Payments: What to Consider When Pursuing Global Markets Online

Transcription

1 Payments: What to Consider When Pursuing Global Markets Online By Michael Black Vice President, International Currency Solutions Group First Data 2011 First Data Corporation. All trademarks, service marks and trade names referenced in this material are the property of their respective owners.

2 Introduction Opportunities abound for ecommerce retailers considering expansion into international markets. In spite of the worldwide economic crisis, ecommerce has continued to grow and is capturing an increasing share of total retail sales. Online retail growth has been especially robust overseas, which is not surprising considering that the ecommerce market is more developed in the United States than in most other countries. Accordingly, a recent survey by Internet Retailer found that 60 percent of online merchants currently selling only in the U.S. are considering international expansion in order to take advantage of the global ecommerce potential. 1 To date, most online retailers in the U.S. have not yet ventured into international markets beyond Canada, where customers can be served by simply shipping from U.S.-based fulfillment centers. However, as North American markets become increasingly competitive and saturated, more and more retailers are seeking revenue growth by expanding into multiple countries. As an online merchant explores opportunities for global expansion, it soon discovers there are two fundamental challenges it must address: 1. Order fulfillment how it will deliver its products to global customers. This involves deciding whether to be a truly global retailer with operations around the globe, or to serve the international community from a single country. 2. Payments how it will accept payments as either a single-country merchant selling into international markets or as a multi-national merchant selling locally in multiple countries. In either case, it is important to understand which customer payment options are essential for each market. Global payment acceptance can be a potentially complex issue for merchants, but fortunately, there are solutions available that can simplify the process of accepting payments from customers around the world. This paper discusses the key factors a retailer should consider in evaluating which type of payment service providers can best meet its global needs. 1 Stambor, Zak. Searching Abroad. Internet Retailer. August 1, firstdata.com 2011 First Data Corporation. All rights reserved. 2

3 Options for Global Expansion Online ecommerce merchants planning to target international consumers face a range of operational considerations depending on their chosen approach; each with important advantages and disadvantages to evaluate. Consider these two scenarios: The simplest example is a merchant domiciled in only one country, but seeking to sell to customers in international markets via the Internet. This merchant does not necessarily have to provide payment options or currency support beyond those already offered in its domestic country. However, it will experience much greater success if its website supports consumers local currencies and preferred payment methods; even more so if presented in customers native languages. Under this model, it is important to select a payment provider that can support various options in order to maximize the online sales potential. Here are two key payment services to be considered: Dynamic Currency Conversion (DCC) a service that allows merchants (online or card present) to offer international Visa or MasterCard customers the option to pay either in their own currency or in the merchant s currency. This customer service offering enhances the purchasing experience for international consumers, provides greater consumer awareness of foreign exchange rates, offers the merchant protection against exchange rate risks, and may even be a source of new revenue for the merchant all while increasing online sales. Although similar, not all DCC solutions are exactly the same, so it is a good idea to evaluate them based on your particular needs and to find out if your current payment provider and online payment infrastructure can readily support it. (see First Data s white paper, Increase Revenue and Improve Customer Satisfaction with Dynamic Currency Conversion, for more information) Multi-Currency Pricing allows merchants to price goods and services in virtually any currency, helping to create the end-to-end feel of being a multi-national merchant without actually setting up shop in the target market. Unlike DCC, in which the international consumer is offered a currency choice, multi-currency pricing is designed to allow merchants to set foreign pricing and hold that pricing static over time. This is of particular interest to those merchants who utilize printed marketing collateral in conjunction with on-line promotions. Do you know if you are already servicing foreign consumers? Do you know where they come from and how much they spend? Would this information help you develop your global strategy? Ask your current payment service provider to tell you. For the online merchant experimenting with international sales, these services are important tools in advancing into specific markets. The online merchant can even utilize these services to test the waters before investing heavily in establishing a true presence in multiple countries... a virtual look before you leap approach. At the other end of the spectrum is the large online retailer seeking to expand internationally by establishing selling entities in multiple countries. This means it will need payment providers that can service each country and support the necessary methods of payment. Being domiciled in a particular country or region requires complying with assorted local laws and regulations, as well as overcoming other potential barriers to entry each of which can be daunting to retailers entering a new market for the first time. firstdata.com 2011 First Data Corporation. All rights reserved. 3

