Taking Real (Local) Action In X-Border Commerce

For merchants that are interested in engaging in cross-border commerce, they’ve got a complicated road to travel. Nevertheless, it’s a road that merchants all but have to venture along if they want to take advantage of the phenomenal growth of eCommerce in developing countries.

Larry Illg, CEO of PayU, has firsthand experience with the commerce opportunities in the developing world — as well as the solutions to address those aforementioned complications in pursuit of them. He shared details about all that and more with MPD CEO Karen Webster on a recent podcast.

KW: I’d love to get your perspective on the cross-border opportunity. It’s obviously a no-brainer; it’s a source of incremental value and customers for merchants. It’s also highly complicated because it involves enabling a lot of things that support payments and commerce.

How would you define the complexity in cross-border commerce?

LI: It’s a great question.

First, just speaking about the scale: Pretty consistently, we are amazed by the size of the cross-border international opportunity but even more so by the growth.

ECommerce is growing at twice the rate in the developing world that it is in the developed world; so the opportunity is absolutely shouting out at users and merchants.

That said, we see the challenges that merchants face in doing business outside their home country. There are a few considerations that go along with that: the alternative payments mechanisms that they might see in the developing world, local acquiring and fraud management. We see both sides. We see the size of the market but also the complexity that goes along with it.

KW: There are a number of players that have also identified this opportunity and want to enable merchants to do a better job at capitalizing on it. How are you approaching the cross-border opportunity? What are you doing to help merchants seize it?

LI: In that way, we think very locally. Following from the last question: It’s international business for the merchants, but it’s very local for the consumers.

Again, we start with alternative payments. In many of the markets we operate, credit card penetration is very low, so alternative payments like cash and bank transfers play a really important role. Our business specifically offers 250 payment methods that allow merchants to reach the entire market.

To give an example of one of our bigger markets: In Poland, 60 percent of the transactions are paid for by bank transfer. And certainly, something that’s very foreign to Western-focused merchants is the focus on cash. We find it’s a very important payment method in international markets.

Additionally, not using a local acquirer can dramatically impact conversion rates. We see this in a lot of markets, but in Brazil, we see a particularly meaningful difference in conversion rates when using a local acquirer. To give you a sense of the difference: 20 percent in Brazil is the conversion rate when using an international acquirer versus 75 percent when using a local acquirer.

KW: Is that really one of the things that you would regard as the “secret sauce” for PayU? Is it going into the markets and establishing these local acquirer relationships?

LI: Yes, absolutely. Our business is very grounded in the local market. Not to sound too sales-y, but one of the points of competitive differentiation is that we really understand the behavior of local consumers, but we also have the local relationships from an acquirer standpoint.

The percentages we’re talking about on the scale of the business opportunity that’s available, it’s a meaningful difference.

KW: Going from 20 percent to 75 percent is very, very significant, and obviously very meaningful for merchants. How hard is it for merchants to take advantage of what you offer? That’s often the other piece of the puzzle: The platform enables a lot of functionality, but it’s really difficult for merchants to connect. How is that addressed within the PayU platform?

LI: That’s one of the things that we do really well. I’m very critical of our teams in this regard because we can get better and we push to get better every day. But this is one of the things that we see as a primary reason for our existence: to help decipher the international markets and help global merchants operate like locals.

That goes to some of the things I mentioned: figuring out alternative payments, local acquisition and even things around fraud. We don’t go so far as to give tax advice, of course, but we can help merchants be more tax efficient through local payment processing.

It’s really an area of focus for us, where we hope that we’re very easy to plug into, because that’s our job.

KW: You mentioned cash, and I think that’s fascinating. We’re on this worldwide conquest to eliminate cash, but to your point, it’s a very viable and vibrant currency in developing markets. In places like India and even China, the eCommerce experience is not only cash, but it’s cash on delivery.

Is that payment method and process something that you also enable?

LI: Yeah. It’s funny. In many of our markets — like the case with 4G — online payments is more the future than today’s reality. Cash is how a lot of deals get done in our markets.

You mentioned India. While the scale of the market is really impressive, and the number of users coming online — especially with smartphone penetration — it’s shocking how few people have a credit card. The latest numbers I see show that 2 percent of the population has a credit card; that would seem like a small number, but when you have a population like India does, that’s more than 25 million people. And it’s growing very rapidly.

It behooves a merchant and a payments player like us to figure out how to make that work, how to deal with the reality that it’s cash and bring people online.

KW: Let’s talk geographic focus. The world is a big place, and there are lots of opportunities to enable cross-border capabilities. But there’s obviously a lot of heavy lifting involved, going in and getting those local acquiring relationships set up and accommodating those local methods of payment. How do you decide what markets you’re going to tackle?

LI: PayU differs a bit from some of our global competitors in that it’s part of Naspers, a global company that also operates eCommerce businesses — so we are merchants, as well. And where you see our payments footprint, it aligns very closely with where we might have some eCommerce businesses. Where you’ll see some of our strongest payments businesses will be in India and Poland and Africa — where we have a lot of other assets.

