What’s Missing From Your Cross-Border E-Commerce Strategy?

Driven by the conditions of an unprecedented modern-day global pandemic, 2020 saw a rapid redefinition in the landscape for retailers across the spectrum. Faced with restrictions on physical retail sales, retailers turned to e-commerce platforms to remain operational, while consumers flocked to digital platforms for everything from their essential groceries to luxury goods. This resulted in an estimated 2.1 billion consumers globally shopping online, or roughly 27.6 percent of the planet’s population.

This escalation in momentum is showing no signs of slowing down, with the value of worldwide retail e-commerce sales — which reached a total of $4.2 trillion in 2020 — expected to top $6.5 trillion in just three years' time.

There's an unprecedented level of opportunity for businesses to take advantage of a worldwide marketplace here. However, with great reward comes great risk — especially for those that are unprepared for the challenges of operating on a global scale.

These obstacles are numerous and complex. Many retailers that are stepping onto the global stage for the first time lack the know-how needed to truly succeed across borders. And one of the largest issues that a retailer will encounter? Organizing an effective international payments system.

The nuances of the global payments market are wide ranging, and understanding how to operate around them is vital to success. A business that wants to sell to customers in Brazil but doesn’t support Boleto Bancário, or a business that's marketing to Dutch consumers without accepting iDEAL, will suffer from lower sales and higher decline rates. No matter where you’re selling from, you need to fully understand where you’re selling to.

Yet further challenges are still afoot. As well as offering local payment methods per region, a retailer should accept the relevant currencies to save from being priced out of the competition. This, however, leaves them vulnerable to currency risk from fluctuating foreign exchange (FX) rates, and it doesn’t reduce high cross-border fees. Add this to the fact that even just accepting transactions across borders has an added complexity that can lower approval and conversion rates, and a retailer will find it much harder to keep cross-border operations profitable.

Some of these problems can be easily solved. By enlisting a global payment service provider (PSP), a retailer will have a better understanding of market nuances and be able to accept the right payment methods with the right currency. However, unless they have a physical entity in each region that grants access to local acquiring, the currency risk, high fees, and all the complexities of selling cross-border haven’t gone anywhere.

The answer lies beyond the standard "localization" package from a traditional PSP. Instead it involves turning to the Merchant of Record (MOR) model. This model removes all the challenges with accepting cross-border transactions, as any purchase will be processed as if both the retailer and customer are in the same country. Rather than simply adjusting the checkout to appear local, it adapts a retailer’s whole corporate structure to actually being local — giving them all the benefits of local acquiring across the globe, without needing to fund a presence on the ground.

As the international marketplace continues to grow and competition multiplies, it’s crucial that retailers thoroughly plug the holes in their cross-border strategy in which their potential customers and profits seep. If you’re an international retailer working with a global PSP to process transactions, this is likely yours.

Matt Cannon is chief strategy officer of Reach, the premier partner for ambitious, forward-thinking online brands that want to connect with consumers around the world, expand their business, and increase global sales.