The ecommerce universe is expanding at unprecedented rates. The value of global retail ecommerce sales – which reached a total of $4.2 trillion in 2020 – is expected to hit $6.5 trillion in just three years’ time. While the pandemic pushed millions of consumers to shop online, ecommerce momentum continues to gather pace even as the world returns to a new normal.
For retailers in the online space, the conditions are ripe for continued growth. The availability of convenient digital payment methods means consumers can buy from anywhere in the world. Businesses now have unprecedented opportunities to expand beyond their own borders, and tap into new customer bases and stronger revenues.
Great rewards come with great risk
But reaping these potential rewards means confronting risks, which if not managed correctly, could damage revenues and severely hamper growth plans. While many businesses have upped their ecommerce game with website overhauls and expanded product lines, it takes more than a shiny virtual storefront to ensure success, particularly in the long term.
Operating on a global scale means surmounting several complex obstacles. One of the biggest is operating an international payments system, and to accept cross-border payments in the most cost-effective and frictionless way possible. How many retailers have the expertise or the knowledge to do this efficiently and profitably?
There are so many variances in the global payments market, and understanding the need for localized payment methods is crucial if a business wants to sell in multiple markets. If you don’t offer a consumer’s preferred payment method at checkout, you’ll suffer from lower conversions and higher decline rates.
Why FX rates can affect conversion rates
Payment method localization is only one of the hurdles you need to overcome. To serve local consumers in a global marketplace, a retailer needs to offer a wide range of foreign currencies to remove customer friction and build trust, which ultimately leads to an increase in conversions. However, offering these local currencies comes with the risk of fluctuating (and sometimes highly volatile) FX rates, which can potentially erode margins and lower conversions for merchants.
When you consider that cross-border transactions come with their own complexities that can negatively impact approval and conversion rates, the effort to keep cross-border operations profitable becomes that much harder. For instance, retailers need to consider varying cross-border interchange and assessment fees when accepting card transactions. The need to be vigilant about fraud is another. And there is a minefield of regulatory issues to navigate in order to expand into new markets.
When retailers are looking to expand across borders, many global payment providers will promise easy access to local acquiring, a big basket of currencies and lower processing fees. But unless the retailer has a physical presence in every market granting access to local acquiring, the risks and complexities of doing business cross-border remain. The retailer still has to contend with fluctuating currency risk, high fees and uncertain profits.
What retailers need is more than just the standard localization package available from payment providers. The Merchant of Record (MOR) model solves all of the pressure points of selling cross-border – payments are processed as if the retailer and customer are in the same country. Instead of adjusting the retailer’s checkout to appear local, the retailer’s entire business structure is adapted to be local. The MOR model gives the retailer all of the advantages of local acquiring, without actually needing a physical entity in each market.
As the ecommerce marketplace becomes more crowded, retailers need to find new ways of differentiating themselves. By optimizing their entire cross-border strategy with access to the best FX rates and local acquiring, businesses can plot their future growth course with confidence.
Matthew Cannon serves as Chief Strategy Officer at Reach, working to guide Reach’s overarching merchant engagement strategies.
A veteran of the payments industry, Matthew arrived at Reach six years ago, bringing with him more than a decade of experience across some of the world’s leading brands, including Global Collect (now Worldline).
His understanding of the global complexities in the payments arena provides Reach with unparalleled insight into worldwide marketplaces and hyperlocal territories.
With an appreciation for the nuances that define payment structures across cultures and continents, Matthew is instrumental in tailoring Reach’s offering to benefit merchants in every country. His strategic mindset helps merchants to plan for the long game, researching and understanding trends in payment methods, tax regulations, and marketing to help future-proof the operations of Reach’s clients.
While he spends his time inside the office guiding merchants across the globe, once Matthew has left the building, he likes nothing more than exploring the great outdoors. Whether it’s paddle boarding on lakes, skiing down frozen peaks or hiking through wooded trails, Matthew’s downtime is always spent appreciating the wonders of nature.
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