Everything You Need to Know about Selling in Canada

E-commerce is nothing new for Canadian consumers. The internet penetration is among the highest in the world and more than half of the population has embraced online shopping. Not being an especially populous country, the market is still relatively small at just over USD 20 billion, but cross-border e-commerce dominates the industry, with eMarketer reporting that 7 out of 10 online purchases in Canada are made to international merchants.

Canada’s culture of e-commerce and cross-border shopping is firmly established, so there’s no race to catch the wave. The growth will be slow and steady – instead of the excitement of cashing in on a new trend, the market offers a solid, low-risk, long-term investment. In this article we’re going to take a look at some of the reasons why Canada is the first choice for so many merchants selling across borders, and how to decide if it is the right market for you.

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In the “Everything You Need to Know” series, we take a look at a specific e-commerce market to help you decide whether you should expand online sales across borders. As a provider of comprehensive payment processing services, we at DalPay specialise in cross-border commerce and have first-hand experience facilitating business in over one hundred markets worldwide.

Unless otherwise noted, figures in this article are sourced from:

When deciding whether to expand your business across borders, you need to consider which countries you are targeting and what each one can uniquely offer you. If you’re selling a niche product or service and your target audience is very specific, you need to identify which markets have a demand for what you provide. But in terms of sheer growth, Canada is an obvious first choice for international expansion.

Canada is in fact the single most popular market for cross-border merchants around the world by a significant margin. According to Multichannel Merchant’s MCM Outlook 2014, 84% of international merchants said they sell into Canada, well above the runner-up, Australia, at 54%. This fact is a double-edged sword, since it both represents the reality that Canada is a very attractive market for cross-border e-commerce and suggests that the market may be flooded and highly competitive.

Quick Figures

  • Total population: 35.1 million
  • Internet penetration: 87% (29.8 million)
  • Mobile penetration: 78.9%
  • Online shoppers: 18.5 million
  • E-commerce sales: USD 20.6 billion
  • M-commerce sales: USD 1.3 billion
  • E-commerce annual growth rate: 15.5%

The widespread popularity of cross-border commerce in Canada can be traced back to the country’s geography. Canada was not settled in the same way as the US – it never had a frontier. Instead, Canada was settled primarily by boat, through the St. Lawrence Seaway and the Great Lakes, which is where the border between Canada and the US was drawn, the world’s longest continuous border between two countries.

As a result, the vast majority of the country’s population lives within a short drive of the American border, and throughout the 20th century cross-border shopping was a very popular weekend activity among Canadians of all demographics. By the time e-commerce came along in the 21st century, most Canadians were already highly accustomed to buying from international merchants, and once that was no longer limited to the US, they embraced it even further.

What You Need to Know

Industry Trends

Media products – books, music, film and TV – dominate the Canadian online retail market, accounting for a value 21.4 billion USD, nearly triple the next most popular category, apparel and footware. One third of total e-commerce spending goes to American merchants, with Amazon.com being the most popular.

There are three main drivers for cross-border purchases among Canadian consumers. 41% cite lower prices as their primary reason for buying from international merchants and 23% cite better selection. Free or discounted shipping is also a key motivator, with merchants offering free shipping seeing a 69% increase in their conversion rates.

Preferred Payment Methods

As with most of the world’s e-commerce markets, credit cards are the most popular method of online payment, with MasterCard being the most popular scheme in Canada. E-wallets account for nearly one-fifth of online transactions and prepaid cards for 11% of the total.

Canada also has one of the most mature national debit card networks in the world, the Interac network. Debit cards have contributed significantly to decreasing the country’s dependence on credit cards at the point-of-sale, and the more recent development of Interac Online has received widespread adoption in the e-commerce sphere, representing 9.1% of the market after only its first two years. The increased security and lack of debt concerns associated with debit and prepaid cards has encouraged the growth of Canadian e-commerce.

M-Commerce

Similarly, Canadian consumers have been more ready to embrace new m-commerce technologies than Americans and Europeans. More than a third of the populations uses mobile banking and over 5 million Canadians shop online using their smartphones.

