According to recent research from WorldPay, SMEs focusing on e-commerce solutions to increase international transactions revenue. This would provide payment processors with a potential new revenue stream as well. Duygu Tavan reports
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More and more banks are turning to small and medium-sized business to drive revenue growth. When previously this customer segment was in the grey area between the more financially attractive retail and corporate segments, now it is getting more affection. With many SMEs looking to generate cross-border revenues, there is ample business opportunity and reason for payment processors to follow banks lead and provide SMEs with e-commerce solutions.
According to the latest research from WorldPay, SMEs are shifting their focus towards e-commerce solutions in order to increase international transactions revenue. This provides payment processors with a new revenue potential as well.
The payment processor surveyed SME managers at an e-commerce expo and found that almost two-thirds (59%) already offered e-commerce services as an additional revenue stream.
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By GlobalDataThe research concluded the following:
Of the SMEs offering e-commerce services, two-thirds admitted offering services abroad was a challenge, but that the revenue potential of revenues from cross-border transactions was substantial.
Identifying fraudulent transactions and driving traffic to the website were cited as the main challenges in launching an e-commerce service, (59% and 29% respectively).
For about a quarter of SMEs offering e-commerce services, revenue from overseas payments make up between 30-40% of their income.
The majority of SMEs, 84%, saw an increase in profit since they began offering e-commerce services.
Making online sales and purchases simpler for customers and more secure for merchants is therefore essential, especially considering the value of online purchases rose by 14% to £5.2bn ($8.1bn) in the twelve months to August 2011, according to research by Capgemini.
Taking into account that is still a chunk of merchants, 40% in fact, that are reluctant to implement 3D Secure because they fear the extra step in check outs will lead customers to cancel their purchase, and that 70% of consumers either do not shop at all online or do it – but are worried about their financial security there is a great opportunity for payment processors to come up with efficient solutions.
According to Gabriel Hopkins, head of eCommerce products at WorldPay, these results show that there is a rapidly growing realisation among SMEs that eCommerce can provide a significant additional revenue source. He argues that it is important for merchants to protect themselves and their customers by working with an experienced payment and risk provider.
Customers want to trade in payment types they are used to. So payment providers need to make sure they can provide appropriate payment options in order to enable merchants to offer shoppers familiar payment types, he explains.
Trading cross-border brings in incremental new customers and transactions. But it also brings in challenges regarding to risk management. We are keen to talk to customers to mitigate against fraud.
Merchants need to make sure they have a risk management solution. Not all payment companies offer risk solution. Sometimes they partner with a risk provider. So risk providers have got a business opportunity there, he says.
The opportunity for pure-payment providers is probably to take more alternative payment products to provide a broader range of payment acceptance. You can start quite simply just providing PayPal for instance will give you access to an awful lot of Spanish and Italian customers.
If you really want to be international, you need to think of card schemes and payment types that customers use. French domestic consumers, for instance, like to see a Carte Bancaire logo even when they shop abroad."
SMEs are despite the challenges involved seeing and reaping the rewards of cross-border selling. Now that banks seem to relax their lending to SMEs, this trend is sure set to accelerate.
Merchants can maximise transactions by taking the right alternatives for the countries theyre operating in, and minimise risk, which can be more difficult when trading across borders, he says.
Having a sufficient online security system is therefore essential for merchants. In October, Sage Pay found that more and more online retailers were implementing 3D Secure as a prevention tool for fraud. Yet, about 40% of merchants in the UK said they were reluctant to implement 3D Secure because they feared the extra step in check outs would lead customers to cancel their purchase.
But Hopkins emphasises that merchants should think carefully before disabling 3D Secure checks as some of those transactions that appear to be abandoned are actual cases of fraud being stopped.
On the consumer side, a separate research paper by IT company Avira found in July that 70% of consumers either do not shop at all online or do it, but are worried about their financial security.
Optimism turns to opportunity
In March, Electronic Payments International had reported that the supply and demand of credit among the small business sector had taken a nosedive since the financial crisis. Deemed to be a risky lending move for the majority of banks in the current economic climate, SMEs face, and continue to face, enormous difficulties when applying for credit.
55% of those surveyed by FICO and the European financial marketing association (Efma) expect an increase in the total amount of credit requested by small businesses across Europe. However, only 35% expect an increase in the approval rate for small business credit.
"Given the precarious condition of small businesses in many industry sub-categories and the expectations for worsening small business delinquency, this likely reflects the on-going weakness of small business repayment ability," the European Credit Risk Outlook report had stated. "It is here that the risk appetite and economic growth objectives come into greatest conflict."
The report argued that a more liberal lending policy aimed at helping small businesses to meet their liquidity needs would be desirable for stimulating growth. While this was at the time defined as optimistic – as factors such as long-term unemployment and relatively weak consumer demand have caused banks to become more cautious about lending to the small business sector this optimism now looks to turn into opportunity payment providers and processors can reap benefits from.
