The relevance of using localised payments to smooth cross-border ecommerce

Providing a uniform customer experience while supporting local payment preferences is one of the major challenges facing international merchants.

The payments industry has made a robust recovery from the COVID-19 lockdown-induced global economic slowdown of 2020 – when overall payment revenues fell for the first time since the 2008 global financial crisis. 

McKinsey research has revealed that, despite being a natural casualty of reduced travel and global supply chain challenges, cross-border ecommerce transactions increased by 17% in 2020, with SWIFT registering a 10% increase in cross-border fund transfers in December 2020 compared to the same period in 2019. The firm expects initiatives led by SWIFT and the Financial Stability Board (FSB) to further increase the efficiency of cross-border transactions, producing a 6% increase in revenue over the next five years.

In 2020, the decline in overall payment revenues was also offset by the continued digitisation of commercial and consumer transactions. This trend for digitisation has gathered momentum, and it is expected to return global payment revenues to 2019 levels (USD 2 trillion) by the end of 2021 and propel them to USD 2.5 trillion by 2025.

Ironically, the lockdowns that have stunted economic growth during 2020 and 2021 have accelerated this trend, as consumers complying with social distancing and other public health guidelines increased their use of digital channels.

The power of localised payments

But this is not necessarily a seamless transition, especially for international merchants who use the same payment platforms across all the markets they serve. 

Businesses may be increasingly global, but when it comes to payments, each individual jurisdiction has its own unique characteristics. For example, while in the UK more than half of all payments are made using credit cards, in China, credit card usage is relatively low, with digital technology payment providers WeChat Pay and Alipay dominating the payments market with more than two billion monthly active users. Debit cards remain the most common payment method in the US, but Account-to-Account payments are expected to take a bigger share of ecommerce payments than either credit or debit cards within the next two years.

Therefore, offering localised payment options has a number of advantages, the most obvious being that it will reduce the number of transactions abandoned by frustrated customers who cannot use the payment method of their choice. This will also reduce overall costs, improve clearing cycles, and limit the number of queries received by merchant help desks from customers who don’t understand why they are unable to pay for their goods. Moreover, requiring customers to use unfamiliar payment options may also add complexity to the authentication process and create additional costs.

Factors to consider when choosing the payment options offered 

The FSB has set the end of 2027 as a target date for achieving improvements in the cost, speed, transparency, and access of cross-border payments. In terms of access to retail payments, this means that all end users will have at least one option for sending or receiving cross-border electronic payments. Of course, offering more than one method of payment is preferable where possible as it means that the customer can still complete the transaction, even if one or more options are unavailable for technical reasons. 

Localised payment options appeal to customers who expect to enjoy the same purchasing experience, regardless of their location. However, identifying the most popular payment mechanisms for each jurisdiction requires considerable research and working with service providers that understand customer payment preferences. 

There are now hundreds of local digital payment systems in use across the world, and the extent to which merchants offer the right payment option(s) for each market will determine their success in expanding internationally. Therefore, it is vital to keep up with market developments. For instance, besides the growth in Account-to- Account payment services, mobile wallet usage in ecommerce is also expected to increase significantly from 42% in 2019 to 52% by 2023 according to EY. 

Additionally, when deciding which payment option(s) to offer, merchants should also weigh how much each transaction costs them. The subject of fees has been in the news recently following Amazon’s decision to stop accepting Visa credit cards issued in the UK from the middle of January 2022 over what it described as high transaction fees.

This editorial was first published in our Cross-Border Payments and Ecommerce Report 2021–2022, which taps into the fast-growing cross-border market and provides a comprehensive overview of trends and developments that are pivotal in this space, being the ultimate source of information for ecommerce businesses interested in expanding globally.

About Michalis Michaelides

Michalis Michaelides is a Global Business Development Director with strong emphasis in the payments technology sector, with over 25 years of experience in diverse markets such as Europe, Middle East, Africa, and India. He has been working with both established corporates as well as ambitious startups to help them bring to life their value propositions and build lasting consumer experiences.

About BPC

Founded in 1996, BPC has transformed over the years to deliver innovative and best in class proven solutions that fit with today’s consumer lifestyle when banking, shopping, or moving in both urban and rural areas, bridging real life and the digital world. With 350 customers across 100 countries globally, BPC collaborates with all ecosystem players ranging from tier one banks to neobanks, payment service providers (PSPs) to large processors, ecommerce giants to startup merchants, and government bodies to local ride-hailing companies.