Cross-border payments: no ‘one-size-fits-all’ approach

Electronic commerce (e-commerce) is experiencing explosive growth on a global scale, with an expected 19% growth over the next five years. When we focus the lens on Asia Pacific countries, we are also seeing new digital methods of payments fuelling the growth of e-commerce in the region.

Such ‘alternative’ payments, especially for lower value transactions, are expected to surpass traditional card-based payments by 2017. An ACI Worldwide survey across nine countries in the Asia Pacific region, found that 82% of consumers who participated have had experience with trying out new digital payments. With this trend in mind, it is much more important for businesses to offer the right payment methods for a given market rather than an exhaustive list of options.

The draw of business expansion lies in the opportunity to open up new prospects and revenue streams. However, payment setups in each country need to be carefully considered, which brings about additional factors for merchants to consider as well before they take the big step of expanding. More than ever, it is particularly essential to address both the added complexity and potential for fraud.

Addressing complexity in cross-border payments

When attempting to expand into several markets simultaneously, the business complexity is amplified due to development and integration processes placing strains on the company’s resources. Merchants not only have to form the right strategic partnerships and execute their expansion plans with the right timing, but also possess the right technological tools and operations to provide payment methods for their customers.

A case in point is US multinational entertainment group Netflix, whose foray into international expansion has been hindered by its payment model in the Southeast Asia region where less than half of its 600m citizens owns a credit card. It is crucial to understand consumer behaviour in local markets and also their payment preferences and reception to alternatives in a region with high smartphone penetration. According to a 2015 survey by ACI, newer methods of payments with mobile platforms such as smartphone wallets and online payment tools are being driven by sophisticated mobile-savvy millennials in Asia Pacific. Companies may understand the need for digital payment offerings to keep their user experience fresh, but how should they manoeuvre in new territory without straining current resources?

One way to address the complexity is to simplify the merchant’s processes within the payments ecosystem across countries. A growing trend evident from the past year is payment initiators such as retailers and billers seeking to work directly with payment operators such as banks, to cut out intermediaries in the payment value chain. Banks are seen as the primary provider of payment services, with 89% of Apac retailers that surveyed wanting to work directly with banks. This will allow the payment initiators to not only reduce complexity, but also lower their payment costs and provide new offerings to compete in each marketplace across the region.

Another way is to streamline payment processes with online payment providers, which is also gaining traction among Apac retailers. Timeliness is key for businesses to stay competitive in the region’s e-commerce market. Taking for example Singapore’s launch of Android Pay in June this year, forward-thinking merchants must be open to such payment changes and make preparations to support them as soon as they arrive in the market. Seventy-two percent of Asia Pacific transaction banking executives surveyed believe that consumers will ultimately benefit from new methods of immediate payments. Businesses themselves will also stand to benefit from improved liquidity management, lower risks and faster transactions.

Addressing fraud and risk in cross-border payments

Asia Pacific covers a broad geographical landscape, and the diversity of payment methods across the region requires a tailored approach to risk management. While online purchases or business transactions can be most conveniently completed through open invoices, this “buy now, pay later” option would certainly increase the risk borne by merchants.

Now that e-commerce is growing at a double-digit rate, consumers are also demanding new payment alternatives. Eighty-two percent of Apac banks, retailers and billing organisations that were surveyed say that new competitive pressures and the threat from financial technology (fintech) entities are driving investments into their own payment systems. While companies may be eager to incorporate digital payments into their business expansion strategy, such new technologies into the market come with the threat of online fraud in unchartered territory. How then can companies manage this risk?

Speaking to payment providers at the Total Retail & Payments Expo, a two-day event held at the Melbourne Convention and Exhibition Centre in May, we found that one in three of them identified e-commerce fraud and the theft of consumer payment details as their biggest security concern. Not only did 70% of Apac retailers agree with this sentiment on customer payment details, 60% also said that card-not-present (CNP) fraud is becoming a pressing issue in the wake of e-commerce growth.

Companies clearly need support for fraud management – and payment providers need to support merchants who want to expand regionally amid the risks. A single technical integration to a global payment network is one way that payment providers can offer better value and security. Each merchant will have their unique business model and expansion strategy, but fraud management providers should be an integral part of a cross-border e-commerce plan.

Gaining access to specialist insight is not only vital for companies to configure the relevant fraud prevention tools for each local market, but such expert risk analysis is key for customising the company’s fraud settings to maximise sales conversions. Simply put, the settings cannot be too lax such that fraud can easily occur, or too conservative that genuine customers are identified as threats and hindered from the company’s platforms. This may be difficult for merchants to figure out alone, and thus security may be best relied on from an outside expert for help to strike this fine balance.

Conclusion: Businesses must be prepared to open up

Being ‘open’ will mean that companies must have the will to constantly adapt and evolve. We can see that the pace of Asia Pacific’s e-commerce landscape is swift and, in order to support this ecosystem, the underlying payment technologies must not restrict the merchants that want to keep up.

Payment providers wanting a piece of the digital payments pie may only have closed legacy systems to offer. However, the good news is that REpresentational State Transfer (RESTful) application program interfaces (API) architecture is quickly becoming an industry standard. This approach to online service development allows payment providers to offer better innovation and individualised offerings for companies. Such open types of payment platform technology are now essential for merchants to be able to overcome the complexities and challenges of international expansion.

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