Table of Contents. Report Overview 03. Introduction: The World of Affiliate Marketing 04. Survey Overview 05

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1 U.S. Survey Results and Report on the Industry and Global Payment Processing September 2009

2 Table of Contents Report Overview 03 Introduction: The World of 04 Survey Overview 05 Results: The Need for Increased Speed and Reduced Cost 06 Improvements: Five Steps for Efficient Global Payment 07 Processing Conclusion 09 About EntroPay 10

3 Report Overview Affiliate marketing is a successful Internet marketing practice that helps drive website traffic, increase online visibility, complement other marketing activities and deliver measurable returns for organizations especially when executed on a global scale. However, payment continues to be an issue for affiliates, often due to high thresholds and the slow speed of sending money across regional borders. EntroPay recently surveyed 100 merchants, affiliates and affiliate networks and found that 98% of US affiliate marketers are primed for expansion overseas, but most are unprepared to manage the costs and delay of international payments. Of those with experience in making or receiving international payments, over 63% are dissatisfied with the speed and cost associated with such payments. Twenty percent see payment processing as one of the biggest challenges facing the industry. This report discusses the state of the current global affiliate marketing industry and the results of the recent EntroPay survey of U.S. affiliate marketers. The report will also discuss the top issues related to international payments, and the steps affiliate marketers can take to ensure that international payments are made as quickly and efficiently as possible. Page 3

4 Introduction: The World of Affiliate marketing is an Internet-based marketing practice where affiliates promote a third party s business and are rewarded by that business for each sale - or any other prescribed action completed by the referred customer. It is one of the most popular sales and marketing channels in the online sector, with spend expected to increase $3.3 billion in the United States by Currently, affiliate marketing constitutes approximately 20 25% of all e-commerce sales 2. Affiliate marketing is used by brands looking to increase online visibility, complement other marketing activities and deliver measurable returns. Due to its performance-based nature, affiliate marketing presents a relatively low-risk marketing option for merchants and requires minimal initial investment. However, the industry is not without its challenges. Decreased marketing budgets, increasing payment speed and developing an industry standard for making payments are challenges that EntroPay pinpointed through a recent survey conducted at the Affiliate Summit East conference in New York City in August The survey of U.S. affiliate marketers revealed that 98% of respondents are primed for overseas expansion, but most are unprepared to manage the costs and delays associated with international payments [Figure 1] 3. The research conducted by EntroPay indicates that despite immense growth in affiliate marketing in the last few years, U.S. affiliate marketers still require significant improvements in their payment processing, especially when conducting business overseas. 1 Jupiter Research, US Online Forecast, [June 2008] 2 ADOTAS, The New Frontier of [September 2009] 3 EntroPay surveyed delegates at the Affiliate Summit East 2009 conference, including affiliates, merchants, networks and other industry figures [August 2009] Page 4

5 Survey Overview In recognition of the increasing importance of international payment processing to affiliate marketers, EntroPay demonstrated its Simple, Instant, Global payment service at Affiliate Summit East In addition, EntroPay surveyed 100 delegates during the event, asking questions related to the current state of the affiliate marketing industry and international payment processing. The following is a summary of the results: Highlights of Survey Results All respondents had operations in North America, with about 25% having overseas operations. Almost 100% of survey respondents see a potential for conducting business overseas in the near future, with over half already conducting business overseas. Decreased marketing budgets, developing an industry standard for making payments and increasing speed were the top three challenges to affiliate marketing according to respondents. Fraud was also identified as a pain point [Figure 2]. Although a majority of respondents claimed to be happy with the overall process of making and receiving payments, almost 50% were dissatisfied with the administrative costs associated with issuing such payments. Speed is a major concern for U.S. affiliates, according to survey results. Over 50% of respondents were dissatisfied with the speed in which payments are made, and almost 20% felt it was the biggest challenge to the industry. Checks and bank transfers are still the predominant methods of payments for overseas transactions for the companies represented within the survey. The majority of affiliates and merchants believe that increased banking fees will have no effect on affiliate marketing activities, and that customers will inevitably move online. Page 5

6 Results: The Need for Increased Speed and Reduced Cost EntroPay s survey results show that payment continues to be a source of confusion for U.S. marketers looking to conduct business overseas. Survey respondents ranged from affiliates with 2 or 3 brands to over 1,000. Over half of the affiliate marketers surveyed were already making payments abroad. Of those with experience making or receiving international payments, over 63% were dissatisfied with the speed and cost associated with international payments. Approximately 20% saw payment processing as one of the biggest challenges facing the industry [Figure 2]. Administrative costs associated with international transactions can be as high as $40 per transaction in terms of processing costs. This does not factor in the cost of currency exchange that is often left to the affiliate to cover when sending payments across international borders. Over 67% of those surveyed still use slow and expensive bank transfers and checks as their predominant payment methods rather than more efficient pre-pay solutions [Figure 3]. Only 23% of respondents were using a pre-pay solution, which could reduce costs substantially. Page 6