It’s interesting. The creation of PayU within Naspers in many ways was borne out of a need to remove friction from our own commercial enterprises. We saw all of these payments challenges that we’ve talked about, and we also see the size of the opportunity. That’s how we got to our footprint, and that’s how, initially, we saw the consumer pain point and we saw the merchant need — in this case, the merchant was us — and we developed product and technology solutions to address it.

PayU is letting other merchants leverage the platform that we built to solve our own problems. That helps us decide the markets on a classic, follow-your-consumer basis.

KW: That’s interesting. So your innovation lab is yourself.

LI: Yeah, and it’s funny. I spend a lot of my day dealing with sister companies and their payments pain points. We get to see, in many ways, the end-to-end consumer experience and consumer transaction on one side, but we also feel the pain as a merchant, where you see — in India, for example — just an exploding middle class wanting to buy things with smartphones on our eCommerce properties. And then you look at the payment solutions that are available — pain points there are obvious. We see them in our own house.

We don’t have to leave the friendly confines of PayU to understand the need for payment solutions in the developing world.

KW: I’d love to get your sense of some of the misperceptions about doing business cross-border that you’ve observed, kind of on the inside. It isn’t as if you guys are just operating as a solutions provider; you really are — as you just described — living the experience through your parent company and the sister eCommerce platforms that it enables. Give us a sense of some of those misperceptions. We talked about cash; we talked about accommodating local payment methods, which I think are probably familiar. Anything else that comes to mind?

LI: It’s a great question. I think doing business internationally — for the reasons you mentioned, and there are some others, often what comes up is fraud and things like that — seems very daunting.

It’s going to sound self-serving, but it helps to have a partner show you the way.

I’m an American, so doing business in the developing world was new for me as well. The flip side of all the challenges that come to mind for people is that there is a massive opportunity in the developing world.

In many ways, consumers there don’t have the biases that those of us who grew up in the West have. They’re more willing to adopt technology, more willing to try new solutions to problems because they don’t have the bias that comes with the old ones.

What my experience has shown — and I think it’s consistent with the broader PayU experience — is that technology adoption in the developing world happens much faster than in the West.

At some point, those massive populations will really come to bear, and that’s where trade will happen.

KW: The friction in those markets is so significant that we would, in the developed world, consider too much trouble, isn’t for those who have real friction today associated with shopping online and paying for things online and just getting access to things that aren’t within walking distance. That’s a really good perspective to put on the cross-border opportunity.

LI: You bring up an interesting point. If you talk “classic retail” in the West, you think of the pillars of the retail experience that even predate the Internet: selection, price, convenience.

In the West, you take selection for granted. You assume that you’re going to get all the merchandise, so it becomes an arms race in the sense of, “How can it be more convenient?”

In the developing world, selection is often a luxury. People really want access to the merchandise, and there really is no issue with sacrificing convenience because, for them, there’s no other way to get it.

The next billion online shoppers globally are going to come from the developing world, and they’re going to be on a mobile device. If I’m a merchant and I want to grow, I want access to those people.

KW: You’ve brought up fraud a couple of times; it’s obviously very important to mitigate and to solve for in these environments. How do you do that?

LI: It’s a good question. It takes a lot of hard work; it’s a big consideration. Fraud levels vary by market, and — like the case with other, more consumer-facing things that I’ve mentioned, such as alternative payments — understanding the local dynamics is essential in addressing it.

This is another area where it helps PayU to be a local merchant as well as a payments operator. We’re able to basically follow the data and understand where the risk is coming from and study that data — not just from the eCommerce platform but all the way through the payments transaction.

It helps us to strike that balance between maximizing approved transactions and maintaining a low level of fraud.

KW: You’ve also mentioned that you’re constantly looking for ways to get better and to make both the merchant and consumer experience better as well. What’s on the road map, in that regard, that you can share with us?

LI: We’re increasingly focused on consumer and merchant demands. We try to get more and more local and closer to our consumers and our merchants and find ways to bring technology to bear to address their pain points.

In our market — and this follows what we discussed earlier — that means finding ways to deal with cash and installments, to provide two very relevant examples.

More broadly, we’re really focused on mobile. As I mentioned, I firmly believe that’s where the next billion users of eCommerce will come from. Our geographies today have a very strong bias towards mobile, and it accounts for the vast majority of our growth.

KW: It is amazing that the secret to cross-border is staying local, but it’s obviously very true — and a strategy to stay true to in order to be successful in that arena.

LI: Absolutely.

Larry Illg, CEO of PayU

Larry is the CEO of the PayU group as well as chief operating officer of Naspers Ecommerce. He has over 20 years of professional experience and over a decade with leading, global Internet companies. Most recently, Larry was VP and general manager of new ventures at Trulia, the leading U.S. online real estate marketplace. Previously, he spent eight years as senior executive at eBay, responsible for strategy and general management of many of its global marketplaces and classifieds assets. Before joining eBay, he spent several years as strategy advisor for leading, global consumer goods companies. He started his career at the U.S. Federal Reserve Board. Larry holds a bachelor’s degree in economics and an MBA from the University of California, Berkeley.

To download the full version of the podcast, click here.