What is the message and the purpose of the white paper?
John Snoek: As a long-standing Payment Service Provider, GlobalCollect has a lot of knowledge about best practices in entering BRIC countries in particular and a lot of experience in helping our merchants grow their global e-commerce business in general. This paper shows how our clients can leverage GlobalCollect`s expertise in these promising emerging markets.
Koen Vanpraet: Fact is that GlobalCollect was quite early to create a presence in the BRIC nations by opening regional offices, something which has actually allowed us to benefit from being a first mover. Plus, having serviced the e-commerce industry for over 16 years as a global PSP has given us a tremendous amount of experience and human capital to consult on the development of winning payment strategies in these regions as well as worldwide.
What is driving e-commerce development in BRIC markets and what factors are holding development back?
Koen Vanpraet: From a macro-economic/demographics point of view, we have to take into consideration that BRIC countries represent about 40% of the world`s population. They do not yet have the same purchasing power as mature markets like Western Europe or the US, but they do show tremendous potential: BRIC countries currently boast 50% year-on-year growth figures.
If we look at trade from a global perspective, we can see today that less than 5% of trade is actually carried out online in BRIC countries. You are typically faced with what I would call geographically challenging areas where for instance internet access has been so far a tricky point - but BRICs are quickly catching up on this front. What we also see is the introduction of mobile technologies and other types of internet access (WiFi, WIMAX) in BRIC countries. To date, these are very much cash-driven markets when it comes to payment preferences and consumers still have to build up trust in order to progress to purchasing goods and services online. To tap into the BRIC potential, offering alternative and locally preferred payment products is vital. I think that demographics play a big role as well: internet users and online shoppers tend to be in the 16 to 35 age bracket – and therefore they constitute an attractive target group – while at the same time all BRIC nations have an entrepreneurial spirit, thus embracing new business opportunities.
Complex taxes, ever-changing banking and legal requirements and repatriation of local funds back to headquarters prove to be additional challenges. An experienced full-service PSP such as GlobalCollect with an established financial network, a broad portfolio of local payment methods and value-added services such as fraud screening, international fund management and foreign exchange can help with all of the above.
Each BRIC country presents specific challenges when it comes to in-country payments. What are the key factors (both at a specific, local level unique to each BRIC ecosystem and in general) that merchants and PSPs should consider in order to achieve success in the region?
Koen Vanpraet: When it comes to companies expanding their business into BRIC nations, the “one size fits all” strategy approach does not work. Overall, you will find that these are highly fragmented markets where differences outnumber similarities. Plus, the “tripwires of doing business” are both country- and industry-specific, including differing:• Cultural habits and local payment preferences• Internet penetration and consumer acceptance of online shopping• Banking and legal requirements
To seize opportunities in these markets and maximize check out conversion rates, merchants need to offer local acquiring and alternative payments - the latter alone can increase conversion rates by up to 40%. However, most of these alternative payments require a local legal entity and local bank account, adding a tremendous workload to your operations, accounting, and legal departments. The best option is to outsource that part of your e-commerce strategy to an experienced payment service provider with an established financial network, a broad portfolio of local payment methods and an offering of value-added services such as international fund management and foreign exchange.
Some voices trumpet the importance of the mobile phone as THE main factor which is driving the rapid evolution of mobile commerce, an increasingly relevant subset of e-commerce. Statistics say that every second person owns a mobile device in BRIC countries. Furthermore, each BRIC country is host to a unique, rapidly developing mobile ecosystem which complements its electronic and online counterpart. What is your position regarding this aspect?
John Snoek: According to forecasts, 6 to 8% of the current e-commerce volume will be done via mobile devices (m-commerce) by 2015. If you look at consumer adoption in the BRIC countries and the sheer size of the local population, China and India will both become massive mobile markets. Accordingly, offering mobile payment methods/banking is a key feature of GlobalCollect’s road map. Obviously the level of maturity of each market – in BRIC and beyond – will play a role here.
Koen Vanpraet: There are a lot of exciting developments when it comes to m-commerce. We do believe that there will be a time when people will no longer walk around with cash or credit cards, but with a device that can be used for multiple purposes, including m-commerce. It will be interesting to see where this happens first and how it will be safeguarded. The BRIC countries have one great advantage: they can skip the legacy period and benefit from lessons learned in mature markets.
What lessons do BRIC e-commerce markets offer?
Koen Vanpraet: The Western European and the US consumer markets have evolved around local buying behaviors and cultural payment preferences (many of which are card- and banking based). I think our economy will depend less and less on cash and move towards e-payments and mobile banking. If you look at the BRIC countries, you deal more with a start-up type of environment – there is currently less regulation and a good chance that they surpass the legacy period of Western markets and move right into a de-facto market-driven regulation.
John Snoek: Consumer behavior is also always interesting to monitor: if you look at the US, a lot of things are bought on credit (less so in recent years) and financed via cards, but if you look at India, Russia and China, spending patterns are much more conservative and given that these are all cash-affine countries, consumers tend to spend only the money they actually have.
If we look at what we could learn from each other, we should also consider service levels. An example is AliExpress in China that has an escrow service, offering consumers a “money back” guarantee.
The opening-up of the BRIC market represents a growing e-commerce opportunity, but those with long-time horizons usually look beyond the BRIC markets. What other alternatives are worth considering?
Koen Vanpraet: If you consider that e-commerce accounts for only 5% of trade volumes in the BRIC countries, there is tremendous growth potential. But overall, emerging markets offer interesting perspectives and at the same time companies are looking at reducing their cost models. Shifting your distribution channels towards e-commerce increases your footprint at a mouse click (or mobile phone button) and cuts overhead costs, agent/distributor commissions and rent payments for brick and mortar shops.
Across the world, more and more emerging markets have opened up their business models, have new governments and are opening up their borders to international trade. Beyond BRIC, there are surely other interesting markets. To name a few, Turkey, other Eastern European countries and the Middle East, which is highly capital intensive – all should see e-commerce growth over the next couple of years.
John Snoek: Also, in the Asia - Pacific region, countries like Indonesia and Vietnam show potential, as does Mexico in Latin America. There are some telling indicators that signal future e-commerce growth: growing internet penetration and broadband width, increased GDP and average incomes as well as heightened consumer trust in e-commerce in general.
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