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The share of e-commerce sales in the United States has been growing steadily over the past 10 years, going from 2.5% in Q1 2006 to 8.5% in Q1 2016 (almost a 3.5X increase). Focus on mobile experience (4 out of 10 mobile users have used their smartphones for online purchases) combined with increased choice of online checkout options have greatly contributed to the trend of retailers shifting their strategies from physical stores towards e-commerce.
Image source: US Census Bureau News
E-commerce experiences, particularly around online payment acceptance, are not homogeneous — the end-user experience of US domestic online shopping and cross-border e-commerce differ wildly. While online payment options in the US are not in deficit (in fact, they are overwhelming), cross-border e-commerce payments continue to present challenges for both consumers and businesses.
Tech companies that enable efficient cross-border e-commerce have grown to address the unique needs of cross-border E-Commerce for consumers. This growth also points to the underlying demand for US products and services from those outside the US. Non-US buyers continue to find ways to access products that are not available in their domestic markets, or are available through US E-Commerce sites at lower price points.
Cross-border E-Commerce and the Retailers Dilemma
Cross-border e-commerce in the US is booming and many retailers view this new global channel as a golden ticket to new customers and orders. With this opportunity comes technology and infrastructure shortcomings. As a result, a network of companies and service providers have sprouted up to assist in facilitating; logistics providers, payment facilitators, and fraud/identity verification solutions to name a few. Building the infrastructure to enable cross-border commerce can be seen as a daunting task for retailers especially when considering the regulatory, tax, and landed cost considerations.
The payments ecosystem is often toted as one the biggest challenges of cross-border e-commerce. Some of the larger tech giants like Amazon and Alibaba have addressed this issue by creating closed-loop systems of payments and logistics offering local and international payment methods and “shipped to your door” solutions globally. Smaller and mid-sized merchants, however, have little room to compete without becoming part of a larger distribution organization where margins suffer.
One issue faced by many cross-border merchants is credit card authorizations and the ability to identify potentially fraudulent cards and scammers. By requiring AVS on all transactions, merchants are lowering their risk threshold, but at the same time eliminating the possibility for people to purchase goods outside of the US where AVS is not used. Many experts note a decline in approval rates as payments go from domestic to intra-continent to cross-continent, with many regions being automatically rejected. Other options exist to combat fraud at checkout for cross-border including the use of geolocation, two-factor authentication, or using social identities as a method of payment verification. With every additional layer, however, merchants increase the potential for shopping cart abandonment on a valid sale.
The final nail in the coffin is the actual shipping of goods overseas. One option is partnering with a global shipping company like FedEx or DHL to handle your packages directly. This requires training new staff on processes, integrating the cost calculator into the shopping experience, and setting up additional fraud and compliance policies and controls. Another option is to outsource to a third party service like Bongo FedEx Global eCommerce Solutions (formerly Bongo) or BorderFree (owned by Pitney Bowes). These services work great for some merchants but often present a higher cost to the end customer and retailers pay a premium to implement these services. There is also the per package cost and foreign currency considerations that often add 6–9% to the cost of each item.
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