Cross-border e-commerce: How merchants are keeping up with the clicks

Surfing the worldwide web for our purchases can be done without going anywhere. Global merchants are at our fingertips around the clock, no matter where they are in the world.

Merchants are expected to lead us shoppers smoothly beyond the check-out page to actually make the purchase happen, granting the best possible experience for all.

The pandemic has impacted our buying behavior, leading us to purchase even more online from the safety of our homes. It has pushed merchants to go back to basics and re-examine the issues that surround friction, check-out processes, conversion rates, and the need to ensure long-term customer loyalty.

What must these businesses do to remove the hurdles of cross-border purchases and ensure customer loyalty? Which trends do we see, and which examples are leading the way?

Let’s find out!

E-commerce giants set the pace

When it comes to the leaders on the global stage, China is without a doubt the frontrunner with cross-border Business-to-Consumer (B2C) sales of more than USD 100 billion in 2020. This is not surprising, considering that China also represents the biggest market for e-commerce, as well as having one of the strongest positions in online retail sales. Cross-border e-commerce happens almost entirely through popular online marketplaces, such as Tmall Global, where many international brands are selling their products. Rising incomes in the country led to a growing demand for imported products.

Canada and Russia follow to make up the top three biggest cross-border e-commerce markets. Neighboring Canada, the US already has long been considered an option for shopping across the border, and the transition to online sales came naturally. Amazon and eBay lead e-commerce in Canada, with a significant part of their sales generated cross-border.

In Russia, AliExpress operates as a venture between the Chinese parent company Alibaba and Russian partners. Ranking second in the overall online sales, it is the main contributor to the country’s cross-border sales. While planning to increase its share of Russian sellers, the marketplace is currently dominated by purchases made from China.

Shopping at the neighboring frontiers

In some cases, online sales from abroad can count for more than 60%-70% or, as extremes, even more than 90% of e-commerce – as is the case in marginal markets such as Costa Rica or the Dominican Republic. The high share of purchases made from abroad is usually explained by a very underdeveloped online channel locally and by a strong foothold of popular players in neighboring countries.

The two online giants Amazon and Alibaba have a clear focus on their domestic markets, the US and China respectively, but with a wide global presence. Amazon built its local appearance – and solid logistics – in important markets such as Japan, UK, or Germany, favoring local merchants and thus reducing cross-border sales. On the other hand, these hubs also serve as sources for cross-border purchases for other countries in their proximity.

For example, Alibaba’s AliExpress has a significantly different positioning, focused on free or low-priced shipment, but with an extended delivery time that takes weeks. To fix this, Alibaba plans to develop fulfilment centers in different parts of the world, for example in Belgium.

New online sales channels

Besides these giants, there is room for new players as the quick growth of smaller cross-border e-commerce businesses in recent years showed. These smaller businesses can challenge the established brands with mobile oriented strategies, social media focus and influencer marketing. A good example of this is Wish in the US, an online e-commerce platform that brings sellers and buyers together by allowing sellers to list their products on Wish and sell directly to consumers e.g., via social media channels. Wish works with payment service providers to handle payments and does not stock the products themselves or manage returns.

The mix of social commerce, live streaming, content creation, and influencer marketing is the new experiment in e-commerce. While livestreaming e-commerce exploded in China in recent years, North America and Europe are only now pioneering it.

This model is targeting a young audience in a blend of marketing and entertainment. Alibaba made its intentions public in 2020 to build a European network of content creators that could support its livestreaming e-commerce sales expansion. However, replicating the Chinese success story in Europe might be challenging due to the variety in languages, set-up costs, and overall cultural diversity.

Speaking of young audiences, the preferences and habits of Gen Z are indeed representing a key driver for growth, as they start to come of age and become a bigger consumer buying group. Gen Z makes up the second-largest age demographic of early adopters, having a heavy influence on their families’ spending, and a spending power of their own worth USD 44 billion.

These younger consumers are driving the adoption of omnichannel shopping, digital wallets, and social commerce, and they will undoubtedly influence the success of voice and Internet of Things (IoT) commerce – something that is set to become a significant differentiator for innovative merchants.

The merchants must get ready to ensure that they can fulfil the experience-related expectations and preferences of their customers and of the digital native generations that will become the core consumers of their products and services.

Trending payment customs

When it comes to payments, these have always been a pain point with e-commerce, especially for cross-border merchants. Most shoppers have certain preferred payment methods, with the rest not being of interest to them.

Indeed, research by the payment service provider ACI Worldwide shows that 59% of shoppers will abandon a transaction if their preferred payment method is not in place. It also illustrates that - from their working experience with merchants - offering three payment methods can lift conversion by up to 30%.

Increasingly, merchants are understanding that customers in different demographic groups and different geographies are looking for different payment options. Preferred payment methods also vary by device and customer engagement status (as both consumer and merchant build a more trusting relationship). Any merchant looking to grow, domestically and especially across borders, needs to focus on investment in this area – particularly on tailoring payments choice.

