Data: The era of cross-border e-commerce

October 12, 2018 4:02 PM

Cross-border e-commerce is seeing explosive growth, driving a race among payment providers and acquirers to equip online sellers with the technology to accept any kind of payment in virtually any region. Credit and debit cards are the dominant payment type North American merchants accept, but are much less common elsewhere.

This month alone, First Data announced a deal with BlueSnap expanding global e-commerce options, Adobe announced plans to roll out Magento Payments globally through a partnership with Braintree and PayPal, and The Gap selected Adyen for cross-border e-commerce in Europe. A key element in each deal is support for local payment options for online purchases from foreign merchants. Here’s a look at some of the factors driving new cross-border e-commerce alliances.

Most consumers in North America shopping online use traditional payment methods like credit and debit cards, along with newer options like PayPal and a rising array of alternative payment options. Outside North America, local and alternative payment methods are far more prevalent than traditional payments.

There are about 300 significant payment methods in use around the world for e-commerce purchases, ranging from payment cards to bank transfer schemes to fast-growing digital wallets popular in Asia including Alipay and WeChat Pay, said Steve Villegas, a vice president at PPRO. The London-based firm provides white-label connections for 140 different local payment methods around the world to payment services providers and acquirers.

“Global e-commerce merchants realize they need to add these connections to compete, and increasingly they want someone to handle collecting the funds in local currency, settlement and reconciliation all in one connection,” Villegas said.

PPRO works with 170 different payment services providers and acquirers around the world, and next year it will enter India and Africa. “Activity right now is extremely brisk as more e-commerce merchants realize they’re missing out by not giving buyers in every market easy access to their preferred local payment option,” he said.

Most U.S. e-commerce merchants don’t sell across borders, with only 36 percent currently supporting e-commerce outside the U.S., according to PPRO’s data. But changes are coming, with the U.S. poised to see 10 percent to 12 percent cross-border e-commerce growth in the next few years. Europe is on track for up to 15 percent e-commerce growth and parts of Asia will see 30 percent or more cross-border online shopping growth, PPRO said.

A major trend for global e-commerce merchants is choosing a single provider to provide local payment options and processing, according to Raymond Pucci, a senior analyst at Mercator Advisory Group. Consolidating payments through one channel streamlines the shopping process for consumers and merchants also tend to benefit from lower fees, he said.

“If you’re a North American e-commerce merchant selling to someone in Lithuania, you want to go through the local bank, not through a bank in France, which will be costlier and more complicated,” Pucci said.

The recent surge of partnerships between merchants, acquirers and payment gateways is likely to continue. “It will continue to be a scramble as e-commerce participants look for the right partner, and competition is going to start tightening,” Pucci said.

The opportunities for cross-border e-commerce vary significantly from one country to another, according to a global survey PayPal conducted this year. Japan, for example, traditionally has a very low rate of cross-border consumer activity. Ninety-four percent of Japanese consumers confine their e-commerce purchases to Japanese merchants, and that’s not likely to change anytime soon.

Germany also has a relatively low rate of cross-border shopping, with 68 percent of Germans buying only from domestic e-commerce merchants. In the U.S., India, the U.K. and Poland, more than half of all e-commerce shoppers buy only from domestic merchants. PayPal conducted its survey in 31 global markets between March and May among 34,000 consumers.

Certain markets are poised for changes in the way locals pay online. Germany, which has a high rate of cash use with low credit card penetration, is ripe for e-commerce expansion. Denmark-based Nets this year merged with Germany’s Concardis with the goal of expanding local payment options for what the firms say is pent-up demand for cross-border shopping.

The percentages of consumers who shop exclusively online from international merchants are highest in certain markets in Europe—Ireland and Belgium—followed by India, Russia and Senegal, according to PayPal’s survey. The biggest opportunities for global e-commerce merchants clearly lie in capturing market share from consumers who shop both locally and across borders to drive greater volume.

Digging deeper into the data, PayPal determined that consumers in the Middle East are most likely to mix their online shopping between local and cross-border merchants. Consumers in Africa, Western Europe and Eastern European also combine local and cross-border e-commerce.

The majority of cross-border purchases globally are still made via a desktop, laptop or notebook computer, but consumers in the Middle East and Africa are mostly likely to make e-commerce purchases using a mobile device, PayPal’s survey indicated.

China is the most popular destination for global e-commerce shoppers, with 26 percent of online shoppers making a purchase from a Chinese merchant’s website within the last 12 months, according to PayPal’s survey. The U.S. ranks second, at 21 percent, followed by the U.K. with 14 percent, Germany with 10 percent and Japan with 5 percent.

The data underscores some surprising disparities. Japanese consumers are highly unlikely to make cross-border e-commerce purchases, but Japan is one of the top five countries exporting merchandise through cross-border e-commerce. The U.S. and U.K., by contrast, have relatively low numbers of consumers making online cross-border purchases, but they rank second and third, respectively, for cross-border e-commerce destinations. These factors are significant for banks and merchants seeking the broadest range of currency and local-payment options based on their mix of outbound or inbound e-commerce transactions.