© 2016 PayPal Inc.

Cross Border Transactions 2016 Merchant & Consumer Comparison USA Report Ipsos MORI Contacts: Peter Attwell, Ellie Pettit, Laura Acey PayPal Contact: Melissa O’Malley

© 2016 PayPal Inc.

Background & Objectives

Understanding that we are going through a commerce revolution, PayPal in partnership with Ipsos, conducted a global 29 market survey with approximately 23,000 consumers to examine how people shop online and across borders.

Advancement of technology is helping to open up commerce opportunities for everyone - across borders, anywhere, anytime and via any device.

This report is designed to showcase gaps in merchants’ cross-border strategies, compared to consumer demand/attitudes. Data from the Merchants’ survey is compared to data from the consumer surveys in the top 3 export markets for US*

*Top 3 markets based on Merchants’ claimed contribution to cross-border revenue

In addition PayPal commissioned Ipsos to conduct a six market survey with a total of 1,200 merchants to understand their cross-border business and strategy.

© 2016 PayPal Inc. 3

MERCHANTS: Q3b. Thinking specifically about your online sales from foreign countries [ $ xxx thousand / million] what percentage of this comes from each of the following markets? Base: Online merchants who sell cross-border (n=74)

2%

41%

12%

25%

15%

4%

Central/South America

Europe

Africa

Middle East

Asia

Share of CBT Sales by Region (NET %) Top Countries: Share of CBT Sales (%)

41

8

5

5

4

4

3

3

2

2

Canada

UK

Brazil

India

France

Mexico

Japan

China

Australia / NZ

Ireland

77%

Canada

Canada, UK, and Brazil are USA merchants’ top cross-border corridors in terms of revenue - with Canada alone contributing 41% of total cross-border sales value. Therefore, this report focuses on these three markets.

© 2016 PayPal Inc.

Using search engines is one of the top ways consumers access foreign websites they have not visited before. But less than 2 in 5 cross-border merchants use search engine optimisation, and only 14% use search engine marketing.

4

MERCHANTS: Q8b How do you drive traffic from foreign online shoppers to your website? Base: Online merchants who sell cross-border (n=74) CONSUMERS: Q35. Which of the following best describe how you access online stores in other countries Base: Cross-border shoppers

61  

33  

32  

28  

18  

16  

10  

8  

47  

26  

37  

22  

15  

17  

13  

8  

64  

39  

27  

49  

29  

29  

19  

19  

Go directly to websites I have used in the past

Go directly to websites I know the web address for

When I use a search engine, sometimes this leads me to foreign sites

I go to sites recommended by friends/family

I go to sites recommended or shown as links on social media sites

I follow links from shopping comparison sites

I click on advertisements or company pages on social media

I click on online banners/ advertisements

38

38

31

27

14

14

Search engine optimisation

Social media

Recommendations

Unique publically known brand

Price/product comparison listings

Search engine marketing

Canada

UK

Brazil

How US merchants drive cross border traffic (% doing each)

How consumers access cross-border stores (% doing each)

Base = 331

Base = 224

Base = 261

© 2016 PayPal Inc.

A global marketplace presence is reassuring for online cross-border shoppers, who spend just as much on third party sites as they do on merchants’ own websites. However, only 53% of online merchants use a third party marketplace.

5

Cross-Border Retailer Share of Consumer Wallet (%)

MERCHANTS: Q1a. Through which of the following channels does your business accept online payments? / Q2d. Which of the below [third party sites / online marketplaces] do you use [to accept online payments]? Base: Cross-border sellers (n=74) CONSUMERS: Q30. Of the money you spend on websites from another country, what proportion do you spend on each of the following sites? Base: Cross-border shoppers , excluding ‘don’t know’ Q34b. To what extent do you agree or disagree with each of the following statements? Base: Online shoppers (Canada: n=493 / UK: n=627 / Brazil n=532)

67% 65% 72%

But around two-thirds of online shoppers in top cross-border markets prefer global stores when buying internationally:

…agree they prefer large stores such as Amazon when shopping cross-border

Only 53% of US cross-border merchants use online marketplaces / third party sites to sell internationally

27 19

31 23 19

32 32 17 22

15 16

48

Merchant's own website

eBay Amazon Other marketplace

Canada Base = 313

UK Base = 251

Brazil Base = 249

73

31 20

32

Dedicated business website

eBay Amazon Other marketplace

Cross-Border Sales Channels Merchants Use (%)

© 2016 PayPal Inc.

