What's Next for E-Commerce Platforms in Emerging Markets

From Amazon.com to eBay, U.S. e-commerce platforms haven’t been shy about expanding internationally. As it turns out, however, they’re not the only ones interested in conducting business abroad. E-commerce platforms from the Asia-Pacific (APAC) region are unveiling expansion plans of their own and don’t show any signs of slowing down. Shortly after Coupang, the largest e-commerce platform in South Korea, hired eight foreign executives in preparation for its foray into the global e-commerce market, Alibaba Chairman Jack Ma expressed his desire to move into developing countries within Southeast Asia, South America and Africa.

However, despite their ambitious expansion plans, several logistical hurdles — including shifting regulations and cross-border payments complexities — could keep these and other e-commerce platforms from extending their reach across the APAC region and beyond.

Shifting Regulations

Conducting business in emerging markets is no easy task. The payments infrastructure in developing regions can vary dramatically, and is sometimes years behind that in more established markets. E-commerce platforms can’t always count on access to the resources — credit scores, even basic ID cards — they would traditionally use to identify buyers and sellers and maintain compliance.

Beyond that, evolving regulatory conditions can effectively pull the rug out from under e-commerce platforms, or any organization for that matter, operating in developing countries. Newly proposed labeling and licensing requirements in China are the latest examples of how a nation’s changing laws and policies can create challenges for companies. Although China has since decided to indefinitely delay the introduction of the laws, the damage had already been done. Vitamin maker Blackmore watched as its shares fell by more than 50 percent after the new regulations were announced last April, while the stock price of infant formula maker Bellamy plummeted roughly 70 percent over the same period.

This danger is amplified for e-commerce marketplaces given the nature of the model — i.e., individuals making purchases from small or independent sellers online. These companies need to ensure that the broad range of transactions taking place on their platforms maintain compliance with the regulatory conditions of the country in which each buyer and seller is situated, not to mention providing a stellar user experience through seamless global connectivity and frictionless cross-border transactions.

Global Payment Complexities

The internet (along with e-commerce marketplaces such as eBay, Amazon and Etsy) has changed the way that independent sellers run their businesses by connecting them with buyers all across the globe … or so it seemed. Hyperwallet’s report, The State of E-Commerce Selling in 2017, found that one-third of sellers operating within the U.S. say that the difficulty, inefficiency and cost of selling cross-border prevents them from making their products available to buyers in other countries, including Brazil, China, India and Japan. Those who wish to sell abroad using APAC-based e-commerce platforms are likely to face similar issues.

Oftentimes, the difficulty of cross-border payouts comes down to two key factors: high cost (foreign exchange and/or service fees) and complex processes (leading to lengthy payment delivery times). According to the report, of those e-commerce sellers who have switched marketplaces, almost half did so because fees were too high, while nearly one-third pulled the trigger because payments took too long to process. Slashing fees and speeding up payment delivery may seem like the obvious solutions, but they’re often easier said than done. The reality is that legacy approaches to dealing with these issues aren’t enough. Truly transformative solutions require collaboration between traditional financial systems and new, sophisticated technologies capable of enabling faster and more flexible payout options.

As it stands, this legacy financial infrastructure — combined with diverse regulatory environments and strict licensing requirements — routinely makes cross-border payouts both inefficient and costly. In many cases, payments challenges such as opening local bank accounts and establishing legal entities in every country of operation, and/or acquiring the appropriate licensing can be too much for fast-growing companies to handle.

The Future of Emerging E-Commerce

For e-commerce marketplaces, the future has never been brighter. Increased internet access through smartphones and other devices has set the stage for more online transactions in emerging markets than ever before. APAC countries are shaping up to be particularly enticing to e-commerce marketplaces. According to a report from SingPost e-commerce, the APAC region will see its number of unique mobile subscribers grow by 5.5 percent a year until 2020, for a grand total of 2.4 billion subscribers.

In addition to capitalizing on the e-commerce growth within neighboring countries, APAC-based e-commerce platforms have the opportunity to go global. Sarwant Singh, a senior partner and practice director at Frost & Sullivan, revealed that countries within the Gulf Cooperation Council (GCC) could see a 40 percent increase in e-commerce sales by 2020. Meanwhile, a report from the McKinsey Global Institute found e-commerce marketplaces in Africa could generate $75 billion in annual revenue by 2025, which will amount to 10 percent of retail sales in the continent’s largest economies.

APAC-based e-commerce marketplaces hoping to act fast, however, must be careful to avoid the challenges looming on the horizon. Only then will these companies be able to take advantage of the immense opportunity with which they've been presented.

Simon Banks is the managing director and senior vice president of Asia Pacific at Hyperwallet, a global payout solution.