4 Domicile is generally defined as where the selling entity: 1. has a permanent establishment selling the goods/services, 2. holds a valid business license, 3. has a local address for consumer correspondence and judicial process, and 4. pays taxes on the sale of goods and services. Regardless of the global ecommerce strategy a merchant decides to pursue, it must have a method of accepting payments that supports its strategy. Deciding how to accept and process payments is one of the most important decisions a global ecommerce merchant must make. There are a number of factors merchants need to consider, but first let s take a look at exactly who is involved in facilitating an ecommerce payment. Who Enables Payment? In many ways, global ecommerce payments work a lot like other kinds of payments. First, the transaction is acquired from the merchant. It is securely sent to the payment processor (either directly or through a third-party gateway provider), which authenticates the transaction and authorizes transfer of funds between the customer s bank and the merchant s bank. The merchant is notified that it is permissible to complete the transaction. As online merchants expand from their countries of domicile into foreign markets, they need support for various currencies and payment types. In addition, merchants may find that they can be more efficient and obtain better pricing by minimizing the number of processing relationships where possible. By relying on one payment services provider a global acquirer for all electronic payments in all regions, the merchant can ideally bypass many of the costs, risks, and hassles of managing service providers in every country. In the past, multinational organizations had to use separate (local) service providers across the world to accept and process card payments. Generally, the acquiring function was handled by a bank serving its merchant customers in a geographic market. Account set-up, administration, and reporting functions were limited to the footprint (license) of the bank. For multi-country merchants, this approach led to intimidating challenges and overly complex, difficult-to-manage processes. Although still viable, that business model has been surpassed by today s high-volume, global (or multi-national) acquiring solutions. These enable multi-national merchants to streamline the number of acquiring or service provider relationships required to serve their global footprint. To manage such a group of disparate acquirers, a retailer would need to negotiate multiple agreements, deal with multiple technical connections, multiple relationship managers, understand the regulatory requirements and fee structures of each market, and be prepared to manage the fraud risks inherent in fragmented processes for multiple countries. Global acquirers help merchants simplify the complex system of international ecommerce. By relying on one payment services provider a global acquirer for all electronic payments in all regions, the merchant can ideally bypass many of the costs, risks, and hassles of managing service providers in every country. However, merchants should still be aware that there is no single firm that can provide a full array of acquiring services in every single country, worldwide; so you really need to align your business needs with the potential providers and try to maximize coverage wherever possible. firstdata.com 2011 First Data Corporation. All rights reserved. 4

5 Categories of Payment Service Providers As online merchants look more closely into the kinds of services offered by payment service providers, they will also discover there are several different types of entities in the acquiring sphere. Accordingly, merchants should consider what each of these has to offer. Here are some key considerations for the most common types of service providers in the global ecommerce space: Gateways. Gateways are primarily transaction conduits transferring the payment data between a merchant and an acquirer, usually for a fee. They link transactions from the merchant s shopping cart with the payment service provider s processing networks. In addition to other services frequently offered, like fraud prevention tools and transaction reporting, some gateways actually provide direct acquiring capabilities when structured as independent sales organizations working in conjunction with banks and payment processors. Banks. Aside from a few exceptions, banks, through their acquiring licenses, are almost always involved in the payment acceptance process. In some cases, it is the direct acquirer and in others it provides its license to others in an Independent Sales Organization (ISO) or BIN Rental/Sponsorship model. Most banks either partner with a payment processor or have their own in-house processing platform. Keep in mind, a bank s retail banking footprint does not mean it has the ability to support payment acceptance in a particular country, so asking the right questions is critical. Payment Processors. Most large payment processors have partnered with banks across the globe to establish acquiring alliances as stand-alone business entities. In other cases, processors may just sit behind the bank as the payment processing contractor. Similar to gateways, processors can establish direct acquiring ISO relationships with banks and some also offer gateway, fraud, and other solutions, thus potentially eliminating the need for additional third parties. Many large merchants decide to connect directly to processors, as well, to avoid the ongoing gateway costs. Again, leveraging a provider who can offer the most value-added services based on your needs is typically in your best interest, as the more services you acquire from a single provider, the better your overall costs will be. Make Your Service Provider(s) a Key Partner in Global ecommerce Why is it importance to select the right service provider for global payment acceptance? The answer is related to an old adage: Part of wisdom is learning to know what you don t know. Savvy global merchants know they need a trusted advisor with expertise in the details and nuances of payment practices in each country where they will have a presence. The merchant will rely on this partner for advice and action on a host of complex issues, such as domicile requirements, local payment preferences, interchange, tax provisions, compliance, and banking relationships. Trying to manage different acquirer relationships for each country in which you are operating, or selecting a provider that simply doesn t have the reach to service your market areas, creates a lot of problems down the road. However, selecting the right service provider(s) enables a merchant to: Offer the essential payment options in each region those with enough shopper appeal to maximize sales and reduce cart abandonment rates Trying to manage different acquirer relationships for each country in which you are operating, or selecting a provider that simply doesn t have the reach to service your market areas, creates a lot of problems down the road. firstdata.com 2011 First Data Corporation. All rights reserved. 5