Mobile commerce already accounts for a significant proportion of cross-border shopping, and with mobile commerce growing faster than overall e-commerce, it will become more important that merchants offer optimization for their mobile customers

6

MERCHANTS: Q1b. Is your business website optimised for Internet browsers / apps on mobile devices? Base: Merchants who sell through a business website (n=140) CONSUMERS: Q33. Thinking only about the purchases you make on websites in other countries, what proportion of your purchases in the last 12 months do you think were made using each device? Base = Cross border shopper (Canada n=331, UK n= 224, Brazil n=261 ) / Q38 Which of the following have been reasons for you to abandon an online purchase from a website in another country? Base: online shoppers who have abandoned a cross-border purchase (Canada n=280, UK n= 216, Brazil n=320)

of US Merchants with their own website don’t offer any kind of mobile optimization 17%

Only 54% have a specific mobile version of their website

21% 21% 30%

In top cross-border markets, respondents estimate that on average

of cross-border purchases are made via smartphone or tablet

6

4

6

% of x-border cart abandoners who say lack of device optimisation was a reason for abandoning

8% 7%

25% 29% 37%

65%

0%

20%

40%

60%

80% CAGR* forecast 2014-2017

All e-commerce

All mobile commerce

*Compound Annual Growth Rate

© 2016 PayPal Inc.

While the UK & Canada are primarily English-speaking markets, 21% of Canadians speak French*, which is only offered on 9% merchants’ sites. None of the surveyed merchants offer Portuguese (official language of Brazil)

7

MERCHANTS: Q2b. Which languages is your online shop available in? Base: Merchants who sell through a business website (n=140) CONSUMERS: Q36. Which, if any, of the following reasons prevent you from making purchases from websites in another country (more often)? / Q39. Which, if any, of the following would make you more likely to buy from a website in another country? / Q47. Please state whether you agree or disagree with each of the following statements about shopping online in other countries: Base: online shoppers (Canada n=493, UK n= 627, Brazil n=532) / Q38 Which of the following have been reasons for you to abandon an online purchase from a website in another country? Base: online shoppers who have abandoned a cross-border purchase (Canada n=280, UK n= 216, Brazil n=320)

Russian: 1%

French: 9%

Italian: 4%

Spanish: 15%

Polish: 1%

German: 4%

Only 19% of USA online merchants offer language(s) other than English on their business website

Foreign Languages on US Merchants’ Sites:

71%

21%

26%

28%

70%

21%

25%

27%

57%

29%

45%

46%

Do not feel comfortable buying from cross-border site not in their local language

Website not being in their local language has/would prevent a purchase

Website being available in local language would encourage cross-border purchases

Customer support in local language would encourage cross-border purchases

25% 22% But only:

47% Of online shoppers have ever bought from a foreign website not in their language

3% 4% And:

13% Of shoppers who have abandoned a potential CBT purchase did so because the checkout was not in their language

Consumers’ Language-Related Barriers and Drivers to Shopping Cross-Border

*Data from the 2011 Canadian census (http://www12.statcan.gc.ca/)

Canada UK Brazil

© 2016 PayPal Inc.

Offering the right payment methods is important for consumers, and different payment methods are preferred by shoppers from different countries. Merchants could increase accessibility by tailoring methods they offer to different markets.

