Online retail has taken over the world. Over a quarter of the global population is now shopping online and the global e-commerce market is expected to reach $5.55trillion in 2022.
Accelerated by the pandemic, consumers have become used to – and expect – the ease, convenience, and variety offered by e-commerce.
Gina Archbold is senior sales manager, Europe at BlueSnap, an all-in-one payment orchestration platform aimed at increasing revenue and reducing costs. BlueSnap supports payments across all geographies through multiple sales channels such as online and mobile sales, marketplaces, subscriptions, invoice payments and manual orders through a virtual terminal.
Here, Archibold discusses how UK businesses can optimise cross-border payments to maximise sales when selling internationally, especially to the US.
We know that the pandemic helped accelerate this boom. As communities isolated, consumers increasingly turned online: research from McKinsey found that, in 2020, British e-commerce grew over four times faster than it did before the pandemic. And this acceleration has elevated expectations. The ease, convenience and variety offered by online shopping has become the new standard for retail.
For both companies and consumers, the world is their oyster. With just a few clicks, a customer in the Netherlands can buy skincare from America or a business in Australia can make a sale in Peru.
But going global has its own challenges.
Many businesses haven’t updated their infrastructure along with their ambitions, and it’s losing them sales. This is particularly true when it comes to cross-border payments: companies around the world are unwittingly capping their profits by failing to optimise their international payment processes.
Let’s take a look at why this is the case and the ways businesses can overcome these cross-border barriers.
Failing to adapt
In today’s global world, location may not matter when it comes to reaching new customers. But it does matter when processing their payments.
Research conducted by BlueSnap, in partnership with Pulse, found that 68 per cent of companies that sell to international customers are processing payments in the country or region where their business is headquartered – rather than where they have a local entity and where their customer is located.
On paper, this may seem a non-issue. But processing payments in this way can result in dramatically lower authorisation rates. Our survey found that 41 per cent of companies reported payment authorisation rates of 70 per cent or less – meaning that using this method could be costing companies over 30 per cent in international sales.
Additionally, processing cross-border payments can result in cross-border and foreign exchange fees, applied to both businesses and potentially their customers. These cross-border fees can be significant, adding up to two per cent to the payment processing cost of each transaction.
Reducing cross border fees
These costs are high but the way to reduce them is simple: local acquiring.
Local acquiring means processing cross-border payments as if they were local. Businesses can achieve this by working with an online payment provider that routes customer payments through banks in their own region. Doing so means they avoid hefty cross-border and foreign exchange fees because customers’ money isn’t being sent to an international bank in order to be processed.
This isn’t the only benefit. In addition to avoiding fees, local acquiring improves the authorisation rates of transactions. This is because international transactions tend to have a higher fraud risk, and consequently are more likely to be flagged or flat out denied by a bank. But if a business routes their transactions through a local bank, they can often sidestep this issue and therefore increase their authorisation rates, maximising sales.
And there are even more advantages. If businesses combine local acquiring with local payment types and currencies, they can offer a smoother, simpler checkout process for customers and help reduce checkout abandonment.
Not only will customers escape surprise foreign exchange fees, they’ll be presented with a familiar currency that increases their trust and saves them from manually calculating conversions. This decreases the chance they’ll leave before checking out – in fact, research shows that merchants which sell in local currencies see a 12 per cent increase in sales. Providing a range of payment options also improves the customer experience (and therefore retention) by allowing them to pay in the way that best suits them.
Further localising e-commerce
There are further steps businesses should take to localise their e-commerce experience and grow international sales – localising the checkout experience.
The key, yet too often forgotten, is to serve payment pages in a customer’s local language and currency, which makes shoppers feel more comfortable navigating the page and gives the feel of a true local shopping experience.
To build even more trust, merchants should also offer local payment methods that shoppers are accustomed to as this will reduce the risk of losing a sale. For example, Dutch customers are accustomed to paying via iDeal, the common local payment method in the country. Hence when purchasing internationally, it is imperative that they have this payment option available to them. To do this, businesses must ensure that their payment processors can detect a URL’s native country and serve localised payment pages accordingly.
Then there’s adherence to local rules and regulations. Businesses must ensure they are in complete compliance with local data privacy, consumer security and tax collection laws in the regions they operate, to avoid incurring big fines and to help international customers feel safe when shopping.
Choosing the right payment provider
One way retailers can ensure they’re on the right side of local laws is by working with a payment partner who handles compliance and other crucial areas, like 3D-Secure and fraud protection, on their behalf. This means e-commerce companies can focus on growing their business, rather than worrying about updates to legislation and having to change their infrastructure to match.
And the right payment provider can also improve their local acquiring performance. Good payment providers will have pre-existing relationships with large, high-quality banks in international markets: if they only work with small, local banks they won’t be able to reap the same benefits.
A payment provider should also have redundancies built into local acquiring processes. This means that if there is an issue with one local bank, leading to a flurry of declined transactions, they can swiftly switch to another to avoid retailers losing sales and damaging customer relationships.
E-commerce has exploded. But in the rush to sell to international markets, many businesses have failed to set up the support they need and it’s impacting their profits. The good news is this can change. Through local acquiring, customised consumer experiences and the right payment partners, merchants can erase cross-border barriers, increase conversions and drive up sales. This way, retailers results can finally match their global ambitions.