Change typically brings confusion and some level of chaos, and that’s true for merchants trying to win over foreign shoppers and master cross-border payments — achievements that can provide a revenue edge as eCommerce continues to grow across the world. And digital technology’s ongoing work of tying together global markets, combined with the spread of FinTech, is leading to the problem of payment fragmentation.
Various types of consumers desire different ways to pay — the differences stemming from technological realities and cultural habits — and that has resulted in some 300 “significant” forms of local payment options operating around the world. Of those, 150 are “really significant,” according to an estimate from James Booth, vice president and head of new business for PPRO Group, a global firm that focuses on local payment methods and related services.
There are “a lot of dollars left on the floor” by merchants who fail to provide enough local payment options, he said during a recent PYMNTS interview. For instance, 50 percent of online shoppers have abandoned a transaction because the eCommerce operator failed to offer a preferred payment option.
Other sources back up that general idea, pointing out how important local and alternative payment methods — mobile wallets in China, for instance, bank transfers in Germany, eMoney in Indonesia — are to capture sales from impatient consumers who might simply try another merchant with more payment options.
“Payment is a means to add value,” said Li Wang, head of EMEA for Alipay, at a recent industry conference.
Data from the PYMNTS X-Border Payments Optimization Index reveals that merchants are slowly improving their global inclusiveness, with the average Index score rising to 58.1 out of 100 from 56.8 in Q1 2017. The change was largely driven by an increase in merchants working to make it easy for consumers to navigate their websites and complete transactions, which research revealed are the two most important attributes in compiling a high index score.
So what can merchants do in trying to navigate a landscape that, at least in near-term, promises even more payment innovation and fragmentation, according to observers? And what might be the future of all that fragmentation?
The first move seems obvious enough, but still does not appear on the to-do list of all merchants seeking to expand overseas: study the local market and analysis data from the local central bank and other authorities about how consumers in specific countries wish to pay. Customer support is also key.
“We believe that 24/7 customer support with native speakers is a must-have for many merchants,” said Alain Delcourt, managing director at BoaCompra, a cross-border payments services provider that focus on Latin America.
With so many options, the choice of what to offer can become challenging, depending on market and the type of product sold, among other factors. But bank transfers offer a reasonable answer for many merchants faced with such confusion. That’s because transfers are forecasted to become the second most popular payment method globally by 2021, with an eCommerce market share of 16.5 percent, said Booth.
It’s not just B2C payments that are part of this. B2B payments face the local option question, especially as more of that global process moves — sometimes very slowly — from cash to digital.
Some "90 percent of B2B transactions in Asia are done with cash," according to one recent analysis, but the closing months of 2017 brought at least the vague promise of change. That’s because Asian payment system operators based in Vietnam, Thailand, Singapore, Malaysia and Indonesia signed a memorandum that pledged them to connect their respective payment infrastructures to enable real-time cross-border payments … and "to make cross-border electronic payments behave like local payments — faster, more cost-effective and more efficient within the ASEAN region."
Unifying platforms might, indeed, play a larger role in helping merchants navigate all those local payment options.
Flutterwave provides an example of how that could play out. The startup — with offices in San Francisco and Lagos, Nigeria — offers a payments API that makes it easier for banks and businesses to process payments across Africa. It recently announced a partnership with Flywire — a provider of global payments and receivables solutions for education, healthcare and business — to help students, patients and businesses in Nigeria make cross-border payments, whether via local currency, eBank transfers, credit/debit cards or mobile payments.
“The level of fragmentation within Africa’s digital payments ecosystem presents a tremendous opportunity for innovative players to develop platforms that reduce fragmentation, transaction costs and inefficiencies,” said Emeka Ajene, founder and managing partner of Africreate, which helps entrepreneurs, startups and SMBs. A company such as Flutterwave “acts as an API-driven platform that aggregates payment gateways across Africa and the world on the one hand, and merchants and payment service providers on the other.”
PayPal offers another example of the possible path forward. The company's Smart Payment Buttons dynamically present the payment methods that individual consumers will find most relevant, without a complex merchant integration or having to Nascar-ize their checkout page with every conceivable payments option, and support each of those options as part of their existing payments workflow.
This period of payment fragmentation is unlikely to last, according to observers. Banks will overcome their aversion to risk in this space and start buying up the best local payment option performers, with other payment firms seeking to consolidate, according to Booth and others.
That said, the money and research focus being spent on FinTech, along with regulatory changes that encourage payment innovation, and the growth of international eCommerce, will provide the fuel for the development of more local payment options. Merchants that sit along the sidelines, instead of getting involved, might lose out on revenue and customer acquisition.