It would be easy for online merchants to assume that the growth of their business in one national market can be straightforwardly replicated in another. The internet is universal, right? All they’d have to do is replicate their existing site in their chosen new territory, offering the same range of payment methods.
Unfortunately, such an assumption – including the idea that accepting most major cards, PayPal, Google Pay and Apple Pay will suffice anywhere in the world – is likely to be a risky one. Any payments expert will tell you that every nation has its own banking system and a unique set of shopping habits and payment preferences.
Indeed, such is the level of difference between markets that some merchants may feel the need to work with regional payment service providers (PSPs) to smooth their expansion into unfamiliar territories.
Gabriel Le Roux is the co-founder and CEO of Primer, a specialist in payment technology integration. He believes that local differences can be so profound that they must be factored in from the start of any new ecommerce initiative. The alternative is attracting shoppers only to leave them frustrated at the checkout. “Payment is no longer an afterthought,” Le Roux says. “It’s a way to create commerce experiences, and it’s how merchants can differentiate themselves, by enabling customers in each country to select their favourite payment option. In a highly competitive industry, getting payments right will help to optimise cost structures and conversion rates.”
Why payment preferences make for a world of differences
So profound are the complexities that Ryta Zasiekina, CEO of Latvia-based payment consultancy Fyst, recently produced a world map showing how preferred methods differ from one country to the next.
“Ecommerce operators need to be aware of the major differences. In India, for example, nearly all smartphones have Android operating systems, so there’s almost universal demand for Google Pay there rather than Apple Pay,” she says. “In some countries it’s relatively hard to withdraw money from PayPal, so the service is not used there as much as it is in the UK and the US. In Europe, many countries have their own domestic payment systems, and other nations use local mobile wallets, such as M-Pesa in Kenya, which people top up with cash in stores in order to put credit on their phones. Every territory has its own set of preferred payment methods, and these are constantly evolving.”
Tom Randklev, head of product at CellPoint Digital, believes that it’s becoming more and more important for online retailers to pick the right PSP as they look to expand beyond their home markets. This, he says, requires the use of sophisticated machine learning systems to track and identify the most effective PSPs and methods in various territories, in terms of both high authentication rates and low processing fees. If you can get this right, it’s not only good news for the payments team, he suggests. It can also give sales volumes a huge boost.
“Research suggests that cart abandonment can be reduced by as much as 40%,” Randklev explains. “People need to see that they can use their favourite payment method in their currency of choice. If shoppers get to the final stage and that method isn’t there, they’ll abandon their cart.”
How to solve the customer loyalty problem
Getting shoppers to stay on your site instead of finding another that offers their favoured payment option is only half the battle. The other is to get as many sales processed as possible, while incurring the lowest possible transaction fees. Again, Randklev stresses that the more local you can go, the better the outcome tends to be.
“The global PSPs do an excellent job in giving merchants reach, but you can sometimes start paying high fees once transactions cross borders,” he explains. “That’s when it pays to have local PSPs. They will generally offer the trusted payment methods for the country in question, and they’ll also have a more direct relationship with the domestic banking system. This eliminates complexity, so you can expect to save 15% to 20% on transaction costs. That closer relationship of being well-known in that market can also increase your authorisation rates by as much as 3%.”
The key is to learn something about each shopper before serving up their payment choices. By identifying where that person is from and matching them with the best local payment options, merchants stand the best chance of enjoying high authorisation rates and low fees.
Understanding three-way payments complexity
All of these considerations become even more intricate when the modern ecommerce trend for marketplaces is factored in. Services such as Airbnb, for instance, place three parties in the payment chain: the buyer, the site and the seller. That means the chosen payment method needs to pay out as well as receive, notes Eddie Harrison, co-founder of fintech firm Paytrix.
“When there are three in a chain, each part of the payment solution may have to be different,” he says. “That complexity magnifies with every territory you add. If you have a buyer and seller in the UK, it’s pretty straightforward. But if a marketplace is in Singapore, all of a sudden the money needs to get there from the UK. And in the same way that there are different methods to pay people in different countries, there are also different methods to get paid.”
Can machine learning pick the right payment method?
Help may be on the horizon though. These layers of complexity are prompting a new generation of payment orchestration services and fintech firms to explore a tech-led approach to optimising payments. For instance, rather than relying on merchants to pay a room full of analysts and coders to establish the best methods for each region, machine learning is increasingly being applied to identify the right options, leaving the merchant to focus on other elements of their growth strategies. This enables new markets to be penetrated at far greater speed than if a launch were reliant on a team of developers working alone.
Of course, until this tech is ubiquitous, merchants will have to continue adapting their payment methods by hand. Not doing so could be enough to jeopardise any expansion plans they have in mind.