Growing Faster withCross-BordereCommerce
The eCommerce market is growing exponentially. Retail eCommerce sales accounted for over 7% of the total retail market worldwide last year and were worth $1.7 trillion.1 That figure is expected to more than double to roughly $3.6 trillion by 2019.2 The three biggest eCommerce markets, China, United States and Japan have seen annual eCommerce spending exceed $767 billion,3 $595 billion4 and $114 billion respectively.5
Increased eCommerce activity, regulation (on interchange fees and the Payment Service Directive II, or PSD2, in particular)6 and the gradual elimination of cash from points-of-sale, are all vital developments for businesses to consider. But what does that really mean for online merchants who want to expand cross-border?
Regina Lau, Chief Strategy Officer of Ingenico ePayments, shares her insights into the eCommerce environment and the key elements merchants should take into account when growing online.
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The number of businesses focusing on electronic forms of payments is climbing rapidly as cash is disappearing around the world. In Sweden, physical currency now accounts for just 2% of its total economy,7 making it well placed to become the world's first truly cashless society. In Europe, only 10% of all transactions are conducted with cash and North America accounts for more non-cash payments than any other region.8
The Bank of Korea (Koreas Central Bank) is planning a cashless society by 2020.9 A recent study from the bank found that credit card use is rising and the ratio of those picking cash is falling year-on-year.10 Similarly, cash payments are on the decline in Kenya. 90% of adults now send and withdraw money, pay bills or buy goods and services via text and without requiring access to a bank account.11 Technology has improved access to essential goods and services for some of Kenyas poorest citizens.12
There are many factors driving growth in non-cash payments. New digital payment solutions that deliver instant or real-time online payments are being installed across different point-of-sale channels. The ease and speed of online shopping and online payments is dramatically increasing. And merchants are augmenting their acceptance of both international and local payment methods to specifically target their customer base and improve interactions with online shoppers. All of these elements are important to consider when developing an online strategy or looking to expand into new international markets.
The eCommerce Boom
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While offering domestic payments is certainly important, companies should understand that growing their business beyond a certain point will require offering customers a choice of payment methods that appeal to international consumers as well. Cross-border payment volumes are growing several times faster than domestic payments and the preference for purchasing beyond national borders is particularly strong in some parts of the world.
According to recent research conducted by Forrester, global cross-border B2C eCommerce will more than double over the next five years, reaching $424 billion by 2021.13 As a share of total online commerce, cross-border transactions are projected to rise from 12% in 2015 to 15% in 2021.14
In Australia, 12 million people,15 or 65% of the population now shop online, growing by well over 10% in just the last four years. While domestic online shopping is typically their starting point, Australian eShoppers will look to foreign sites if they perceive better availability of products elsewhere. Meanwhile, a number of Australian brands have been expanding rapidly into Asian, North American and European markets, as their early entry into eCommerce has continued to drive international demand.
The number of eShoppers are higher still in one of the world's best-connected countries, Japan. Following only after China and the US, Japan is one of the largest eCommerce markets worldwide, where 77 million - 70% of the population - shop online. There, the electronic payments landscape is heavily dominated by credit and debit card purchases, with bank transfers trailing far behind.16
Being able to buy higher quality goods for lower prices is one of the main reasons that Chinese shoppers will look overseas for a wide range of items, such as cosmetics, healthcare, electronics, clothing and maternal items. Moreover, their cross-border shopping isn't limited to the Asia-Pacific region alone and a large percentage of the Chinese population will shop further around the world if they can easily find and buy what they are looking for.
When businesses operate domestically they really only need to know whats happening in their own country. But when businesses go beyond their borders, not only do they need to customize their offering to new target customers, they also need to understand local regulatory requirements and make sure they are optimizing operations to ensure costs do not spiral out of control. Essentially, businesses need to ensure that they are technically and operationally prepared for international expansion, especially in the online space which is growing very rapidly.
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A recent PayPal study17 estimated that by 2018 there will 130 million active cross-border shoppers in the US, spending more than $300 billion. Yet fewer than 25% of US merchants are currently set up with full cross-border acceptance capabilities. In Argentina, 40% of digital buyers made a cross-border transaction in 2015, compared to 45% in Brazil and 60% in Mexico and Canada.18 These figures demonstrate the clear trend that eCommerce is growing on a global scale. However, cultures and customers' preferences remain varied around the world, highlighting the importance of localization.
To be sure, specific payment methods are more commonly used in certain verticals or countries. In Canada and the US, consumers predominately use credit cards and debit cards, followed by PayPal. But in Russia, although international cards are accepted, Qiwi, Yandex and WebMoney eWallets are more commonly used. In China, people prefer to pay with Alipay's eWallet or their local card scheme, China UnionPay. And in Brazil, most consumers prefer the post pay method, Boleto Bancario. Businesses that want to expand really need to take local payment cultures into account. Failing to provide those choices to customers, could ultimately result in the loss of valuable business.
