Avoid Hitting the ‘BRIC’ Wall: Local Payments Key to Entering Emerging Markets
The exploding economies of Brazil, Russia, India and China (the BRIC countries) have become very attractive to e-merchants looking to get in on the ground floor of these emerging markets. Despite the fact that internet penetration remains less than 50 percent in all four markets, the sheer population of these countries points to tremendous growth opportunity. With a combined e-commerce market value already exceeding $109 billion, the BRIC markets truly have nowhere to go but up.
The challenge for online retailers is in tapping the opportunity. Consumer payment preferences can vary greatly across each local region. As a result, successful market entry requires a specific, unique approach for each country that both caters to consumers’ current buying habits and plays well with existing protocols in each location.
Brazil’s Monthly Mind-Set
With nearly two-thirds of all e-commerce sales in Latin America originating from Brazil, this fifth largest country in the world is becoming a global economic powerhouse. While internet penetration in Brazil is currently less than 30 percent, about half of all users there say they've already made purchases online.
Brazilians prefer to make purchases via monthly, interest-free installments rather than traditional credit card payments. Well over half of all online card transactions make use of installments, which require localized payment programs with local processing partners. Merchants entering Brazil must be prepared to establish a legal local entity in order to participate or partner with a provider that has an established infrastructure to handle the process.
COD Still Reigns in Russia
While cash on delivery (COD) has all but completely disappeared in most Westernized markets, cash is still king in Russia. A general distrust of online transactions among Russian consumers and the desire to touch and feel products before buying has kept COD at the forefront and stymied e-commerce growth. However, the country already boasts the seventh largest internet user community in the world. This population will likely grow quickly as younger, more internet-savvy consumers come of age.
Credit cards account for only 11 percent of online purchases in Russia. While this number is growing, cash-based payments made through kiosk networks or online wallets such as WebMoney and Yandex are still preferred by more than half of online shoppers, especially for digitally delivered products and services. This marketplace demands a strong localized collections system for merchants looking to reach one of the most important e-commerce markets in Eastern Europe.
India is Evolving
Despite internet penetration of less than 7 percent, more than 50 million Indians already shop online. While many are just browsing, the conversion rate is around 40 percent. This can only go up.
A ripe market for sure, India remains a largely cash-based economy, which poses a significant challenge for international merchants. Indians trust cash and their local banking services. This has driven widespread adoption of Netbanking or internet bank payments, where payments are made directly from the consumer’s bank to the merchant.
While internet bank payments aren't new to most e-merchants, the challenges in India are compounded by a lack of connectivity between banks throughout the country. There's no central scheme that unites the consumer experience. Establishing these connections across a fragmented landscape requires considerable time and investment — or a payment partner with systems already on the ground.
Chinese Open Their E-Wallets
The sheer magnitude of the Chinese economy — nearly 150 million online shoppers and growth rates in excess of 100 percent each year — makes this an attractive market. Online sales are on track to expand by at least 30 percent annually through 2015, opening massive doors of opportunity for e-merchants here. Internet usage is growing rapidly, even among rural populations as government support for infrastructure and general economic development bring connectivity to China’s smaller cities.
Chinese consumers also avoid credit cards for online and in-store purchases, opting instead for e-wallets and debit cards that they perceive to be more secure. The leading online payment system, Alipay, accounts for nearly half of all payments. Alipay, TenPay and 99Bill gobble up nearly three-quarters of the entire online payment market in China. Absent a relationship with these key players, it will be almost impossible to effectively reach a large population of consumers.
While each of the BRIC countries poses its own unique set of challenges, make no mistake that the opportunity they present is significantly greater and shouldn't be overlooked. The key to successful entry is to work closely with an experienced payments partner with local connections and on-the-ground insights. Tailoring checkout options for each market will drive greater conversion rates and give online retailers the opportunity to capture maximum sales in these emerging markets.
Souheil Badran is the senior vice president and general manager of Digital River World Payments.