To keep up with the pace, merchants also need to consider supporting a few global trends. The use of mobile payments and digital wallets is continuing to grow, as is the adoption of ‘buy now pay later’, instant credit, and ‘pay by instalment’ options.

Buy now pay later is a particularly interesting trend, and it is also presenting some great benefits for merchants, with an average 15% higher order value and 30% higher customer lifetime value for shoppers using this payment option.

The move to consumption-based commerce

For future perspectives, consumers are indicating that ‘ownership’ is no longer as important to them as it was before, and they are increasingly opting for usership and consumption-based buying. As a result, subscriptions, recurring billing, and flexible payment options are emerging as a strong growth trend, and this can potentially offer new business models and sales opportunities for many merchants.

The continued rise of ‘invisible payments’ is relevant there as well – where the payment process happens seamlessly behind the scenes.

Challenging roads

What challenges do merchants face in preparing for these opportunities, and how can they make sure they can meet the expectations?

Creating new customer experiences is a core component in both driving overall e-commerce growth and improving conversion. Personalization of the customer’s journey will be able to generate relevant offers and discounts based on consumer spending habits and loyalty.

The e-commerce conversion rate is an area that businesses have always found to be no small undertaking to improve. The proportion of successful transactions relative to the number of shoppers who make it to the payment page is a constant key performance indicator.

It starts with the payment button. Even the psychology of color directly influences the consumer’s behavior at the payment checkout. Should the ‘buy now’ button be red, yellow, blue, or green? Payment page checkout design is vital to improving the conversion rate and changing the color of the ‘buy now’ button can be one of many adjustments that will hugely change the conversion rate.

Furthermore, localization of payment acceptance is required to support local payment solutions, local payment options, and personalized digital payment journeys to win and retain customers. How consumers prefer to pay in each country will equally change the conversion rate. As mentioned earlier, if the top three preferred payment options are not offered, the buyer is likely to abandon the cart.

At the payment crossroad

When it comes to the actual payment process, merchants rely largely on payment providers. These have an important role to refresh the technology supporting cross-border payment systems, largely existing on legacy platforms that were built when paper-based payment processes were computerized, and the design focus was only on domestic payments.

The trend of Open Banking and open APIs will define the methods for sharing payment and non-payment data across businesses. APIs already allow businesses to connect to Alternative Payment Methods (APMs) and other non-payment related services, such as loyalty, authentication, and fraud prevention. APIs are providing cost efficiencies as well as opening up new channels, such as internet enabled devices, smartphones and wearables – the Internet of Things (IoT).

When deciding on their payment strategies, merchants will be more cost-conscious and therefore cross-border payment providers must offer a compelling value proposition.

In the case of including real-time payments into the payment mix, merchants should also be aware of the accelerated money movement between consumers and businesses (B2C) as well as between businesses (B2B). Therefore, it is crucial that the e-commerce ecosystem with payment providers, API service providers and merchant businesses are aligned to be in control and keep track of the payment to guarantee a smooth and hassle-free digital payment journey.

Reducing payment friction in cross-border payments is fortunately also in focus for the G20 as they have this at the top of their agenda, supported by the Financial Stability Board (FSB), the Committee on Payments and Market Infrastructures (CPMI), and a range of industry standard setting organizations.

Breaking down the walls between digital experience and the payment process

Cross-border payments have been growing in economic importance ever since the 1990s with the contribution of the increased international mobility of goods and services, capital and people. With the COVID-19 pandemic speeding up the transformations in the retailing industry, cross-border e-commerce is definitely here to stay. It provides the best prospects for growth over the next years, while cross-border sales are expected to continue to increase their share.

As the opportunities multiply, scale effects simplify and standardize the number of integrations and third-party service providers will offer a range of microservices that will revolutionize digital customer experiences.

New customer journeys will emerge where a personalized service in the future will allow, for example, the ‘buy now’ button to be automatically colored based on the customer’s preference or their funds availability or capacity to accept a loan or even spread the payments over a series of instalments.

Merchants need to deliver the right customer experience, which means supporting innovative customer journeys and catering to shopper preferences. To achieve this, it will be crucial for these businesses to break down the walls between the digital experience and the end payment process in order to make sure the entire journey is seamless. This will mean using simple, but effective tools that can unlock the potential of growing sales channels.

It will also be vital to remove the barriers between channels to enable true omnichannel journeys and bring digital payment experiences to the store environment as well, including pay-in-aisle, mobile payment apps, and QR code acceptance.

Ultimately, to take advantage of the opportunities ahead, an additional option for merchants is connecting to a flexible, future-proof payments platform that enables them to innovate and adapt quickly and cost-effectively to stay ahead of their competitors – and customer demand.

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Source: The Cross-Border Payments and E-commerce Report 2020-2021 - The Paypers