The eagerness for emerging technologies among Canadians is clear: the average Canadian spends nearly twice as much time on the internet as the worldwide average (23 hours per month); almost half have said they are ready to embrace m-commerce on wearable devices; and 47% have said they want retailers to provide more secure mobile payment options. All this has contributed to Canada scoring #2 on the Mobile Payments Readiness Index (MPRI).

Fraud Report

Partly because debit card use in Canada is among the world’s highest, payment card fraud in Canada is relatively high. When the major credit card schemes began migrating to EMV chip and PIN systems, Interac was slow to catch on since debit cards were always perceived to be more secure. However, fraudsters caught on to this and began targeting debit cards.

After the rollout of EMV, online fraud grew from 31% of the total in 2008 to over 64% today. In Canada, 3D Secure is mandated to counteract online payment card fraud, but international merchants in particular need to be careful when accepting payments from Canadian-issued cards since they are one of the most commonly targeted by fraudsters.

Canadian E-Commerce in Brief

Pros:

  • The most popular e-commerce market for international merchants
  • Canadians, on average, spend the most time on the internet
  • More than two-thirds of online purchases are cross-border
  • High mobile penetration and m-commerce acceptance

Cons:

  • Relatively low growth rate
  • Highly competitive market for international merchants
  • High payment card fraud rates

The interesting thing about Canadian consumers is how readily they will purchase from an international merchant. Lower prices and better selection will always trump most Canadians’ desire to purchase from a domestic retailer. Canadian consumers even buy from Amazon.com 2.5 times more often than they do from Amazon.ca, the company’s Canadian arm.

One of the world’s largest countries with a highly mature online retail sector, Canada is a seller’s market wherever you may be located. Though it is competitive, it’s relatively easy to begin selling into the country and, with its strong economy and steady e-commerce growth, Canada could serve as a low-risk, long-term investment with a steady return to help you fund future international expansions.

Expanding into a new international market is a risky venture but a very rewarding one if done right. For the latest information about how you can build and maintain a strong e-commerce enterprise and keep it compatible with legislation and buying habits at home and abroad, subscribe to the DalPay Blog and follow us on Facebook, Twitter and LinkedIn for the latest industry news.

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Everything You Need to Know about Selling in China

When it comes to digital retail, no market quite compares to China. In the midst of a growing economy and a strong retail sector, China’s e-commerce sector is the largest in the world, with Forrester predicting it reaching a total value of 1 trillion USD by 2019. Despite the size and rapid growth of the market, success is by no means a given. In this article, we’ll take a closer look at why the market is growing the way it is and what you need to do to ensure your business is a success when expanding into China.

SellinginChinaIn the Everything You Need to Know series, we take a look at a specific e-commerce market to help you decide whether you should expand online sales across borders. As a provider of comprehensive payment processing services, we at DalPay specialise in cross-border commerce and have first-hand experience facilitating business in over one hundred markets worldwide.

Online marketplaces vary significantly around the world in a wide number of ways, such as their level of economic development, shopping habits, preferred payment methods, access to technologies, legality, logistics, etc. Because of this, there are a great many factors to consider when choosing which international markets to expand to. This series is designed to provide you with all the information you need to choose which countries are a good fit for your business and to begin selling across borders.

Unless otherwise noted, figures in this article are sourced from:

China is the world’s most populous country, so it should be no surprise that, in today’s digital economy, the Chinese e-commerce market is very mature. The population, particularly in urban areas, largely embraces online retail, which is supported by highly developed and low-cost payments and delivery infrastructure. Business-to-consumer online sales are growing by 25% per year and already 80% of online shoppers in China participate in m-commerce. If you’re thinking about expanding your business to this booming marketplace, there are a few things you need to know before taking the plunge.

Quick Figures

  • Total population: 1.4 billion
  • Internet penetration: 45% (618 million)
  • Mobile penetration: 92.3%
  • Online shoppers: 190 million
  • E-commerce sales: USD 297 billion
  • M-commerce sales: USD 27.4 billion
  • E-commerce annual growth rate: 116.5%

Even though it’s already the largest e-commerce market in the world, there’s still considerable room for growth. Tier-3 cities and smaller have a significantly lower penetration rate than the largest cities, but also have a much more rapid rate of growth. Currently, e-commerce represents less than 10% of the total retail market, but as penetration grows, more of those 1.4 billion potential customers will be going online.

