Alternative Payment Methods
Localising for a global market share
Offering alternative payment methods, to the markets in which it is most popular will significantly increase revenue. Bumble & Badoo (a dating app) has effectively adopted this strategy, by always offering one of each type of payment method in its wizard:- Credit card/debit card, E-wallet & SMS; whilst simultaneously integrating with as many alternative payment types as possible and a/b testing the performance of different payment methods, in each market. As such, Badoo now returns more profit from their E-wallet and SMS mobile payment methods, than via Credit or Debit Card. Here is a summary of the key alternative payment methods in each market:-
North America
Businesses can reach the majority of shoppers in the enormous U.S. market with a combination of credit cards and PayPal. However, up-and-coming ways to pay include mobile payment/one-touch methods such as Apple Pay, Android Pay and Samsung Pay, and debit cards should not be discounted.
In the case of Canada, debit is more favoured, and Interac — a debit-based online payment method, is highly popular.
United States
The world’s second-biggest retail e-commerce market (after China), the US is dominated by cards, with PayPal the only alternative with an impact on the market. Around 95% of the US population are Visa/MasterCard holders with Visa the leader when measuring combined debit and credit card purchase transactions.
Apple Pay, Android Pay and Samsung Pay have been generating an enormous amount of excitement, particularly around mobile payments at the point of sale.
Canada
Canada is the global leader in cross-border e-commerce for retail, with cross-border purchases accounting for 75% of all online transactions. Not surprisingly, most of these purchases are made from businesses located in the US.
Credit cards still remain the preferred payment method, followed by Interac and PayPal. Whilst Interac is a local direct debit scheme, it also provides online banking, which can be used for online purchases.
Not only are Canadian shoppers open to cross-border e-commerce, but no local entity is required, even when using Interac. This makes it an exceptionally easy market to enter.
Europe
As an open market with a high concentration of affluent shoppers, Europe presents many opportunities.
Crucially, when evaluating any European market, businesses must consider local payment methods, which can vary as much as local language. With the right approach to localization and payment methods, businesses can reach shoppers across Europe with relative ease.
France
France presents a large market opportunity, with a relatively high ease of doing business. Carte Bancaire (an interbank scheme that requires a connection to a local acquirer) dominates the payments landscape and cards are usually co-branded with Visa or MasterCard.
No local entity is required in France, although (as is the case with most Eurozone countries) an EU entity is mandatory.
Germany
Germans are some of the most open shoppers in the world when it comes to cross-border e-commerce, with over 50% of online retail purchases taking place on an international website. Yet despite this willingness, non-credit card payment methods such as SEPA Direct Debit, (a Europe-wide Direct Debit system) SOFORT, and Giropay account for the majority of online transactions.
In addition to these methods, another popular payment method in Germany is an open invoice, where a third party pays the merchant for products and services purchased by shoppers and then collects payment from shoppers after delivery.
Due to its openness to cross-border payments and size, we recommend businesses considering Europe, enter Germany first.
Ireland
Credit and debit cards are very popular in Ireland, with Visa leading the way. Debit cards are more popular than credit cards and are expected to further increase in popularity as a payment method.
Israel
Card use in Israel is high, with debit card usage expected to increase. A popular local card brand is Isracard, which is often co-branded. A connection to a local acquirer is necessary to process domestic payments in Israel.
Italy
Despite having a primarily cash-based economy, Italy is the fifth-biggest e-commerce market in Europe, and e-commerce growth is expected to be faster in Italy than in most major European markets over the next few years.
Pre-paid cards are the most popular card type, due in part to (perceived) better security and decreased costs. The most popular credit card is CartaSi (which are co-branded with MasterCard and/or Visa) whilst the most popular prepaid debit card is Postepay (co-branded with Visa).
Netherlands
While purchasing from international websites is relatively common in the Netherlands, the most popular payment method — iDEAL — is local to the Dutch market. iDEAL is an inter-bank system covered by all major Dutch consumer banks, allowing shoppers to use their bank account for online purchases. Direct debits and open invoice payments are also fairly popular.
Offering iDEAL as a payment method is crucial due to its massive share of online payment transaction volume. Due to its openness, merchants should consider the Netherlands as one of the first European markets to enter.
Poland
Online banking is by far the most preferred payment method in Poland, with online credit card use relatively modest in comparison.
The Polish market is easy to enter, with no local entity required and like-for-like settlement supported. However, Polish issuers require cardholders to register their card the first time they make a purchase. — If they do not, the card is systematically declined for any online purchases.
Russia
Russia is a prime example of a major market in which credit cards are not dominant. In fact, cards represent less than half of online transactions. Instead, the most popular local payment methods are e-wallets, including:
Qiwi, an e-wallet that claims 70 million unique users a month. Qiwi wallets can be topped up at one of 150,000+ payment terminals, as well as with credit/debit cards, on a phone, or with a WebMoney account.
