Cross-border payments are booming. The Bank of England forecasts the cross-border payments market to reach $250 trillion by 2027, up from $100 trillion in 2017. Accelerated by e-commerce ($4.2 trillion in 2020 – 18% – of the global retail market) and mobile payments (research by GlobalData finds that more than 4 billion downloads of financial apps were achieved in the same year), a global market for goods and services is now available to the average customer. Any company that is serious about its growth prospects wants to capitalize on it.
However, not all growth prospects are created equal. The e-commerce market is expanding everywhere, with GlobalData forecasting a global compound annual growth rate (CAGR) of 12% between 2021 and 2025. This rising tide continues to elevate traditional e-commerce hubs, with the US forecasting a CAGR of 9.84% over the same period. But a new breed of high-growth, still-transforming markets are the driving force. For example, in Singapore, the CAGR forecast for e-commerce over the period 2021-2025 is 16.2%, rising to 17% in the Philippines and 18.2% in India. With big growth in untapped markets comes big opportunities for big e-commerce players. You need sophisticated cross-border payment solutions to get the most out of them.
Roman Tazetdinov is Head of Geo Expansion in Worldline’s Digital Commerce department. “In principle, growth markets or emerging markets have the same complexity,” he says. “But if we talk about advanced models like Europe and the US, payments there are standardized and you don’t have any significant barriers to managing funds between countries. On the other hand, if we look at high-growth emerging markets, we see that they are trying to limit capital outflows from the market.” Although giant emerging markets such as China, India and Korea have eased some of their capital controls in recent years, restrictions on exchanging one remain currency to another. Businesses can be cut off from the fruits of their labor.
The sheer volume of payment methods can overwhelm even cross-border rookies. Alipay mobile wallets are now dominant in China and spreading across Southeast Asia, competing with traditional operators like Visa and Mastercard and bringing with them new security requirements. South Korea, for example, has eight different major card brands, each with subtly different dispute procedures and payment terms. All this against the background of the currency upheaval. Turkey’s inflation rate exceeded 70% in June 2022, while Tazetdinov points out that fluctuations in the South Korean won of 40 basis points per day are common. Merchants can spend months slogging through administrative hurdles to set up a cross-border payment solution – only to find that value plummets in the time it takes to clear their first transaction.
help is at hand
A secure and sustainable cross-border solution must be implemented methodically. Tazetdinov characterizes Worldline’s approach in two parts: “One is compliance, the other the product and the technical implementation.”
Airlines are an instructive example. While an American airline can easily conduct dollar transactions with domestic customers, it can also operate in dozens of other jurisdictions – each with their own currencies and payment platforms. “This is where we come in,” says Tazetdinov. “As part of one contract, we can provide all local payment options in all covered countries and convert all locally accepted currencies. Then we deposit funds into merchant bank accounts.”
Worldline offers a direct transfer stream instead of countless separate transfers from national payment service providers. And the need for a company to set up costly local entities, wading through bureaucracy before funneling the money back to headquarters, is disappearing. In short, all the hard work has already been done.
Worldline’s network of global partners offers unparalleled local expertise and addresses compliance and implementation issues in one fell swoop. Payments can simply be collected and then settled at a merchant’s headquarters to make the process as streamlined as possible. Currency fluctuations are also taken into account, with conversion rates for Worldline customers being fixed on the day of the transaction. While it may take a day or two for funds to be acquired and converted in local currency, this conversion is always made at the rate originally set. “What you have here is complete isolation from currency fluctuations,” explains Tazetdinov. All the uncertainties of high volatility markets like Korea are removed – traders can reap the rewards of high growth.
Tips and tricks for the future
Cross-border payments continue to increase. Regulation and customer preferences in fast-growing markets are evolving. A solution valid today could be overtaken by events. For example, Pix was launched by the Central Bank of Brazil in November 2020 to promote digital payments. It gives users personal identification keys to enable direct transactions, reducing the need for intermediaries and reducing settlement times. Pix quickly revolutionized the country’s instant payments landscape – which was bogged down in bureaucracy just months earlier – reaching 180 million users by February 2021.
Elsewhere, cash still dominates. Pakistan, Bangladesh, Indonesia and the Philippines represent a combined market of 750 million people. The systems to which they will be drawn as cash dependency diminishes are an unknown quantity in the present. