How local payments can unlock the door to global success

E-commerce merchants expanding into a new market must be able to accept local payments — or risk rejection by consumers

FinTech Weekly
May 7, 2018 · 4 min read

by Ralf Ohlhausen, Business Development Director, PPRO

By 2020, Accenture predicts more than 2 billion e-shoppers will be making 13.5 percent of their overall retail purchases online, which is equivalent to a value of $3.4 trillion. Further, barriers to cross-border trade are quickly disappearing, and in many non-Western markets, demand is booming.

But as in every boom market, there are losers as well as winners. And the difference between the two, more often than not, is localization. Ensuring that the company’s website is properly localized can boost conversion rates significantly. What’s often missed, however, is the need to support locally preferred payment methods. In many cases, that’s an omission with serious consequences.

Why alternative payments are the new normal

Each market has its own mix of preferred payment products. E-commerce operators from Western Europe and North America often aren’t familiar with what are termed alternative payment methods (APMs).

APMs are, loosely speaking, any payment method that isn’t an internationally accepted payment card. Globally, PPRO has found that around 50 percent of all online purchases are paid for with APMs. APMs around the world include real-time bank-transfers, e-wallets, local cards, payment apps, prepaid vouchers, cash-payments for online purchases and payments via ATM machines, SMS or phone calls.

How did we get here?

Payments are this diverse mainly for historical reasons. E-commerce emerged in the mid-to-late 90s and really took off in the early 2000s. At that time, in the world as a whole, there was no effective single market in either e-commerce or payments. People wanted to shop online, businesses wanted to accept payments online.

In Western markets, in which credit-card use was already widespread, the region took the path of least resistance, and adopted payment cards as the default means of online payment. In many other markets, in which cards didn’t enjoy the same degree of acceptance, the first service to effectively and securely allow people to pay and take payments became the market standard.

For example, in The Netherlands the real-time bank-transfer service iDEAL — which emerged in 2005 — now has a 56 percent market share. Along with other players, such as Germany’s SOFORT, this makes real-time bank-transfers the single most common alternative online payment type in most countries.

Local culture also plays a part in determining which payment methods a market will accept. In countries with a long-standing aversion to debt — for example Germany — , credit cards have struggled to find mass acceptance. Political considerations also play a part. For instance, in Italy the government has long encouraged the use of electronic payments and card payments — despite a cultural preference for cash — because it’s harder to use traceable electronic payments to launder money.

Nor should we assume that this process has now stopped, leaving established payment cultures static and merchants with plenty of time to work out strategies for cracking each individual market; payment cultures are constantly subject to new pressures, leading to further developments.

What this means for global commerce

No one entering a new market can afford to ignore how most of its potential customers in that market like to pay. According to recent research by PPRO, 47 percent of online shoppers have abandoned a purchase at checkout, with over 60 percent saying they did so either because their preferred payment type wasn’t available or the payment process was too complicated. Failure to offer locally preferred payment methods risks alienating large portions of your audience.

To expand successfully, merchants must support a range of locally preferred payment methods and should not expect this to be a static, one-off task. The payment industry is continually developing. Merchants must be able to keep up to date with what’s happening in each market, and to react quickly when a new payment method arrives on the scene or achieves critical mass.

For small-to-medium-sized operators, the best way to do this may well be to work with marketplaces such as AliExpress (China) and Amazon. This provides the retailer with sales, fulfillment, and local payment means in every market they expand in to. For larger merchants, wishing to set up their own localized sites, the answer is a trusted partner such as a payment service provider, able to aggregate and make available APMs in all major markets.

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