6 Leverage the efficiencies of one or a few providers across a large geographic footprint Obtain more favorable pricing through the volume achieved in global coverage Minimize the IT development and support resources needed to support each new country Avoid fragmentation of fraud management efforts Gain transparency with unified reporting and analytics For merchants, evaluation of a payment services partner needs to involve two essential steps: Step 1: Determine how well the service provider s geographic coverage aligns with the countries in which you are selling or will be selling. Step 2: Evaluate the service provider s level of support for local and alternative payment types and other key products and services important to you. How do you evaluate a service provider s capabilities? The next section provides a checklist of capabilities a merchant should expect from a global payment services provider. Key Attributes to Consider Each of the following factors contributes to the total value proposition of a global acquiring partner. Ideally, you will want a service provider that is able to deliver on as many of these attributes as possible. 3 Single contract for your global needs Without a multinational payment services solution, merchants typically rely on local banks or acquirers in each of the regions where they do business. This means negotiating terms and executing contracts with each one of those entities. The global acquiring model, on the other hand, ideally can cover many countries with one provider. The merchant negotiates contract terms once and it s done. This reduces the need to individually evaluate prospective providers and subsequently negotiate contract terms with them. 3 Pricing based on global volumes The broader a payment processor s scope of international operations, the greater the potential for the merchant to receive volume-based pricing. A provider with a global footprint can capture economies of scale for the merchant s current and prospective volumes in the areas where it operates. This is particularly beneficial in new markets where initial transaction volume may be quite small. For example, a local Hong Kong payment service provider would price its services based only on the volume of transactions generated by the Hong Kong locations of the multinational merchant. A global acquirer, however, would take into account volumes from all areas of the merchant s operations. firstdata.com 2011 First Data Corporation. All rights reserved. 6

7 3 Unified reporting on global transactions When it comes to reporting payment information, multinational merchants have more complex needs than other merchants. The global merchant may face two issues: How to gain easy, online access to its transactions from all locations with as few interfaces and sign-ons as possible, without the inconvenience of using different reporting tools from multiple providers. How to import and combine raw data files from all countries into one in-house database, from which custom, selfgenerated global reports can be created as needed. (Although this may not be an important consideration for all merchants.) Both are difficult to accomplish when data is coming from many different sources in multiple formats. With a single provider, the merchant can receive a data file consistent across all countries the provider supports. 3 Single point-of-contact for all global relationships What happens when there s a question, a problem, or a request? If the merchant must deal with multiple service providers, finding a solution can be a laborious activity. If the merchant has one provider for all multinational services, the merchant can potentially work with just a single relationship manager. Whether the issue involves settlements in Japan or authorizations in the United Kingdom, there s just one call to make. 3 Simplified technical solution The service provider s interface methods should simplify and minimize the merchant s integration effort and maximize global support. The back office operations of the payments process should be practically transparent to the merchant across all different countries and methods of payments. In addition, the service provider s network should virtually eliminate the risk of downtime through built-in redundancy and worldwide, 24/7 support to assure reliability for all service areas. 3 Broad global reach Merchants should assess the different payment providers to see which countries the provider can serve as well as how the transactions in those countries will qualify with Visa and MasterCard (e.g. locally, intra-regionally, internationally). The goal is minimize the number of payment providers required to support your current and future geographical footprint, while maximizing cost efficiencies. 3 Support for a wide range of payment types The payment service provider should serve as a merchant s trusted advisor, ready to assist in opening new markets. The provider should be familiar with and able to support the key payment types by region/country. This would include local payment products like country-specific direct debit or bank transfers, as well as relevant alternative payment types like PayPal or Google Checkout, etc. By knowing which payment types are essential to a given market, ecommerce merchants can maximize their sales results. 3 Ability to optimize interchange costs Merchants offering multiple methods of payment may be able to minimize interchange costs. The greater the provider s global reach, and the more payment types it supports, the better the provider is positioned to help merchants minimize their cost of payment acceptance. Consider an interchange plus or similar pricing model, in which all fee components are transparent (versus a bundled rate offering). firstdata.com 2011 First Data Corporation. All rights reserved. 7

