A recently announced partnership between cross-border online mall iguama and online commerce provider Ingenico ePayments highlights that cross-border e-commerce has gone from strength to strength, and will play a key part in global payments in 2016. Alexander Atkins reports on this development
Cross-border e-commerce (CBEC) has experienced enormous success in the last few years, growing throughout the world. According to Barclaycard, its combined global market value has exceeded $1trn, and shows no signs of slowing down.
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This latest deal between fast-growing iguama and blooming payments firm Ingenico is proof of the rapid expansion that cross-border e-commerce has had, especially in emerging markets such as the one with which iguama is concerned, Latin America.
The company, which connects consumers in Latin American areas with big US brands, plays a key role in exporting business to countries such as Guatemala, Colombia, the Dominican Republic, Chile, El Salvador, Costa Rica, Panama, Peru and Honduras and is hoping to expand to other surrounding areas, with the help of Ingenico.
As a large middle representative, iguama provides access, not only for Latin American buyers looking for high-quality US goods, but also to US companies looking to enter new and healthy markets. The cross-border online mall handles local marketing issues, customer service, logistics and pricing requirements for US firms unfamiliar with new territories, making it simpler for them to gain a foothold.
Alongside iguama, Ingenico ePayments will play a key role in helping make the processes smoother, from the buyers who are purchasing, to the retailers who are accepting the payments, crucially by processing all credit card and alternative payments in both US dollars and in local currencies.
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By GlobalDataThis advantage could easily increase the amount of cross-border selling, another reason why iguama is now looking to expand. In helping iguama’s expansion, Ingenico has identified what is really driving cross-border business.
"Understanding local payment preferences is key in cross-border e-commerce as the ability to tailor payment options to customers’ preferences increases conversion," says Nick Tubb, vice-president of professional services at Ingenico.
"We’re seeing merchants increasingly ramp up their knowledge and understanding of the payments landscape," he adds.
Furthermore, cross-border merchants are finding new ways to increase localisation of their offers by, for example, offering the option to pay in a variety of local currencies.
Data
Just as with many other parts of the financial services industry, data has, and will continue to, play a vital role in expanding CBEC, according to Tubb, as online retailers are expected to intensify their use of data to analyse and understand their customers’ behaviour so as to recognise their needs and intentions.
"Data analytics will become increasingly important, particularly for merchants that want to offer their customers seamless multichannel or omnichannel payment options," says Tubb.
Channel consistency and digitisation are also proving to be key trends in the cross-border payments sector, as merchants look to closer integration of the physical and digital channels.
"Merchants want to provide a consistent brand experience, whatever the channel and device being used by the customer base," Tubb explains.
Adding to the omnichannel experience, m-commerce’s role is growing, according to Rolf Visser, chairman of the Cross-Border E-commerce Community, and vice-president of global marketing for Payvision.
"M-commerce is driving omnichannel convenience, with e-wallets on the rise as they are very useful to online shoppers- secure, personalised and connected to loyalty schemes."
A seamless omnichannel experience is one of the biggest attractions, Visser explains. The need for businesses to integrate their online and offline strategies into one is crucial to successful cross-border retail, something that is more challenging for the small and medium-sized businesses.
In a recent poll conducted by Payvision, merchants agreed that they need to focus more on providing such a seamless, integrated experience.
Visser states that the shopper must be at the centre of the discussion and their habits and preferences must be the indicators. Sharon Manikon, director of customer solutions, global payments acceptance at Barclaycard, states that lower prices for goods outside a consumer’s domestic country, and a wider range of products available internationally are also key drivers in cross-border business.
Global promise
However, the cross-border trend is not limited to Latin America: all over the world, the trade is rocketing.
"The US remains a top country for cross-border e-commerce, with 54% of US digital shoppers making online purchases from overseas retail sites," says Manikon.
"In addition, the US is still one of the most popular destinations for international shoppers, given the attractiveness of US brands and goods," she adds.
However, it is China that is the one to watch, according to Tubb. "While much of the total Chinese e-commerce flow is domestic, an emerging and affluent middle class in China is increasingly shopping cross-border for luxury brands from Europe and the US, in order to show their newfound status."
The EU is China’s biggest market, followed by the US. Though cross-border shopping is still tiny as compared to the whole e-commerce market in China, it is growing rapidly, and Chinese shoppers are expected to drive most of global CBEC by 2020, according to a report by Accenture.
Retail is China’s biggest cross-border e-commerce sector, according to Ingenico, at almost 92%, closely followed by travel. It is not just coming into China, however, as Chinese payment schemes and online retailers are also exploiting the growing popularity of cross-border e-commerce. This is especially true for emerging markets and customers in developing nations.