Yandex. Money, an e-wallet with top-up options including prepaid scratch cards, plastic cards, online banking and cash.
In Russia, payments through ATMs have been very popular for a long while, and the increasing sophistication of the terminals has resulted in a more seamless payments environment that now includes automatic top-ups and recurring payments.
No domestic entity is required and it is easy to access the vast majority of payment options (wallets and cards) in Russia.
Spain
Card use is very popular in Spain, with over 85% of the population in possession of at least one debit or credit card. Using prepaid virtual cards for online purchases is increasingly popular.
For optimal authorization rates, having access to a local acquirer is recommended.
Sweden
While credit cards remain the most popular way to pay online, Sweden is at the forefront of open invoice payments, a payment method that is expanding internationally and is now the second most popular payment method in the market after cards. Online banking through major banks such as Handelsbanken, SEB and Nordea, is the third most popular payment method.
Open invoice applies particularly to retail, rather than digital goods.
Turkey
With a young, mobile-savvy population, Turkey is one of the fastest growing e-commerce markets in the world, with around a quarter of online shoppers using mobile to make purchases. While credit cards are highly popular in Turkey, prepaid cards are enjoying the highest growth in usage.
There are some regulatory requirements within the Turkish market that may present challenges to some merchants. These include 1. Installments on credit card payments are popular, but can only be offered by connecting to individual banks. 2. Cross-border acquiring can lead to shopper surcharges and instalments are only possible if connected to a domestic acquirer. 3. 3D Secure is mandatory for debit cards and recurring payments are not supported for debit cards.
United Kingdom
UK shoppers are world leaders in terms of mobile shopping and debit cards are very popular, with the average shopper holding between 2–3 cards. Cards account for approximately 90% of all online payments, with online banking being virtually non-existent.
Currently, the UK is the only European country where AVS (Address Verification Service) is supported. 2. There is strong issuer support for 3D Secure (an extra security step in the payment process designed to stop fraudulent transactions) and the UK is one of the few countries where enabling 3D Secure actually improves overall conversion.
Latin America
Latin America is arguably the region with the most potential for e-commerce growth in the coming decade — which is partly due to the relatively slow rise of mobile up until now.
Although economically dominated by Brazil, significant opportunities and in some cases faster growth is occurring in other markets.
Argentina
In Argentina, around 44% of online payments are made with debit and credit cards, which is balanced out with a similar percentage of cash-based methods such as PagoFácil and RapiPago.
A local entity is required to accept payments in Argentina, and there are legal and fiscal limitations regarding the repatriation of funds.
Brazil
Brazil represents over 40% of LATAM’s e-commerce, with retail online sales reaching $19,79 billion in 2015 and a 13,5% growth expectation for 2016.
Brazilian shoppers are avid credit card users, with the overwhelming majority preferring credit cards for their online purchases. It is important to note that many of these cards are not enabled for cross-border payments.
Another important payment method is Boleto Bancário, a cash-based payment method initiated by the consumer, resembling the process of a bank transfer. Customers who do not have a bank account or credit card typically use this method.
Finally, another key fact of the Brazilian payment landscape is that up to 80% of all e-commerce payments are made in instalments, where partial payments over a period of time are made to finance purchases.
To offer payments in instalment, merchants must be connected to local Brazilian acquirers. Many Brazilian cards are also limited to domestic transactions only, which also require a connection to a local acquirer. A direct connection to a local acquirer also benefits shoppers as they avoid paying local government taxes summing up to 6.38% for each cross-border transaction.
Chile
Online payments in Chile are dominated by credit cards. However, all credit and debit card brands need to be processed via an affiliate held jointly by local banks. Local payment methods include Servipag. In this particular market 3D Secure is compulsory for online debit and credit transactions.
Recent tax changes increased difficulty around the repatriation of funds for international merchants operating on a cross-border setup.
Mexico
Mexico is the second-biggest retail e-commerce market in Latin America and compared to Brazil, a much more mobile market when it comes to online purchases. Besides cards, cash-based payment methods, like OXXO, and bank transfers are also popular, with a smaller percentage of payments occurring via PayPal. Installments (for cards) are also popular, and a domestic entity is required to support this type of payment.
Installments (for cards) are also popular, and a domestic entity is required to support this type of payment.
In Mexico, many domestic cards are not enabled for cross-border purchases and use of local acquirer is therefore recommended to increase authorization rates.
Asia Pacific
The Asia Pacific is home to over 4 billion people (60% of the world’s population) and some of the most exciting growth economies.
It is also the most diverse regions in terms of payments. But don’t let that deter you. In many cases, it is possible to tap into this enormous market potential with relatively high speed and little investment.
