Selecting countries ripe for cross-border expansion requires thoughtful analysis of the payments landscape within different geographies to enable successful market penetration with minimal cost and risk to the merchant.
That was a key takeaway from a PYMNTS conversation with Roman Tazetdinov, head of geo expansion at Worldline. The Paris-based payment service provider (PSP) is taking a lead in helping more merchants open new markets, and as Tazetdinov explained, you need to know before you go.
“We usually focus on the product scope that matters,” he said. “You can have lots of different payment methods, and it’s very important to focus on those that make sense. For instance, if you have an eWallet, which is always topped up with a card, then you probably don’t need that because you can just use a card. We are trying to be, again, very focused and carefully analyze all the dependencies of payment capabilities with each other.”
Among the biggest hurdles to overcome is the need to have a local entity to process cross-border payments, and it often makes sense to avoid those markets.
As many merchants don’t have their own legal entities in every country, Tazetdinov said: “We are trying to find out those markets where it’s easier to get in without a local entity, and then we focus on them because it’s an easier entry for us and our merchants as well.”
Merchants generally like the idea of localized payments for optimal payment performance and lower cost of acceptance.
“But both of those goals may be achieved through utilization of payments processing,” he said. “It’s a great benefit if you can do that without a local entity.”
He noted that authentication is another area where cross-border payments can hit snags. Turning to the 3D Secure (3DS_ mandate, Tazetdinov said: “In some countries, mostly in emerging countries, there is no mandate for authentication.”
Pointing to PSD2 in Europe and the overall mandate for strong customer authentication, he said: “The perception of that in Europe is that it’s mandatory everywhere. But actually, that comes with significant pressure on the approval rate and performance of the payments that merchants run.”
In other cases, he said, 3DS “is implemented in a weird way, so then we need to implement it specifically for that market. Sometimes 3D Secure is not even implemented at all. Those markets have their separate way of doing it. In Korea specifically, the way they authenticate payments is similar to iDEAL. You do not use a card number for that at all. This is why we also carefully choose how to do that.”
Another potential pitfall in geo expansion is foreign exchange (FX) and the difficulties merchants encounter in the differences between countries and currencies.
Calling currency volatility “a substantial risk for any business, especially global,” Tazetdinov said: “It’s surprising [when] one currency that has a perception [of being] very volatile actually is not volatile. Sometimes another currency, like Korea’s for instance, is known as a stable one, but the volatility in the last 12 months was three times higher than the Turkish lira, according to our internal research,” as one example among many.
To avoid these complications, Worldline offers a guaranteed FX service to its merchants.
“We fix the rate on the day of transaction, and then whenever they get funds from us, T+2 or T+3 or even later, they’re not exposed to the risk of currency volatility,” he said. “Of course, we are taking a little bit of that risk at our site, and we know how to manage it. But for merchants, it’s as easy as [processing] a transaction and [getting] remittance directly without any special management of that risk.”
Payments localization solves many of these issues. But given the wide variation in rules governing cross-border payments and capital outflow, it’s often not well understood.
“When we speak about payments localization, most merchants we’re talking to think that to localize a payment, they also need to have a foot in the country, meaning that they need to arrange a legal entity,” Tazetdinov said. “That’s not true. You can process payments locally but still get your funds cross-border.”
That point ends up being central to Worldline’s conversations with merchants, as the platform seeks to reduce the complexity of expanding into a new market or optimizing merchant payments in markets where they have established a presence.
Returning to the South Korea example, Tazetdinov said Worldline can process payments there directly with any card issuer.
“We do not need to use card scheme networks that we usually use for cross-border payments,” he said.
This avoids cross-border frictions while remaining compliant with rules applicable within South Korea “because we work directly with our local partner, INICIS, who has connections with various local card companies. They do not limit us to having a local entity. Instead, they accept merchants with entities all around the world. This is following the changes in some emerging markets [where] they apply VAT or digital service tax on merchants that are selling non-tangible goods, like gaming or digital.”
And because this doesn’t work everywhere, he said: “We’re not doing it everywhere. We carefully select the markets we enter. We analyze them, and we find out what is the easiest way for us to expand and bring the [greatest] value to our merchants. We tailor every solution that we bring, and internally choose a market from a list that we create following the business case, size and some other unique capabilities we discover during our assessment.”
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