According to a 2015 report issued by AliResearch and Accenture, the global cross-border ecommerce market will reach USD 994 billion by 2020. Against this backdrop, what do you consider the biggest growth markets?
Cross-border ecommerce is a very hot area driving growth right now. In terms of the current market size, the biggest market is still Europe due to its developed economies, developed ecommerce markets and its large number of countries. In Western Europe alone, we have the Dutch people shopping from UK, French or German websites and Germans buying from Spanish and Italian online shops. Therefore, these are segments of consumers with high disposable income that are really seeing the benefits of shopping online.
Asia is also growing rapidly in terms of market percentage growth, although from a smaller base. However, we expect Asia to become extremely significant over the next two to three years. In terms of cross-border payments, China will grow significantly over the next three years.
Latin America’s ecommerce has a significant number of big markets such as Brazil and Argentina. Due to its nature, where most countries are speaking Spanish and Portuguese, cross-border ecommerce is going to grow significantly in this region.
Finally, on the long term, 5 years plus, we expect Africa to become a significant market but, right now, it is still in its early days for ecommerce.
The benefits of cross-border expansion are undeniable, in this context, what are the biggest challenges credit card acquirers may face when supporting the global expansion of their merchants?
When expanding globally, merchants need the same support from their credit card acquirers as they need on their domestic market, which is increased conversion. In ecommerce that’s absolutely gold. Merchants, retailers, and all kinds of businesses invest so much effort in offline and online marketing to get consumers or business customers to their website. So for the customers who are there, particularly those that are looking at a product or put a product into their basket, merchants want to get them through the payment process, to make it as frictionless as possible and as little friction as possible. By doing that, they seek to maximize conversion. So when you go internationally or globally, although seen also domestically, everyone recognizes that, if a consumer wants to pay with a specific method, retailers need to offer that payment method.
For some markets, especially in the US and the UK, that is a very simple task; offer Visa, MasterCard, maybe Amex, Diners Club, PayPal, these are all fairly homogenous payment methods. This means that the back end processes, the designed payments systems, compliance, security, and fraud solutions are all relatively straight forward.
But, if you want to maximise conversion in different markets, let’s say in the Netherlands where you need to offer iDEAL as a payment method, Alipay increasingly in China, or eNETS in Singapore, you have to offer these popular payment methods. In a number of cases, the merchants are ahead of the acquirers and are thus demanding offers which include these local payment methods or renegotiate contracts. Therefore, the acquirer needs to offer these options.
Speaking of the global acquirers that want to offer their merchants as many relevant alternative payment methods as possible, do they need to have local partners to manage the money flow or to set up local subsidiaries.
It can be a very complex area. First of all, take into account the number of alternative payment methods. There are many hundreds, somewhere around 250 that can be very significant and around a 100 that any acquirer with global ambitions should be offering.
Each method brings with it integration requirements, compliance requirements and the need to move the money around. Often moving money can also involve foreign exchange, a complex area. However, this is one of PPRO’s competences. PPRO offers not only the technical processing of local payment methods but also the collection, reconciliation and settlement, all under one contract and one platform.
PPRO collects the money, does the reconciliation and the settlement back to its partners and we can also settle directly, if our partners prefer, to their merchants. If you don’t use an outsource partner like PPRO, then you need a variety of facilities and constructs, often locally to get the money from the payment scheme and settle it to the merchant.
There are over 2 billion people around the world without a basic bank account, according to a report issued by World Bank. Given this potentially huge opportunity, how can acquirers reach this group and offer inclusive ecommerce solutions?
In some markets, cash-based e-payment methods and mobile wallets are very popular in ecommerce, especially in Africa. In other markets, cash-on-delivery is common, particularly in India, Russia and Spain. In India, the majority of ecommerce today is paid for in cash on delivery. In Brazil, for example, there are cash-based payment schemes whereby the shopper goes online, places an order, gets a confirmation number- a unique identifier, and then goes either to a local convenience store, a bank or post office, presents the identifier and hands over the cash. At that point, the transaction is confirmed and the merchant will ship the goods.
Therefore, there are different cash-based payment methods that you can use in different countries. Interestingly, in the developed economies, mobile wallets are not used so much as we would have expected, apart from PayPal and Alipay, a similar product to PayPal which is very popular in China.
In Africa, people are using mobile wallets in a different way, generally for the most basic banking needs. In Kenya, the M-Pesa mobile app is the most notable, but there are also similarly successful products in Rwanda and Tanzania, where there are millions of active users. As there is an increased demand for ecommerce services it will be fairly straightforward to integrate to these mobile wallets which are, typically run by the mobile telephone companies.
This trend will become very important and PPRO has had also discussions with mobile phone companies to develop such services, but there is a little bit of the chicken-and-egg situation as there is not a lot of ecommerce happening today in Africa. It is not the payment method that is holding it back because we have seen lots of markets where even cash is being used for ecommerce. It lies, however, in the other parts of the infrastructure. In order to thrive, an ecommerce business needs a critical mass of middle classes, enough people with disposable income, which is enough to justify running ecommerce businesses.
But, the African market is expected to develop over the next 5 years, although there are some economies down there that are more developed, such as South Africa. The global acquirers and global ecommerce businesses haven’t really targeted Africa, except South Africa. But that will change for sure.
The interview with the PPRO Group has been taken at Money2020 US in Las Vegas.
About Simon Black
Simon joined The PPRO Group as CEO in March 2015 following a decade with Sage Group PLC, for which he held the position of CEO for 7 years. Since joining PPRO Group, Simon has led the company to become one of the fastest growing fintech companies in Europe. Since joining in 2015, Simon has supported PPRO Group to expand its alternative payment hub, connecting PSPs and financial institutions with the increasing number of national and international payment methods. Simon has an MBA from Georgetown University and has extensive experience in consulting and business, and in his early career founded a marketing software start-up company as well as holding senior strategy and brand consulting roles both in the USA where he lived for six years, and in the UK. Simon has provided expert commentary on live TV and radio, has been published widely in payments and ecommerce media and has spoken at events such as Money 20/20, Moneyconf and Transact.
About PPRO
The PPRO Group, ‘The Payment Professionals’, offers PSPs and financial institutions a wide range of international payment schemes enabling the processing of electronic payments on a global scale through one contract and one simple integration. PPRO products and services span the entire payments value chain from acquiring through processing and issuing.
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