7 Speed proved to be an even bigger concern related to international payment processing, which is not surprising since cash flow can be a challenge for growing affiliates. More than 50% of respondents were dissatisfied with the speed in which payments were made, and almost 20% felt it was the biggest challenge to the affiliate marketing industry. Improvements: Five Steps for Efficient Global Payment Processing 1. Increase Speed. EntroPay research shows that speed is a major concern for U.S. affiliate marketers. Over 50% are dissatisfied with the speed in which payments are made, and almost 20% feel it is one of the biggest challenges to the industry. To overcome the inefficiencies and costs that are traditionally associated with making payments, a global industry payment standard should be developed particularly for online operations where the boundaries between countries can be more easily crossed. This would allow payments to be processed instantly, with predictable costs around the world. Merchants would not have to worry about the amount, destination and method of transmission and redemption of the payment. 2. Avoid Monthly Banking Fees. While the industry has grown in both size and global reach, so have banking and administrative fees that impact affiliate marketers who conduct business outside the US. According to a recent study by Moebs Services, an economic research firm used by banks and federal regulators, many banks are boosting fees and requiring higher minimum balances for many accounts to make up for declining revenue. One area of particular concern is fees associated with international transactions and payments. For affiliate networks and merchants who conduct business internationally there are two common payment options: conduct an expensive wire transfer or send international affiliates a US-issued check. As a result, the administrative costs associated with international transactions and payments can often be as high as $40 per transaction both in terms of processing costs and time taken to make the payment across different countries. Jennifer Waters, the personal finance editor of The Wall Street Journal, recently highlighted this issue of the increased cost of currency in a recent article titled, Sneaky Bank Fees Biting Unsuspecting Consumers. EntroPay offers a simple, cost-effective alternative for merchants to pay customers and affiliates quickly, securely and efficiently. Merchants can use EntroPay to avoid the high cost of issuing checks and make payments anywhere in the world. Page 7

8 3. Use Innovative Payment Methods. There are a number of common ways in which international payments occur in affiliate marketing, but checks and wire transfers remain the most popular, relying heavily on banks. According to the Norges Bank Annual Report on Payment Systems, transactions between banks in different countries normally require more resources to process than domestic payments. Cross-border payments therefore often involve two or more banks, many manual tasks and payment systems that are not always well coordinated. 4 A recent survey conducted by AffStat found that 62% percent of affiliates prefer to be compensated through direct deposits and bank transfers; however, EntroPay research reveals that checks are still the predominant method employed by affiliate marketers with checks and wires accounting for 67% of the respondents payment methods. 4. Be Aware of Currency Conversion Rates. In a turbulent global economic climate, currency conversion is one of the fees that often increases, sometimes unexpectedly. Most online pre-pay systems and banks charge significant fees for currency conversions, whether online or offline. The fees can range anywhere from one to three percent per transaction. Pre-paid open loop cards that operate with international card networks such as Visa and MasterCard are one way to keep currency conversion fees down. They can provide an economical, simple and secure way of paying affiliates by eliminating the high cost of checks, SWIFT transfers, currency conversions and administration. 5. Always Focus on Security. There are a myriad of threats in the online world, with fraud being arguably the biggest problem. Online payment transactions are most publicly affected by lapses in security. Figures estimate that over 10 million people in the United States were victims of identity theft in 2008, resulting in a loss of approximately $50 billion. EntroPay also found that fraud was a frequent complaint mentioned by survey respondents. According to a recent article by The Guardian, a British newspaper, millions of dollars per year are lost in human error related to online banking transactions. When making transactions online, affiliates have to ensure that their end-users are operating in a secure environment. These risks increase when payments are made across borders, particularly when currency conversion is part of the equation. 4 Norges Bank Annual Report on Payment Systems [2008] Page 8

9 Conclusion U.S. affiliate marketers recognize that business is moving online, which will increase the potential for overseas business in the near future. However, the overseas market is unfamiliar territory to many who still use bank transfers and checks as their predominant payment method. U.S. affiliate marketers also reveal a disparity in their satisfaction with the payments. While the majority claim to be happy with their current payment processes, more than half expressed dissatisfaction with the speed and administrative costs. To minimize the administrative cost of global payments, a single industry standard for payments should be implemented. This will enable businesses to reduce their costs and increase the efficiency of payments relating to processing costs, time spent to issue payments, reconciliation and payment status tracking. The use of a standard global payment process, particularly when operating online, will allow merchants to make fast, convenient payments. This will strengthen the relationship between both affiliates and merchants, as they require technologies and services that work across regional borders and are able to adapt to a rapidly changing market. Since security and human error will always cast a shadow over conducting business over the Internet, it is important for affiliate marketers to take the necessary steps to ensure that their payment processes are as secure and structured as possible. Page 9

10 About EntroPay EntroPay offers a simple, cost-effective alternative for merchants to pay customers and affiliates quickly, securely and efficiently. Merchants can avoid the high cost of issuing checks and make payments anywhere in the world with no currency conversion issues. EntroPay is one of the most cost-effective, convenient and rapid means for businesses and consumers to make safe and controlled online purchases and to remit funds around the world. EntroPay has operated since 2003 by Ixaris Systems, Ltd, which is certified to issue e-money for EntroPay by the UK Financial Services Authority and is registered as a Money Service Business with the HM Revenues and Customs in the UK. For more information, visit Page 10