8

MERCHANTS: Q4a. Do you offer different payment methods depending upon the market of your foreign online shoppers? / Q4b. Please indicate which of the following online payment options your business offers to its shoppers, whether they are domestic or from a foreign country (thinking generally if you sell to multiple foreign markets) Base: Online merchants who sell cross-borders (n=74) CONSUMERS: Q39. Which, if any, of the following would make you more likely to buy from a website in another country? Base = online shoppers (Canada n=493, UK n= 627, Brazil n=532) Q44bWhich is your preferred payment method for online transactions /purchases from websites in another country? Base: cross-border shoppers (Canada n=331, UK n= 224, Brazil n=261)

PayPal 51 PayPal 63 PayPal 33 Visa Credit 21 Visa Debit 9 Boleto 21

MasterCard Credit 15 MasterCard Credit 6 Visa 14

Debit Card 2 Visa Credit 5 MasterCard 14 American Express 2 American Express 4 PagSeguro 6

36  

25  

25  

38  

20  

25  

51  

32  

23  

Safe way to pay

Offers my preferred way to pay

Visible, trusted payment logo

Preferred cross-border payment method(%)

Divers for encouraging Cross-border shopping (%)

Canada UK Brazil

35% of merchants who sell cross-border offer shoppers different payment methods in different markets

69 61

50 31 7 27 8

18 5

Cross-border payment methods offered(%)

© 2016 PayPal Inc.

Being able to shop in their own currency is important to consumers, but less than half of merchants offer currencies other than their domestic one.

9

MERCHANTS: Q11a. In which currencies do you list your products/services online? 12b. Do you intend to offer more currency choices for online foreign shoppers in the future? Base: Online cross-border sellers (n=74) Q12c. Which currencies do you intend to use in the future? Base: Online cross-border sellers who intend to offer more currency choices for shoppers CONSUMERS: Q36. Which, if any, of the following reasons prevent you from making purchases from websites in another country (more often)? / Q39. Which, if any, of the following would make you more likely to buy from a website in another country? / Q47. Please state whether you agree or disagree with each of the following statements about shopping online in other countries: Base: online shoppers (Canada n=493, UK n= 627, Brazil n=532)

42% of cross border sellers list their products / services in a foreign currency

26% say they will offer more currency choices for online shoppers in the future

30 22

15 8 8

3

21 26

42

32 26

5

Euros Canadian Dollars

Pounds Sterling

Australian Dollars

Chinese Renminbi

Other

Currently available currencies % of cross-border merchants

Currencies intending to offer % of sellers intending to offer more*

28% 33% 23%

…Say that payment being in a foreign currency prevents them from making cross-border purchases/making them more often

Among online shoppers…

37% 42% 30% …Say that costs shown/ payment possible in own currency would make them more likely to shop cross-border

41% 44% 46% …agree that they would not feel comfortable making purchases online in a foreign currency

© 2016 PayPal Inc.

Just over half of US merchants do not include CBT taxes in their checkout price & very few of this group intend to. But in the top 3 CBT markets between a quarter & a third of cross-border cart abandoners cite unclear fees/taxes as a reason

10

MERCHANTS: Q5e. For items that your business sells online to shoppers in foreign countries, do you include the import duties and taxes (customs collection costs) for your consumers? Base: Online merchants who sell cross-borders, excluding ‘don’t know’ (n=72) / Q5f. Do you intend to include import duties/taxes costs for your customers at checkout in the future? Base: Online merchants don’t currently include tax at checkout (n=37) CONSUMERS: Q36. Which, if any, of the following reasons prevent you from making purchases from websites in another country (more often)? / Q39. Which, if any, of the following would make you more likely to buy from a website in another country? Base: online shoppers (Canada n=493, UK n= 627, Brazil n=532) / Q38 Which of the following have been reasons for you to abandon an online purchase from a website in another country? Base: online shoppers who have abandoned a cross-border purchase (Canada n=280, UK n= 216, Brazil n=320)

49

51

Yes Unsure No

Do USA cross-border sellers

include CBT taxes in their checkout

price?