Australia, China, Indonesia, and the Philippines for example, do not require local entities to start selling. So, with the right payments solution, connecting with shoppers in these markets can be pretty easy.
Australia
In Australia, digital buyer penetration is among the highest in the Asia Pacific, and cross-border e-commerce already accounts a significant chunk (36%) of online retail purchases made by Australian consumers.
With no requirements to set up a local entity, a card-dominated payment culture, and a population already used to buying from international businesses, Australia represents a relatively easy market to enter for global businesses.
China
China is the biggest e-commerce market in the world, and Chinese online shoppers are overwhelmingly young and located in major cities. A majority (70%) of shoppers in the market have completed a purchase using their smartphone.
The three major payment methods are China UnionPay, Alipay, and Tenpay.
UnionPay is the only interbank network in the market and is the largest card scheme in the world by the number of cards issued. This makes, UnionPay a vital part of the payments mix, although it is worth noting that, for some business types, UnionPay transaction volume may vary.
Alipay is the largest single payment platform in the market, with around 48% share and a bigger slice of the fast-growing mobile pie. Its dominance is due to its web properties (Taobao in particular, which is the Chinese equivalent of eBay).
Tenpay is integrated with QQ, a mobile social platform that includes shopping, gaming and microblogging.
It is not a requirement to set up a local entity in China. This means that with a payments solution that supports the key local payment methods mentioned above, China is a relatively straightforward market to enter in terms of payments.
Hong Kong
Credit cards are expected to remain as the most popular payment method, and China UnionPay is growing in popularity. No local entity is required for cross-border transactions, and it is easy to accept payments in the domestic currency and settle in the same currency with no impact on currency conversion.
India
Traditionally a market with low credit card market share, non-cash transactions are rapidly growing in popularity in India. Additionally, online banking, debit cards, and prepaid cards are experiencing increasing popularity. However, it should be noted that while our data focuses on digital payment methods, cash on delivery is still the predominant payment method for online purchases.
India is one of the few markets in which introducing 3D Secure at the checkout stage actually has a positive impact on authorization rates. In fact, 3D Secure is mandatory for all domestic transactions. Therefore, businesses should apply 3D Secure to cross-border transactions for the Indian market.
Indonesia
Indonesia is the giant of Southeast Asia and currently undergoing an e-commerce revolution. With 60% of the online population accessing the Internet through smartphones, it is no wonder that significant growth can be seen in mobile payments and e-wallets.
In Indonesia, a local entity is not required to offer local payment methods. However, for Visa and MasterCard acceptance, it is required. Since the majority of transactions are made with local payment methods, with smartphones the preferred way to go online, businesses are advised to consider implementing a payments strategy with these two factors in mind.
Japan
Japan is the world’s fourth-biggest e-commerce market, and although dominated by cards, a popular way to pay there is via Konbini, which allows for online payments to be completed offline in 24/7 convenience stores.
Japan is the world’s fourth-biggest e-commerce market, and although dominated by cards, a popular way to pay there is via Konbini, which allows for online payments to be completed offline in 24/7 convenience stores.
Malaysia
With cross-border purchases accounting for 40% of all e-commerce transactions, Malaysian shoppers are very open to making purchases from international websites. Because online banking is so popular in Malaysia, shoppers are used to being redirected to their online banking environment when making a purchase, which has implications for recurring and one-click payments.
While a domestic entity is not required for international credit cards, it is important to note that it is required to access domestic payment methods, which account for a significant percentage of online transactions.
The Philippines
Mobile payments are growing quickly in the Philippines, with methods such as SMART Money and Globe GCash among the leaders. As with a number of other APAC markets, retailers should bear in mind that cash on delivery is dominant for retail goods.
A local entity is not required for the Philippines, and as with other emerging economies, a mobile-first strategy will help in connecting with the critical mass of Filipino shoppers.
South Korea
South Korea is the third-largest retail e-commerce market in the Asia Pacific (after China and Japan). The average South Korean shopper holds an average of four credit cards, and around 80% of online transactions are card-based.
Most local cards are co-branded with Visa and MasterCard and require a market-specific authentication process — which only works in Internet Explorer — in order to be approved. While this authentication process will likely no longer be mandatory in the near future, it will still be widely used for some time, and merchants entering the market should, therefore, keep it in mind when formulating a payments strategy.
Taiwan
Credit cards are a popular choice in Taiwan for online payments, with nearly 80% of all transactions made via credit and debit cards.
Thailand
With Internet penetration at under 50%, Thailand is one of the big growth markets for e-commerce in the years to come. Credit cards are a popular online payment method in Thailand, with shoppers in urban centres possessing multiple cards. Various prepaid cards are also in the market as well co-branded credit cards, but local payment methods remain wide-spread.
Among local payment methods, in-store payments, where the shopper receives a barcode via email and pays in a physical location, remain a popular choice.