Ecommerce is creating a new breed of global consumer, and it is not just westerners who have a keen appetite to buy online. There is a rapidly increasing demand in high-growth markets too. But businesses wanting to capitalise on the borderless internet and maximise the potential of these burgeoning areas first need to overcome a major point of friction – payments.
Many see credit card payments as a panacea, on the assumption that they are a global currency. But this can be a costly supposition. Thinking local is imperative.
India, for example – one of the emerging markets with the most potential – has just 1.25 per cent credit card penetration. In Latin America, cash accounts for over 30 per cent of sales. Merchants that don’t have local processing could be missing out on over 80 per cent of the market.
Consumer behaviour differs starkly from region to region, from country to country, and merchants that don’t understand local behaviours and needs won’t reap the rewards. From specific local payment preferences to varied smartphone adoption rates, no two markets are the same.
Convenience will always be king, and people want a seamless, frictionless purchasing experience. In order to succeed in these high-growth markets, merchants need to offer simple ways to pay, and that means enabling payments through the options and systems that are most favoured locally.
India has just 1.25 per cent credit card penetration
When we launched our first credit product, LazyPay, in India, many people told us it would fail. It is designed to enable quick and easy small payments, such as Uber rides or takeaway food, for example, allowing consumers to conveniently access micro-loans of up to $50 (£38). Others said there was no precedent for loans in India and that the concept wouldn’t resonate with people. The opposite has been true: the growth has been exponential – Indian consumers love it.
Having an in-depth knowledge of the subtleties of each specific market is crucial for merchants looking to expand globally, and this includes understanding the often complex regulation in place. It is an area that can often seem outdated and onerous to new entrants.
For example, Argentina withholds tax, meaning that often only certain products with enough margin will be viable to sell. In India, certain products require import licences. Working with a local partner becomes critical if businesses are to manage these potentially costly regulatory nuances.
PayU has set up a model in India which allows our merchants can sell their goods there without having to work with numerous third parties or negotiate multiple contracts. We can do that because we have local operations; we are effectively an Indian company.
Businesses that don’t have local processing could be missing out on over 80 per cent of the market
But while regulation can seem archaic in some growth markets, it can also be very up to date. Brazil, for example, is currently implementing comprehensive data privacy regulation which is comparable to the EU’s General Data Privacy Regulation (GDPR).
India also recently implemented advanced data protection laws, and now requires data generated by businesses in India to be stored within the country, including that of all payment system operators. Our data is held locally in India in a series of data centres that are far enough away from each other to withstand typhoons. In Russia and Turkey we also have physical servers on the ground, in line with those countries’ data requirements.
In markets such as Colombia, India and Poland we use the data we collect in a regulated and unique way to issue credit to consumers. In those markets we have introduced ‘buy now, pay later’ options, which allow consumers to use credit responsibly, paying for goods up to 30 days after receipt. This only works because we are local; we have strong relationships with regulators; we are fully licensed to issue credit; and we make sure our merchants remain compliant.
Emerging markets offer a huge opportunity for global online merchants but understanding the payment preferences unique to each area, and being able to offer these options in compliance with local regulation, is the only way companies can realise the potential.
The cross-border market is expected to increase from $401 billion in 2016 to $994 billion in 2020
No longer is it necessary to negotiate multiple relationships, contracts and service level agreements. Our single API gives merchants reliable and scalable access to PayU’s regional and local payment processors , enabling them to fulfil the unique needs of each market.
The cross-border market is expected to increase from $401 billion in 2016 to $994 billion in 2020. And with nearly two-thirds of this coming from high growth markets such as Asia and Latin America, the opportunities for merchants to expand are unprecedented.
The capability of today’s technologies means there is nothing to stop retailers moving into new geographies and capitalising on these opportunities. With cryptocurrencies showing potential to facilitate payments between merchants, consumers and payment companies, we are watching this space with interest. For example, we have invested in companies such as Luno, which is working to bring digital currencies to everyone, everywhere.
As technology continues to advance at pace, and consumer behaviour evolves, businesses simply cannot afford to ignore shifting consumer preferences, particularly with such huge rewards at stake.
Matthias Setzer is chief commercial officer at PayU, responsible for cross-border business, global sales, key accounts, strategic partnerships and marketing.