8 3 Advanced fraud management solutions Look for payment service providers offering a robust fraud detection and rules management solution. The fraud rate for international orders is nearly triple the fraud rate for domestic online orders. To combat fraud, global ecommerce merchants need a set of consistent, integrated fraud prevention tools for all countries, rather than fragmented approaches from various third-party providers. Powerful tools and technologies for fraud management include automated transaction risk scoring, device fingerprinting, automated challenge/response questions for identity authentication, and geo-location tracking. An ideal solution enables merchants to adjust transaction risk assessment by region and local payment methods. (see First Data s white paper, Strategies for Reducing the Risk of ecommerce Fraud, for more information). 3 Broad suite of ancillary products and services Providers can be more than just payment processors. The better service providers offer a number of tools and services that help merchants drive incremental revenue and/or lower costs. Prepaid access cards popular with Internet shoppers in many countries. Non-bank-based payment methods, such as general purpose reloadable cards, can be invaluable for teens or people of any age who are budget-conscious, have security concerns, or do not have conventional bank relationships. Dynamic Currency Conversion or other multi-currency solutions maximizes the merchants ability to cater to foreign consumers, enhancing the purchase experience, and driving incremental sales and revenue. Transaction encryption services and other PCI compliance services shifting the burden and liability of holding cardholder data. Opportunities for private label or co-branded credit cards creating custom payment vehicles which drive increase sales, lower cost of acceptance, and/or create new revenue streams. Recurring payment and account updater services maximizing approved sales transactions. 3 Global support for card-present processing Some ecommerce merchants enter a market by first accepting transactions online, and later opening stores in the country. Certain providers can handle both card-present and card-not-present transactions for merchants with physical stores in various countries. Therefore, the merchant doesn t have to seek out a new payment processing relationship for in-store, cardpresent transactions. If that flexibility is important to you, look for payment service providers who can handle both ecommerce payments and in-store payments in the regions you intend to operate. firstdata.com 2011 First Data Corporation. All rights reserved. 8

9 Conclusion As merchants expand their ecommerce business internationally and seek capable providers of global payment acceptance services, they have a wide range options. With so many choices, merchants need to focus on the factors that lead to success. One key is to list the top attributes of your ideal provider of global payment services; then match the capabilities of the prospective provider(s) to the list. Also, determine which prospective providers have geographic coverage footprints that match your planned target markets. The idea is to gain efficiencies by establishing relationships with as few payment service providers as possible in all of your relevant markets. The selected service providers should have the expertise to advise you on all facets of payments in as many regions of the world as possible. Advantages of the integrated, single vendor approach: Saves the merchant considerable time and effort in setting up processes for a non-core area where they lack expertise Creates cost-saving efficiencies through consolidated reporting and fewer technical integrations Enables consolidated, single-source reporting with integrated tools for analytics, reconciliation, and transaction research Gain efficiencies by establishing relationships with as few payment service providers as possible in all of your relevant markets Creates opportunities for better pricing through global volumes and optimum payment methods for specific regions Create efficiencies through fewer contractual agreements and dealing with fewer relationship managers Enables unified fraud management to minimize charge-backs and fraud losses Helps improve the checkout experience with ancillary products and services that drive sales and incremental revenue. Merchants have exciting opportunities to leverage their payment capabilities as a growth engine for global ecommerce. For additional information and strategies for growing your global ecommerce business, see First Data s white paper, Payment Strategies for ecommerce Growth. firstdata.com 2011 First Data Corporation. All rights reserved. 9

10 The Global Leader in Electronic Commerce Around the world every day, First Data makes payment transactions secure, fast and easy for merchants, financial institutions and their customers. We leverage our unparalleled product portfolio and expertise to deliver processing solutions that drive customer revenue and profitability. Whether the payment is by debit or credit, gift card, check or mobile phone, online or at the point of sale, First Data helps you maximize value for your business. About the Author Michael Black has been with the merchant acquiring division of First Data for over six years and is responsible for First Data s international currency solutions suite of products, which includes Global Acquiring, Multi-Currency Processing, and Dynamic Currency Conversion. Prior to joining First Data, Michael spent 11 years at JPMorgan Chase in the card issuing business where he ran strategic new cardmember acquisition channels and also served as senior product executive for two of JPMorgan Chase s co-branded portfolios. Michael is based in New York. For more information, contact your sales representative or visit firstdata.com firstdata.com 2011 First Data Corporation. All rights reserved