has gained more traction, used for about 24 percent of transactions. The British, by contrast, were forsaking cash long before the pandemic with debit cards used for 32 per cent of all eCommerce payments and 55 per cent of all in-store transactions in the UK in 2019, according to a study by OnBuy.com. By the first wave of the pandemic nearly a third of UK consumers were using digital and mobile wallets to pay for orders online, according to the Worldpay 2020 Global Payments Report.
In other markets there are different ways of doing things. Austrians swear by the EPS transfer, a national standard agreed by the country’s banks. The majority of Swiss people prefer a domestic bank card. In the Netherlands, the online transfer via the local provider iDeal dominates; in Belgium, the debit card Bancontact. If you want to do well in Poland, you have to offer transfers via Przelewy24. The French are very card-savvy, but primarily use the Cartes Bancaires (credit and debit).
Sellers crossing borders in Europe encounter deeply rooted habits and structures. Each national top dog in the payment business has a loyal customer base, its own terms and conditions, and its own business and IT processes. The legal regulations are harmonised, but not identical. Although the European Payment Services Directive PSD2 will facilitate intra-EU trade and lead to a modernisation of existing payment methods, it will be some time before its effects are felt in everyday life.
Today, even with credit card payments, settlement by a local or well-established acquirer is still the best course for the merchant. PSPs need to work with international acquirers and many national providers to enable merchants crossing borders — whether online, offline or omnichannel — to compete with local rivals.
A storm from the East: the rise of China
By far the strongest push for internationalisation is coming from China. Chinese consumers are a target group for Western companies in the retail and tourism sectors, while simultaneously two Chinese Internet giants Alibaba and Tencent are investing massively in “Go West” strategies.
The digital payment systems of Alibaba and Tencent, Alipay and WeChat Pay / TenPay, long ubiquitous in China, will need to be accepted in other countries if the global economy really is to benefit from China’s growth. Currently, a credit card from Union Pay, a state-controlled joint venture of a consortium of Chinese banks, and their mobile phones, equipped with one of the two major payment apps, is the only means for Chinese tourists to pay.
Payment processing in China is challenging: online transfers with over 100 banks must be handled, as well as credit card payments via China Union Pay and, of course, the Alipay or 99bill wallets that are popular with young people.
Chinese customers enter their card number and are redirected to their “home” bank, which triggers a bank transfer. However, since there is no central clearing house, the PSP must contact the bank directly. This is made more difficult by the fact that not every PSP co-operates with every bank. In addition, the transaction costs vary greatly.
For retailers to cover the Chinese market, they must have contracts with several PSPs, such as Alipay, 99bill and YeePay. Customers can then pay almost any bank — and the system will automatically select the PSP with the lowest costs to match their own bank.
Opportunities and challenges
International expansion means understanding markets, the differences in payment systems and the geographical demand for products and services. The right PSP can be a vital partner to help make sense of the plethora of systems and rules and ensure transactions happen smoothly and sales are not lost.
With this in place, the opportunities offered by cross-border trade and selling overseas can outweigh the challenges. Tapping this potential demands a clear-sighted approach from both retailers and PSPs.
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