For Ecommerce Retailers It's Still a Rough Ride Across International Borders
People and bulk exports move with relative ease across borders but small purchases remain hindered, at least for now.
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Movement across borders is as simple as getting in a car or on a plane. It's a seamless, simple experience to which most people devote little thought. For both merchants and consumers, however, the path to online and offline purchasing across borders is still a bumpy one.
For online and offline consumers, cross-border retail holds the promise of easy access to a wide selection of attractively-priced merchandise not available in their locality. For example, the largest IPO in US history, by Chinese retail portal Alibaba, was part of the company's cross-border strategy to reach the estimated 50 million people of Chinese descent living outside the country. And cross-border retail is taking place, with 23 percent of German e-shoppers having bought from other EU countries, 25 percent from North America, and 15 percent of French internet users having made a cross-border purchase.
However, cross-border purchases can take buyers out of their comfort zone, forcing them to pay in a foreign currency at unclear exchange rates, unable to use their preferred payment methods and unclear on questions of duties, taxes, customs, shipping, and other hidden costs. Many simply abandon the process, and look for locally-sold options.
Related: How Online Retailers Can Ride the Exports Growth Wave
The impacts of these cross-border challenges on consumers are significant. A recent EU study found that 59 percent of consumers feel confident about online purchasing in their own country, but only 36 percent feel confident about purchasing from a vendor located in another EU country. At the same time, the survey found that 26 percent were interested in making a cross-border purchase within the EU during the next 12 months.
For retailers, cross-border transactions can mean back-office administrative headaches, regulatory and compliance woes, steep processing fees, currency conversion overhead, and a markedly increased risk of consumer fraud. The EU study cited above found that the most-mentioned obstacles to cross-border trade are the costs of compliance with different consumer protection rules and contract law (41 percent) and potentially higher costs of fraud and non-payment (41 percent)
For merchants considering cross-border retail, these hurdles can be daunting barriers to entry. As of 2013, only 25 percent of EU retailers sells cross-border to consumers, and this number has dropped since 2011.
Over the past decade, enterprise retailers have worked hard to create synergy between a strong online presence and broadly-dispersed physical Points of Sale (POS). Today, forward thinking retailers are taking the next step towards true enterprise globalization: adopting technological solutions that smooth cross-border retail.
Cross-border merchant challenges
In a global economy, facilitating seamless and cost-effective cross-border sales is of clear strategic importance to enterprise retailers. Cross-border retail is expected to grow twice as fast as domestic sales, so retailers that have overcome the bumps in the road to cross-border retail are already enjoying serious competitive advantages.
There are numerous "small" bumps on the path to cross-border retail, many of which are neither intuitive nor trivial. Two examples are fraud risk and regulations.
According to a recent report by CyberSource, 60 percent of CXOs view orders originating for overseas as having a higher risk of fraud. Instances of consumer fraud on cross-border transactions are typically 2.5 times higher than domestic transactions. When it comes to fraud detection online and at points of sale, it's difficult for cross-border merchants to adapt their screening rules to different consumer behavior, payment methods, regulations and fraud patterns in different countries.
Related: International Online Shopping Expected to Almost Triple in Next 5 Years
In addition to global regulatory issues like PCI DSS and regional compliance challenges like SEPA, cross-border retailers need to ensure compliance with local regulations for the various countries in which they do business. Consumer rights laws governing returns, complaints and refunds differ from country to country. Similarly, countries differ in their privacy and data protection laws for account, address and payment information that merchants can retain.
One big bump is the bottom line
The biggest hurdle for cross-border retailers, however, has to do with the bottom line. The cost and complexity of cross-border pricing and payment processing remain the most significant barriers to entry – and are currently preventing many merchants from entering global markets.
The complexity of managing multiple acquirer relationships and optimizing processing fees on a per-transaction basis - while still maintaining competitive pricing and service - has led many retailers to simply abandon efforts for strong cross-border penetration, concentrating instead on local sales.
Among the challenges cross-border retailers are struggling with is local payment preferences. To appeal to customers and maximize sales in a new country, merchants need a deep understanding of local payment preferences. For example, credit cards in common use in some localities may not be international, and may necessitate a relationship with a local acquirer to accept and process. Moreover, alternative payment methods like e-wallets and mobile payment methods must be taken into account.
Merchants face the challenge and overhead of managing and reporting across a wide range of preferred payment methods, which can differ vastly within regions. Additionally, the cost of new acquirer relationships in local currencies directly affects the bottom line, while at the same time impacting fulfillment and reconciliation.
The effects on IT also require consideration. Every electronic form of payment offered requires connectivity to the relevant payment processing organizations and/or banks, and needs to be implemented on checkout pages or points of sale. Every form of payment, electronic or not, ultimately needs to be integrated with financial, logistical, customer service and other applications. The IT burden and cost can quickly rise as the number of countries and methods of payment increase.
Related: One Ecommerce Tool Makes Doing Business Internationally Easier
Managing duties and taxes is an unavoidable cost of cross-border business. Each country requires different duties and taxes, which need to be clearly presented to consumers on the checkout page or at the POS, and accurately reported to the relevant regulatory and tax authorities.
Be aware of inadvertently hidden consumer costs. Even if cross-border transactions are presented in the customer's currency, they may still be charged a foreign exchange fee by their issuer, which appears as a separate line item on their credit card statement. Helping customers avoid these charges is vital for repeat sales and loyalty.
To smooth the way for successful cross-border retail, it is crucial that retailers do all they can to earn the trust of their potential global customers. Luckily, a number of new technologies are available to help them. That will be the subject of my next article.
Related: 3 Ways Outsourced Shipping and Logistics Can Speed Entry to Global Markets