3

43 54

If no do they intend to include in the

future?

US merchants’ cross-border tax strategy (%)

32% 27% But:

29% Of shoppers who have abandoned a potential CBT purchase did so because it was unclear how much duty, tax or customs fees they would have to pay

47%

38%

34%

35%

34%

24%

49%

41%

37%

Having to pay customs duties/fees and /or taxes

Not clear how much duties/customs fees/taxes I will have to pay

Any additional customs fees/taxes/

duties for international shipping are shown before checkout

Consumers’ Tax-Related Barriers and Drivers to Shopping Cross-Border

Canada UK Brazil

© 2016 PayPal Inc.

Merchants realise that shipping and lack of clarity lead to cart abandonment. However, fewer realise that consumers may be put off by concerns about website security.

11

Shipping costs 26%

Tax / duty amount unclear 24%

Delivery time 23%

Paying in foreign currency 19%

Poor currency conversion rate 18%

Shipping / postage charges were too high 61 Unclear how much duty/tax/custom fees I would have to pay 32 Currency conversion rate was poor 25 Didn't want to register for an account 22 Wanted to look for a better price 21

Shipping / postage charges were too high 46 Unclear how much duty/tax/custom fees I would have to pay 27 Concerns about website security 26 Delivery time was too long 25 Didn't want to register for an account 20

Shipping / postage charges were too high 37 Delivery time was too long 34 Unclear how much duty/tax/custom fees I would have to pay 29 Concerns about website security 29 Currency conversion rate was poor 26

The following are the top 5 reasons for cross-border cart abandonment as perceived by cross-border merchants:

Website security concerns only selected by 12% of cross-border merchants

MERCHANTS: Q10. What do you think are the main reasons that online cross-border shoppers abandon merchants’ websites without completing a purchase? Base: Online merchants currently selling cross-borders (n=74) CONSUMERS: Q38.Which of the following have been reasons for you to abandon an online purchase from a website in another country? Base: Online shoppers who have abandoned an online cross-border purchase Canada n=280, UK n= 216, Brazil n=320)

Consumers Top 5 reasons for cross-border cart abandonment (%)

© 2016 PayPal Inc.

A third of US domestic-only merchants aim to begin selling cross-border & 18% of CBT sellers expect growth. Merchants focus on UK & Canada, but Brazilian consumers are the most likely to say they are going to shop more next year.

12

MERCHANTS: Q6a. How do you think the proportion of online cross-borders shoppers will change for your business in the next 12 months vs. the past 12 months? Base: Online merchants who sell cross-borders, excluding ‘don’t know’ (n=60). / Q6b. Do you intend to start accepting payments from cross-border shoppers within the next 12 months? Base: Online domestic-only sellers, excluding don’t know (n=110) / Q6c. In the next 12 months, do you plan to start selling in any new markets, expand your sales in any of your existing markets, or stop selling in any markets where you currently sell? Bases as per Q6a (cross-border) and Q6b (domestic) CONSUMERS: Q31. How do you think your overall spending on websites in other countries will change in the next 12 months as compared to the last 12 months, regardless of category or country? Base = Cross border shopper (Canada n=331, UK n= 224, Brazil n=261) / Q32. In the next 12 months, how do you think your online shopping habits will change, if at all, in terms of how often you purchase from online stores in your country or from another country? Base: Online domestic-only shoppers, excluding ‘don’t know’ (Canada n=122, UK n=303 , Brazil n=168)

33% of merchants who currently only sell domestically intend to start selling cross-border in the next year

18% of current cross border sellers expect they will have a higher proportion of CBT sales in the next year

8% 26% 14% …Expect their overall cross-border spending will increase over the next year

Among online cross-border shoppers…

8% 26% 6% …Intend to begin shopping cross-border in the next 12 months

Among online domestic-only shoppers…

8%

8% 16%

11%

4%

Will start selling in:

Will start selling /grow sales in:

40%

28%

13%