The most popular product categories for online sales in China are consumer electronics, apparel and sporting goods. Chinese consumers mostly make cross-border purchases from merchants in the US, Hong Kong, Japan, the UK and Australia. Future growth will be increasingly driven by mobile and logistical develops, which we will go into detail about below.

What You Need to Know

Preferred payment methods

The online payment market in China is highly concentrated, with the top seven players representing 98% of all transactions. While credit/debit cards are the most popular payment method, the leading e-wallet provider, Alipay, is a close second, processing one out of every four online transactions in China thanks to the market dominance of their parent company, the retail giant Alibaba.

Chinese shoppers are accustomed to having a variety of payment options available to them, including cheque or cash-on-delivery (which together account for 10% of the market), payment cards, bank transfers and e-wallets. China’s domestic card provider UnionPay is used by 54% of all cardholders.

M-commerce

One of the clearest trends in China is the growth of mobile payments, even for a market that already has a relatively mature m-payment infrastructure. The year-on-year growth rate of m-commerce is 168.6%. 83.4% of Chinese internet users connect via their mobile devices, more than the amount that connect via computers, and mobile payment services are used by 38.9% of internet users.

China’s top e-commerce players are investing in and developing their mobile sales at a rate that surpasses their U.S. counterparts, with 67% of businesses having already developed m-payment strategies. As mobile penetration spreads into smaller cities and rural areas, more online shoppers are skipping the computer and going right to their phones. Offering a mobile-ready web store and accepting m-payments is key to tapping into the bulk of the Chinese e-commerce market.

Logistics

In the same breath, it’s necessary to consider that the growth of more remote online shoppers means that logistics will become an increasingly vital challenge to face. The good news is that the local logistics infrastructure is well-developed, with most retailers able to deliver to Tier 1-3 cities within two days and the rest of the country within four.

Despite that fact, logistics remains an area where online retailers can set themselves apart from the competition. The growth of e-commerce over a wider geographic area in China is outpacing the growth of domestic express delivery. Depending on the type of products you sell, it’s key to form a strategic partnership with a competitive and appropriate domestic delivery company, whether that means a large firm that can provide basic services or smaller, more specialised networks that can handle fragile, oddly shaped or difficult to deliver products.

Barriers to entry

The main challenge when it comes to expanding your e-commerce business into the Chinese market is the sheer size dominance of domestic retailers, Alibaba in particular. However, the growth of new online shoppers and m-payments in a wider geographic area leaves plenty of room for alternatives and niche retailers to gain a foothold in the market.

One of the reasons the largest companies are so successful is because of concerns about online fraud. The Chinese e-commerce market is not heavily regulated and it’s not uncommon for products purchased online to have been fakes. According to Strategic IP Information, up to 10% of all products sold online in China are suspect. For this reason, most consumers avoid unknown merchants, and nearly 80% of shoppers leave a review after making a purchase online. Since Chinese consumers are highly influenced by the comments of past customers, these reviews can be leveraged by merchants to gain trust. The more online reviews a product reviews, the higher the sales.

Chinese E-Commerce in Brief

Pros:

  • Largest e-commerce market in the world
  • 190 million potential customers
  • Widespread e- and m-commerce penetration

Cons:

  • Not heavily regulated
  • Growing population of rural consumers leads to logistical concerns
  • Market dominated by local providers

The Chinese e-commerce market is already the largest in the world and expected to triple in size within the next five years. Much of the growth will be accounted for by m-commerce and younger shoppers in less urban parts of the country. These are highly tech-savvy consumers who respond to being given a lot of choice and a niche appeal, but they will also abandon you if you can’t prove the trustworthiness of your business and get your products to their door in good shape and in a reasonable amount of time.

Expanding into a new international market is a risky venture but a very rewarding one if done right. For the latest information about how you can build and maintain a strong e-commerce enterprise and keep it compatible with legislation and buying habits at home and abroad, subscribe to the DalPay Blog and follow us on Facebook and Twitter for the latest industry news.

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