PayPal On Tariffs, Trust And What’s Next For Cross-Border Commerce

Every year for the last four, PayPal has released it Cross-Border Consumer Research report, an annual report card on marketplaces’ progress and a snapshot on the where, why and how of international commerce.

It’s always an interesting reading because the digital era of payments has been, in many ways, what has powered the epoch of the cross-border consumer. However, in the summer 2018, with words like “tariff” and “trade war” making frequent appearances throughout media reports worldwide, cross-border commerce is a bit more top of mind than usual — and a lot more people than normal are looking at cross-border markets and wondering what’s next.

“I’m ready to go to 500,” U.S. President Donald Trump told CNBC’s Joe Kernen in a “Squawk Box” on Friday (July 20).

The “500” he refers to is the $505.5 billion in exports China sent to the U.S. in 2017, as compared with the $129.9 billion the U.S. exported to the country during the same period. So far, the U.S. has placed tariffs on $34 billion-worth of Chinese products, and China has shot back with retaliatory tariffs of its own.

The U.S. has also placed tariffs on steel and aluminum imports from the European Union (EU), Canada and Mexico — and the president has made noise about extending those tariffs to include EU cars and car parts.

The response from global audiences to the waves of tariffs has been — to put in mildly — negative. German Chancellor Angela Merkel noted that tariffs posed “a real danger for the prosperity of many people in the world,” while outlining possible German responses to a tariff on German car imports to the U.S.

With the headlines grim, one could easily believe that cross-border commerce is, perhaps, in some trouble. However, when Karen Webster sat down with Adriana Bello, PayPal’s head of Global Cross-Border Trade, and Melissa O’Malley, PayPal’s head of Global Initiatives & Communications, to talk about this year’s report — the headline isn’t so much about tariffs as it is about building trust.

The Tariff Effect

It is not that the tariffs won’t be important or have any effect, Bello told Webster, but when thinking about them, it helps to take a step back and think specifically about the cross-border consumer. The average cross-border shopper, she noted, doesn’t exist on a global scale. Customers in different markets shop abroad for different reasons, and the tariffs don’t always come into conflict with those reasons.

“So, for example,” Bello told Webster, “if you look to the Chinese shopper, they are shopping across borders online because they are looking for certain high-quality items they can’t easily find at home, and they are looking for a guarantee of authenticity with their purchase.”

They aren’t bargain shoppers as a rule. They’re looking for something specific in the foreign market they are shopping in and, though price is a factor at some point, it’s far from the leading one. It doesn’t even make the top three — quality, access and authenticity all beat it out, being a primary concern for 54 percent, 36 percent and 34 percent of customers, respectively.

Canada, Bello noted, is a similar story — as Canadians are some of the world’s most avid international shoppers, with 64 percent shopping cross-border, sometimes exclusively.

“Canadians are looking for unique products because there is as smaller domestic retail market. They look at a lot of international merchants for things not found in their home nations, and they are very close to the U.S., so there is a long-established relationship there,” Bello said.

This is not to say there won’t be an effect — there certainly will be. The U.S. market could likely see a fall-off in conversions from France, Mexico and Italy, where the primary reason for shopping in the U.S. is price. One can imagine a situation where the trade war continues and becomes inclusive enough of consumer goods that price-motivated consumers could be guided to other cheaper markets that the U.S.

However, she noted, according to the report, 21 percent of all international shoppers rank the U.S. as their top shopping destination. And when one looks at the results in places like China and Canada (as well as Germany, Australia or Spain), access and authenticity are the overriding concern.

“And those are things you can’t really price into or out of,” Bello noted.

The Tricky Path To Trust

When one looks closely at the numbers in the countries where international commerce is the most common, Bello said, down to the markets where it is the rarest, what emerges is a story about trust and familiarity.

She said, “In the European market, there is a lot of cross-border commerce activity, particularly in the Eurozone. Germans are comfortable buying in Italy, Irish consumers are used to working with the neighbor U.K. The behavior is well-established, and the buyers are quite savvy.”

The comfort and trust are in the numbers, she said. Eighty-four percent of Irish customers shop domestically and internationally, and 19 percent shop only internationally. In Austria, 81 percent of customers shop internationally. In Belgium, it’s 71 percent.

Flipping to the other side of the spectrum, the discomfort is also readable in the numbers. In Japan, only 6 percent of customers report shopping cross-border.

“We see big trust dips when it comes to online firms in general in Japan, and foreign online firms in particular,” Bello said. “If you look at Japan, that trend line — for a long time — has been a very low trust factor in the online brands of other countries.”

The good news, she said, is that there are common themes in building on that trust, which are straightforward and mostly boiled down to a single idea: familiarity breeds trust.

That means offer a user experience that actually welcomes the international shoppers by offering full translations of the page — since people often need to read the product description to make a purchase online. It also helps a lot, Bello said. for prices to be listed in local currency, since mystery pricing is not something most shoppers appreciate.

Beyond local currency pricing and payment methods, she added, consumers like payment services, like PayPal, that let them choose their local currency, without having to necessarily supply their data to a foreign merchant with whom they’ve never transacted before.

“Just because you are comfortably using your card as a payment method doesn’t mean you are necessarily comfortably giving the number to a merchant you don’t know. Using a tool like PayPal lets international merchants bridge that gap in a way that makes both the merchant and the shopper feel secure,” Bello said.

Moreover, Bello told Webster, the payment and pricing need to be transparent to the customer all the way through. That means showing the consumer the price of the item and the price of shipping as a single cost before the transaction is complete, because consumers shopping cross-border listed, as their number-one fear and complaint, that they don’t always know what they are getting or what they are going to be finally charged.

“It’s the kind of sale we tell merchants they make only once. The customer buys, but eventually sees the whole cost and doesn’t come back because they feel misled,” Bello said. She noted that firms with a future in cross-border sales tend to build relationships because the customer always knows what they’re getting, when their getting it and what they can expect to pay.

What’s Next

Today, Bello told Webster, PCs still make up the bulk of cross-border commerce orders, but the growth story is in mobile, as nearly half of all transactions are coming in through that channel. That proportion very much depends on market — in places where mobile web leapfrogged desktop web, mobile is just the channel on which things get bought.

That growth in mobile, she noted, really stimulated the development of cross-border commerce across developing markets — and opened the door for new distribution processes that are making a wider variety of commerce activities available for more people worldwide.

“And slowly, we are seeing in lots of markets [that] people are getting more comfortable going outside their home nation to spend and shop,” she said.

They aren’t always comfortable — there are markets like Russia, where a majority of customers report being uncomfortable with shopping online across borders, but where cross-border commerce is growing year over year nonetheless.

For an example closer to home, the U.S. market hasn’t been the biggest adopter of cross-border commerce among consumers. More people come here to shop than when we send people out to shop in the world, but even among American consumers, the trend line is heading up. And American consumers, Bello noted, are beginning to trust in merchants worldwide because they are seeing familiar payment methods and getting guarantees that are familiar to them across eCommerce.

Americans are now 10 percent less concerned that they won’t get their items, and 17 percent less concerned about getting help with transactions, than they were even a year ago, according PayPal’s figures. As those concerns drop out, American customers are getting more interested in shopping beyond their borders. And merchants worldwide, Bello noted, are increasingly able to live up to those customer’s expectations — no matter their point of origin.

“People are getting used to spending their money in different places,” she said, “and more familiar with using a wider net to get unique items from up-and-coming brands. And I think that we are going to continue to see that growth for the rest of this year in the U.S. and around the world.”