Selling into new markets for ecommerce brands comes with many factors to consider and technologies to implement. In the payments space alone, multiple decisions need to be made when onboarding a retailer or expending a retailer into a new market. i.e. which payment options to provide, considering the retailers’ average order value and shopper demographics. Shoppers in many markets have access to several globally recognized payment methods, but quite often will also use local payment methods that the retailer should consider to increase reach.
Here we look at three key payments areas to consider:
1. What Payment Methods to Offer
When selecting payment methods consider how much incremental reach a particular payment method has (i.e. how many people are likely to want to use this method), whether or not the payment method in question is likely to cannibalise existing payment methods and if it might have a negative impact on payment success rates. If a preferred payment method only has a 5% reach, it might not be the best to offer, or it would be worth testing its impact in a pilot/limited implementation. Secondly, do these payment methods result in successful orders? What payment success rate do they achieve in a given market? Our research shows credit cards have an almost 90% success rate on all transactions, but bank transfers tend to have a lower success rate – usually because there’s no credit involved, and the shopper must have the funds available at the time.
The shopper experience for various payment methods must be considered. Often the shopper is sent to an external page for payments processing, which is not always a good experience and not one the retailer can control. In Germany, for example, it is common for shoppers to be transferred to an external payment page (GiroPay) where they select their bank from a drop-down menu and input their account number. It’s often not a very well-integrated payment experience and as a result, the retailer has problems converting. The merchant needs strike the balance between reach and conversion.
2. Domestic Acquiring
Domestic acquiring is when the acquiring bank (a bank or financial institution that processes credit or debit card payments for the retailer) is in the same market as the shopper so the payments are treated as domestic payments and are less likely to be subject to fraud flags because of foreign IP addresses. Using a domestic acquiring bank in each location increases the chances of a successful transaction.
It is particularly valuable to have a domestic acquirer in emerging markets where there may be a high level of credit cards or debit cards that aren’t enabled for cross-border ecommerce. Domestic acquiring allows retailers to convert those payments that might normally get declined. Additionally, using a domestic acquirer means the retailer can often offer local payment methods which otherwise couldn’t be offered, for example, Mir in Russia – a card scheme used by 14 million Russians. Not offering this payment method could mean the retailer potentially missing out on millions of sales.
3. Emerging Markets
In emerging markets, the retailer often needs to bridge the gap between people who have credit cards and can make payments and those who don’t. In this instance, a solution needs to be found to ensure that customers can check out successfully.
In Mexico, for example, nearly 50% of ecommerce transactions are paid for via cash-based methods such as bank transfer or via payment at OXXO, a convenience store. While this is a good solution for those without credit cards, it can create problems for the retailer.
While the system allows those without credit cards to order and pay for goods at the store, research has shown that only 52% of goods ordered are ever paid for, which means the retailer has to hold stock for this order, knowing that almost 50% of this stock won’t be paid for. While the stock is not shipped until the order is paid for, it still means the retailer must manage the inventory around a potential sale. This might work for bigger retailers with a lot of inventory, but smaller merchants will want to consider if this is the best option for them.
As payments is a fundamental part of the ecommerce experience and crucial to the shopper journey, selecting the best-performing, highest-converting methods for each region will be an important element of a localised shopping experience, and consequently a key success driver.