One such example is in Africa where a growing middle class in many African countries is leading to more international purchasers in search of higher-quality goods. Chinese e-commerce company Chinabuy recently entered the Kenyan market to answer growing demand to link local buyers to Chinese manufacturers and Chinese online sites.
"China is the biggest manufacturer in the world today and, using cross-border e-commerce, clients from all over the world can buy whatever they want directly from factories in China without middle men and a long, costly supply chain at affordable prices," says founder and CEO of Chinabuy Group, Joe Zhang.
Southeast Asia is also forming a growing market for cross-border selling, especially for nearby Chinese companies such as JD and Alibaba, which have already entered the Indonesian and Malaysian markets.
Yet while admitting that the BRIC countries and other developing nations will be playing key roles in the expansion of CBEC, Manikon asserts that certain European countries such as France, Italy and Poland have yet to fully realise their cross-border opportunities, and will likely grow.
With global expansion on the up, the total amount that cross-border e-commerce makes up of the global e-commerce market is growing. According to Ingenico, for the larger, global merchants, around 75% of their total e-commerce is cross-border. Furthermore, its importance for a country’s development is crucial.
"With only 12 countries accounting for 80% of the world’s cross-border shoppers, there is a huge opportunity to tap into CBEC and generate domestic revenue," says Manikon.
The benefits extend beyond the shopper who is receiving the product, helping to support local auxiliary services such as the in-country delivery firms who deliver the goods.
Yet it still faces significant challenges, not least for the payment services providers which have to invent new ways to make the processes seamless for consumers from nations all over the world.
"Very few PSPs can process and collect from anywhere in the world in a full-service model with a single connection and single remittance," says Tubb.
The global reach of CBEC also provides its own challenges for both merchants and acquirers, which have to deal with a wide variety of languages, cultures and currencies with which to transact. These can be solved with the right delivery partner who can provide seamless access to different areas.
Regulation and compliance
Regulation adds to the numerous challenges facing CBEC, as many countries have different regulation and compliance issues that merchants need to adhere to. But Tubb says that is where the PSPs can play a vital role in helping the merchants to understand the markets they are trying to enter, something Ingenico will be doing with iguama.
For the consumers, improved regulation is always reassuring, but it provides additional cost and complexity for merchants. In Europe, for example, explains Manikon, companies have to have started researching and deploying two-factor authentication from August 2015 onwards.
In the US, there are many types of federal, state and international law governing e-commerce, to help the consumer, but again this adds to the challenges facing the merchants.
However, it is in the innovation of the industry that regulation could provide the biggest hurdle, according to Visser: The danger is that regulation could discourage investment in technology, crucial to the development of the trade, especially when needed in trying to create a seamless experience for the consumer.
"In other words, the less appealing the payments sector becomes, the fewer providers become available, due to a lower incentive for technological investment to enter the market, and thus the less consumer choice there is," says Visser.
However, despite the challenges, CBEC can sometimes rely on government help to overcome these difficulties. In September 2015, the UK government signed a partnership with China which will help UK exporters promote online sales in China.
"And in September 2014, the government launched the UK Trade and Investment e-Exporting Programme, which is aimed at helping UK businesses of all sizes promote their goods on international online marketplaces, such as Tmall China, Japan Rakuten and many others" says Manikon.
There is also the Multi-Interchange Fee regulation that came into effect in early December 2015. Regulation caps all the consumer interchange rates within the EU at 0.30% for credit and 0.20% for debit meaning it is much cheaper for merchants to accept cards.
"On top of that, surcharging is forbidden now for the regulated cards, which means that consumers don’t have to pay extra fees for using their credit cards," Tubb says.
"These two things combined drive acceptance and authorisation rates for the merchants, and are ultimately expected to increase cross-border e-commerce," he explains.
It is also in governments’ interests to support cross border initiatives says Visser, adding that governmental awareness is growing year on year.
"The Digital Single Market Strategy, a European Commission initiative, is looking to eliminate the barriers to inter-European cross-border shopping. Deploying affordable logistics and delivery methods is a key step in the process," he explains. Continuing developments in another initiative launched by the European banking industry back in 1999, the Single Europe Payments Area (SEPA), will continue to prove extremely useful for CBEC as it is designed to streamline payments between businesses and merchants in the eurozone.
The deadline for compliance with SEPA regulations for non-euro countries is 31 October 2016, and, if it is entered into by all concerned parties, it will greatly simplify the conditions in which CBEC must take place.
CBEC presents an exciting and growing opportunity. For now, the future looks bright.
