Credit cards aren’t everything. It’s true that without credit cards we wouldn’t have e-commerce as we know it and to this day they remain the “glue that binds overseas markets together” – but if credit cards are so great, then why have so many alternative payment methods sprung up to meet new demands, and why are alternative payments projected to overtake credit cards in market share by 2017?
Cross-border e-commerce is a rapidly growing and continuously evolving industry. As one of the industry’s leading service providers, we’d like to offer you a better understanding of the role alternative payments play in the industry, beginning with a closer look at cross-border e-commerce.
The value of e-commerce payments processed by alternative means was up 21% in 2013, and is predicted to account for 59% of the total global e-commerce market by 2017.
Global Coverage: Beyond Credit Cards
International expansion has never been as easy as it is today. The global digital economy has reached a level of maturity which has encouraged many jurisdictions to put forward initiatives designed to tear down geopolitical borders even further, such as the Single Euro Payments Area (SEPA).
But even after the implementation of SEPA, meant to harmonise the formerly-fragmented national markets of Europe, regionally distinct payment habits remain. This is a driving reason why it’s imperative that you, as a business owner with cross-border aspirations, need to get to know and love the world of alternative payments.
Types of alternative payments:
- E-wallet – Payments made using a digital wallet. E-wallet providers allow consumers to store funds in an account and use it to make online purchases.
- Direct debit – Funds are taken directly from the customer’s bank account. Direct debits are popular for smaller and more frequent payments.
- Mobile (direct carrier) – Purchases made directly from a smartphone are charged to the carrier and added to the consumer’s next phone bill.
- Mobile (m-wallet) – Similar to an e-wallet but integrated directly with the consumer’s phone. Can also be leveraged at the point-of-sale (POS) with the right technologies in place.
- Other – including local card schemes, pre-pay, post-pay, e-invoicing and digital currencies.
With 57% of the e-commerce market, credit cards are still the dominant payment method, though that number is predicted to drop to 41% by 2017. When taking your e-commerce business across borders, credit card support is a must, but don’t forget that alternative payments are a rapidly growing segment in most domestic markets.
The trouble with alternatives is that payment preferences vary widely across different markets. For example, some markets such as Canada have national direct debit systems with widespread consumer acceptance, while others have no direct debit system in place at all.
E-wallets, the most popular and fastest growing form of alternative payments globally, have achieved widespread acceptance among young consumers in mature markets such as the US and the UK, due to their ease-of-use and affordability. In China, e-wallets account for 44% of the total e-commerce market.
Meanwhile in emerging markets such Indonesia and India, most consumers have their first e-commerce experience via their mobile phones, as the public has only recently had access to widespread connectivity. While few people in these markets have PCs or laptops, smartphone penetration is high and rising, so m-commerce is becoming the norm.
M-Commerce: A Game-Changer
It’s long been said that mobile is going to have a transformative effect on commerce, yet year after year the best estimates for m-commerce growth have proven to be too optimistic. Even so, mobile payments contributed to more than 10% of global e-commerce in 2013 and industry experts believe that a boom is overdue, especially considering that over 1.7 billion smartphones are in use globally and that number is growing at a rate of 25%.
The main thing holding back m-commerce has been insufficient technologies, but as more merchants around the world get on board with mPOS terminals and the user experience is continually refined, consumers are getting more confident in mobile payments. This coupled with the growth of m-commerce as the primary alternative payment methods in developing nations suggests that we are on the brink of a shift.
In certain industries, direct carrier billing has been widely accepted already. Because there is no sign-up involved and no personal information is required, consumers feel secure purchasing from stores such as iTunes or Google Play on their smartphones.
But the true market disturber is the mobile wallet. Still in their infancy and for the most part only available in specific areas, many analysts believe that when m-wallets reach widespread acceptance, they have the potential of replacing payment cards entirely. This is due to the fact that, like credit cards but unlike e-wallets, with new mPOS technologies m-wallets can be widely used both online and at the point-of-sale.
Why Go Global?
You may be asking yourself “If alternative payments are so complex, why should I bother?” The short answer: leveraging alternative payments in your cross-border e-commerce strategy is nothing short of a guarantee for higher sales.
The longer answer: alternative payments are forecast to account for over 20% of the total European financial market by 2020. In Germany, they already account for 66% of the e-commerce market, while credit cards account for less than 20%. As one of the strongest economies in Europe, selling in Germany without leveraging alternative payments would be a staggering misstep.
With domestic markets becoming more saturated and cross-border e-commerce becoming the norm, online merchants are less and less likely to perceive selling internationally as too complicated and not worth the trouble. On average, merchants are already seeing 15-20% of their traffic coming from non-local visitors. Increasingly, both merchants and consumers don’t view e-commerce in terms of locality – where you are is having less of an effect on who you sell to and who you buy from.
Online businesses simply need to tailor their services to local preferences by working with local acquiring partners in each distinct region, because there is one thing for certain: regardless of the geographical region, consumers around the world want choice. Wherever you do business, people want alternative ways to pay and it’s up to you to provide them.