Transnational marketplaces: building a strategy around key payment challenges for global merchants

Vanessa Culver, Senior Manager of Payments at Zillow, sheds light into how to build a strategy around key payment challenges when it comes to transnational marketplaces

The world has become a global economy where the presence of online marketplaces enables purchasing power across countries. This poses a great opportunity and challenge for merchants who are looking to expand their global footprint. 

There are three key challenges when building a payments offering for a global marketplace: 

1. curation of offering; 

2. trade-offs of going direct vs centralised; 

3. foreign currency management of cross-border payments. 

Curation of offering 

There are various payment method offerings globally. Adyen currently offers almost 100 payment methods across the various payment channels: credit and debit cards, cash and ATM payment methods, direct debit, online banking, open invoice, prepaid, and wallets. Given the variety, it is important to curate for best fit to ensure what is above the fold is the most relative to that customer base and does not create decision fatigue. In order to measure the effectiveness of conversion with payment selection, it is important to A/B test offering and placement. Ultimately, the merchant will want to limit to the mix that is at the intersection of least cost and highest conversion, which will vary by region. 

In this graph below, card vs bank transfer preference dominates and varies by country within Europe; in Germany there is a mixed balance of preference. This highlights the importance of offering and curation when considering the many options available by country. 

Source: J.P. Morgan 

With the various types of payment methods there is also consideration around whether to connect directly to the payment method provider or through a Payment Service Provider (PSP). 

Direct vs centralised 

PSPs like Adyen are often reselling the various payment methods and will include a mark-up to cover their costs. Merchants can save money, cash flow time, and enhance configurations by going direct. However, there are many costs involved in maintaining each connection and therefore the ROI must be considered. 

Generally, onboarding an individual payment method can take one to six months, depending on complexity, and will incur ongoing maintenance costs. In addition, by going direct, the merchant is losing out on economies of scale pricing wise. 

Therefore, merchants will only consider going direct where there is financial incentive and when special configurations are required for success of the business. Otherwise, leaning on a PSP for these offerings will deliver the biggest value by abstracting the need to maintain technical updates and regulations. 

In addition to determining the platform strategy, merchants will also need to consider their treasury management strategy. 

Foreign currency management 

Foreign currency collection and maintenance is expensive. It is one thing to offer Boletos, it is another to consider whether to hold and maintain Brazilian Real as a currency in the bank account. Merchants without a dedicated Treasury team may ask that their PSP provide the service in which they will incur a few different fees; once at time of settlement (if presentment and settlement differ) and then at time of conversion to their preferred currency. If the merchant has a more mature Treasury team, they may consider consolidating under G-11 currencies or allowing settlement in local currency if there is an existing entity in that market. 

The foreign exchange (FX) impact is the main consideration when determining which currencies to present and settle in. The merchant may prefer settlement in their local currency, which could differ both from the buyer currency as well as the marketplace currency. For example, if a UK buyer is purchasing on a US website from a German seller, there are potentially three currencies involved: currency presentment in GBP; currency settlement in USD; seller payout in EUR. The merchant must then determine the appropriate strategy: to convert the currency at the time of the settlement (100- 200bps cost from the PSP plus a 200-300bps mark-up on FX by the network) or to hold the presentment currency in nostro accounts and convert balances as part of a monthly/quarterly exercise. If holding local currency, the merchant should also consider a hedging strategy at the transaction level or on bulk movements. Generally, if a merchant is choosing to enable dynamic currency conversion for both the buyer and seller, they benefit most from collecting the funds in local currency for payouts to the seller. Currency deficit management will then require Treasury oversight and hedging strategy. 

In closing, merchants have a lot to consider with payment offerings when serving a global customer base. The strategy stretches across both treasury and platform and the level of abstraction relative to each area will be correlated to the merchant’s maturity within the respective area. 

This editorial was first published in our Cross-Border Payments and Ecommerce Report 2020–2021, which assesses the change of pace that occurred in 2020 and provides a comprehensive overview of the major trends driving growth in this space, being the ultimate source of information for players interested in selling across borders. 

About Vanessa Culver 

Vanessa Culver, Senior Manager of Payments at Zillow, leverages her 10+ years in financial and payments operations and strategy for global ecommerce companies to deliver a broad view of both merchant and payment provider perspective to generate billions in additional revenue and save millions in operational costs.