Selling cross-border in Southeast Asia – key considerations for merchants

Quah Mei Lee, Associate Director at Frost & Sullivan, shares with us the key considerations for merchants who wish to sell cross-border in Southeast Asia

The market for cross-border ecommerce in Southeast Asia is still small on a global scale. It will at best account for 10% of global cross-border by 2025. There is tremendous growth potential, even though a key challenge to unlocking that potential continues to be fragmentation. Nevertheless, the demand for cross-border ecommerce is fast growing and popular amongst people aged below 44 years, especially in Singapore and Malaysia. Within Southeast Asia, there are two contrasting market scenarios: key growth markets include Singapore, Malaysia, and Thailand, while the Philippines, Indonesia, and Vietnam represent challenging markets. 

Cross-border ecommerce in Southeast Asia is increasingly mobile first with evidence of mobile-only solutions, which are making some headway. Interestingly, while 70% of the transactions in 2018 were completed on mobile devices, conversion rates were still three times higher on desktop than on mobile. This means that, when it comes to the mobile user experience, there is room for improvement. Fixing this issue is not straightforward; apart from being progressively mobile first, cross-border ecommerce is also increasingly omnichannel. There are major implications of this on the merchant or platform approach to handling the overall customer experience as well as loyalty and payments. 

From the perspective of solutions’ evolution, we can see how streamlining the customer experience would be challenging if support is needed across multi-screen and multi-channel, online or offline. To address this, I believe we are going to see growing use of analytics spurred on by a conscious shift – whose main actors will be major brands across the region – to move from data gathering to data utilisation. 

Use of analytics is leading to data learnings and enhanced services with faster, cheaper, and more transparent transactions. Direct-to-consumer strategies to anticipate consumer needs will become the new norm going forward. These strategies will be based on insights gained via analytics from the registration process as well as from transaction and payment history. 

From a transaction and payment evolution perspective, cross-border ecommerce is evolving from purchases of light and cheap products that are usually sold based on economies of scale and price to purchases of high quality products and bulky items. There is also a growing affinity for branded foreign goods, especially amongst women in Southeast Asia. The same channels are now no longer only for low value and high volume transactions but increasingly for high value and low volume transactions. These changes are working to gradually grow the average transaction size and will eventually influence the choice of the payment methods offered. 

Capturing transactions and payment history across channels for processing is easier if payment is exclusively by card – but challenging if business operation is still cash heavy and with wide variations in local payment methods. Globally, credit cards have traditionally dominated cross-border ecommerce. However, most countries within Southeast Asia are still relatively cash heavy. The Philippines, Indonesia, Thailand, and Vietnam are countries where consumers prefer to pay by Cash on Delivery (COD) for ecommerce transactions. Low credit card penetration in these countries has resulted in the use of cash alongside alternative digital payments, such as e-wallets and digital money. 

The trend towards 100% of transactions on mobile devices means that a user-friendly mobile solution with in-app payment options is essential. Transaction growth has been closely associated with the performance of the mobile solution but in Thailand, Indonesia, and the Philippines in particular, it has also been closely associated with the use of social media. In the Philippines, where 50% of the transactions in 2018 were completed on mobile devices, shopping through social media is becoming progressively popular. Facebook in the Philippines has become the third most used site for online purchases of selected products. In Thailand, increased use of social media is also facilitating the demand for live-streaming in-app, which will leverage on in-app payments. These trends signal a clear departure from the traditional role of social media, which is creating awareness. 

The future looks bright as immediate settlement on cross-border payments is being implemented regionally. The central banks of Indonesia, Malaysia, and Thailand have recently launched a framework aimed at increasing direct settlement for trade transactions. Settlement will be in their local currencies through designated banks. With direct settlement in the three countries, operational efficiency will improve, along with a measured reduction in fraud detection, chargeback or return mechanisms. As this can potentially reduce the cost per transaction, it also presents opportunities for businesses within the backdrop of increased digitisation of economies in the ASEAN countries. 

Payments managers need to understand that careful planning in payment strategy development can lead to greater business growth. Payments managers must work closely with ecommerce product managers, as the right product strategy is crucial to achieving scale, which is critical to the viability of a payments business model. This basic concept will become progressively important in the near future, as payments managers have to adapt to new technological advancements such as artificial intelligence, comply with new sets of government regulations, and collaborate globally to develop cross-border technology that will leverage on the immediate settlement that is being put into place. 

In selling cross-border, payments is an area a merchant should not overlook. 

This editorial was first published in our Cross-Border Payments and Commerce Report 2019 – 2020, which provides a comprehensive overview of the major trends driving growth in cross-border payments, cross-border commerce, and marketplaces.

About Quah Mei Lee 

Quah Mei Lee is an Associate Director with the Frost & Sullivan ICT practice. She leads Mobile & Wireless Research for Asia-Pacific and focuses on telecoms and payments strategy. Supported by her expert team, she drives thought leadership in telecoms and payments strategy and mobile digital services research. 

About Frost & Sullivan 

Frost & Sullivan is a global business consulting firm. Our market research and analysis as well as growth strategy consulting practices are uniquely positioned to not only identify growth opportunities but to also empower and inspire our clients to create visionary growth strategies and make their goals into a reality.