But its not just about payment methods alone.
The reality is that most consumers that shop online and across borders are looking for more competitive pricing and a wider variety of goods and services. And once theyve found what they are looking for, having the ability to pay in their local currency and with their preferred payment method is a main source of conversion. Once companies understand all of the factors that influence consumer behavior in each market, they can make informed decisions on which payment methods to offer and which business model to adopt.
Within eCommerce circles, we often talk about the customer experience, which is absolutely crucial. When customers are making a purchase, they expect their chosen payment method to be accepted and they want to know immediately that their transaction was successful. If they have any concerns about the process, they will not hesitate to abandon the transaction and they might never return.
Payment Cultures and Customer Experiences
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Advances in technology have led consumers to expect fast and easy transactions across all channels and all geographies, and seamless payments is a vital part of that process. The less that consumers have to think about making a purchase and the smoother the transaction is, the more they will shop online and cart abandonment will be reduced. At the same time, merchants must balance ease and speed with security, to minimize the potential for fraudulent transactions. Merchants that fail to deliver on all of these elements are more likely to lose trust and harm relationships with their customers.
Businesses can work with their payment services provider to pinpoint the best ways to optimize the user experience they create. Again, this can be done by understanding the way customers interact and engage with their website, and once this is streamlined, it can open up new opportunities for growth.
Its also important to remember that consumers are heavily influenced by recommendations and word of mouth. For example, reviews on TripAdvisor can have more influence than expensive advertising campaigns. In todays world, it has become extremely easy for consumers to express their views online, so merchants need to be aware of the customer experience they are offering and make sure that it is smooth and effortless. In essence, its more than just technology, localization and payment options its about living up to the customers expectations for shopping online.
This trend is certainly likely to increase as new generations grow into their own spending power. Looking ahead, eCommerce will be increasingly influenced by millennials heightened ability to share information and voice their opinions. So while it is still in its infancy, there is no doubt that social commerce, or connected commerce, will become a major driver of payments volume.
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As the industry grows and the eCommerce boom expands, the omni-channel future will begin to come into effect. We often talk about omni-channel and it is a key component in the way eCommerce is evolving. Merchants who can leverage their various touch-points and gather comprehensive data will be able to truly understand their customers preferences and behaviors, regardless of time or location. At Ingenico, we are already boosting our presence across all channels to offer omni-channel solutions as they evolve and come into fruition.19
Our team at Ingenico Labs is one of many dedicated to research and development across the company. This group of innovators is always working to push the boundaries of technology and test new ideas, bringing us closer to the omni-channel future we envision. One such project that they are heavily focused on is the buy button on social media, which ties into the future of social eCommerce that we anticipate.
Already, 56% of consumers who follow brands on social media sites do so to view their products and 33% of social shoppers use social media to browse for potential purchases.20 Volumes will take time to develop and mature, but it is clear that consumers are becoming increasingly comfortable with the idea of buying through social media. As a result, companies are already seeing the benefits of offering social commerce in terms of social media marketing. This will become increasingly apparent as millennials, who have truly embraced mobile technology, become the most influential customers in the eCommerce space. Although social media is still primarily a platform for communicating and sharing information, as social commerce develops, there is no doubt that consumers will shop through these channels as well. It will be a few years before it becomes mainstream, but this is just one instance of how Ingenico is thinking ahead and identifying future opportunities for our customers. And online merchants should be thinking about these things as well.
The Omni-Channel and Social eCommerce Future
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These are just some of the considerations that merchants should take into account as they look to expand internationally. Its not only about platform stability and availability although that certainly is crucial as well its also about having a payments partner that can help them take their business into the future.
Our team works hard to understand evolving market trends and consumer preferences and we have a large network of regional payment experts across the globe that work with our merchants and partners along their eCommerce journey. Technology is important, but it is not enough. We find that often, in addition to our products and services, merchants rely on our knowledge and expertise to identify potential markets and help them determine which currencies and payment methods are the best fit for their vertical or industry.
By sharing our payments expertise with our merchants, as well as our knowledge of consumer trends and market characteristics, we can help them optimize their business and make informed decisions about their strategies. And because of that, Ingenico ePayments is very well positioned to help companies who want to expand cross-border or grow online.
Going Cross-Border and Growing Online
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Ecommerce Foundation: China B2C E-commerce Report 2016
Ecommerce Foundation: United States B2C E-commerce Report 2016
Ecommerce Foundation: United States B2C E-commerce Report 2016
Driving Change PSD2 and the MIF Regulation, ACI PAY.ON Payments Gateway, whitepaper
World Payments Report 2016
Ecommerce Foundation: Australia B2C E-commerce Report 2016
Ecommerce Foundation: Japan B2C E-commerce Report 2016
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