E-Commerce in Emerging Markets: What’s Needed for Payments and Fraud Prevention
It's estimated that cross-border online B-to-C sales will more than double in the next five years. With over 90 percent of the global population under 30 years of age living in emerging markets, and e-commerce in these economies growing twice as fast as in most developed markets, U.S. retailers would be remiss if they didn’t explore the growth opportunities these regions present.
But how can they do that from the comfort of their offices when some of these markets are halfway around the world?
To be successful, retailers must ensure they approach these markets correctly to effectively expand their online and mobile business. It requires much more than a localized and mobile-optimized website. A retailer must understand the payment expectations of prospective customers and adapt their payment processing and fraud prevention for different geographies to support expansion into emerging markets. But what does that entail?
While many credit cards and PayPal are acceptable payment methods around the world, consumers in different countries have distinct preferences and expectations at checkout. In fact, 63 percent of the population in emerging markets does not have formal banking products, according to McKinsey & Company research.
Here’s a brief snapshot of the potential opportunity and what’s preferred and used for payments in several high-growth regions:
India is expected to have more people coming online in the next 15 years than in any other country. E-commerce in India is expected to grow to $100 billion USD by 2020.
To capitalize on the growth potential India presents, retailers must offer more than just widely accepted credit cards, as credit card penetration in India is only 4 percent. Merchants must also offer the acceptance of cash cards and bank transfers, which are more popular in India for online purchases than credit cards.
Latin America is expecting far greater GDP growth compared to Europe over the next five years. With less than a quarter of the overall population possessing credit cards, retailers should be prepared to support a demand to be able to pay in cash, even for e-commerce transactions.
For example, almost half of Argentinian consumers prefer using a cash payment option upon checkout. Approximately two-thirds of the population in Argentina would also like the option to pay in installments. In fact, many consumers in Latin America as a whole want the option to pay by installments when it comes to using their credit cards, which is an important consideration for retailers.
In Brazil, even though credit card penetration is only about one-third of the population, local credit cards are particularly popular there and are important to support.
Chile enjoys the highest bank account, internet and smart phone penetration in Latin America. It also has a relatively high credit card penetration rate. While credit cards account for 65 percent of online payments in Chile, many Chileans prefer local credit cards such as Magna, Ripley, Presto and Webpay.
Interestingly, only 14 percent of Columbians have a credit card, yet cards account for almost two-thirds of their online purchases. Consumers in Columbia expect to see credit cards from the four major international providers, as well as bank transfers, but cash is the second most popular option at checkout, with retailers using local providers such as Baloto.
Credit cards and cash are the two most popular payment methods for online sales in Mexico, respectively, with e-wallets coming in third.
Poland and the Czech Republic
Eastern Europe, including Poland and the Czech Republic, represents the fourth largest e-commerce market in the world. This region offers great diversity following the collapse of the Soviet Union, with only some countries having successfully transitioned to a market economy. One in four internet users in Poland already shops online and plans to increase the amount of money they spend, making Poland and Czech Republic among the top-five most important markets for e-commerce in Europe (alongside the U.K., France and Germany).
In the Czech Republic, cash-on-delivery remains the most popular payment option, with card-based payments and bank transfers following, respectively. For e-commerce in Poland, the majority of consumers desire to pay via bank transfer, with credit cards and e-wallets coming in as the second and third most popular options.
Russia provides access to 31 million online consumers with strong potential for further growth. Factors such as a lack of trust in the security of electronic payments create a unique challenge for online retailers. To successfully sell online in Russia, retailers should offer cash-based payment options, as these account for over half of online sales. Card-based payments and e-wallets are the second and third most popular payment methods in Russia, with local e-wallets like Qiwi and Web Money being preferred.
Fraud Prevention and Local Presence
Regardless of region and payment method, preventing payment-related fraud is obviously critical. While there are secure payment methods such as Mastercard Secure Code and Verified by Visa, a payment guarantee will only provide limited protection of individual payments. Consequently, it’s recommended that retailers conducting business online in emerging markets also work with a payment service provider that offers fraud prevention solutions, with the goal of mitigating risk for retailers, while protecting customers.
In addition, some payment service providers also offer the capability for retailers to process payments without having a local entity in these high-growth regions. Given the costs and risks associated with having local entities, this represents an attractive option for many retailers.
Emerging markets present a wealth of potential opportunity for retailers, with e-commerce in these regions growing significantly faster than in developed countries. However, if retailers rely on a payment platform that only accepts credit cards, they're going to hurt their chances for success. While credit cards still play an important role for purchases, it’s key for retailers to understand and offer localized payment options (e.g., payment by installments) in many of these markets. Presenting the option to pay with cash — including COD — also allows retailers to effectively serve a vast number of underbanked consumers in these emerging markets.
By offering the payment methods consumers expect and trust while ensuring prevention of fraud, retailers can tap into more markets and growth, with little investment, while minimizing the risk to themselves and their prospective customers.
Now the question is … what are you waiting for?
Briana Kovacs is vice president of partnerships and business development at payment service provider Computop, where she's responsible for partner relationships and business growth in the Americas.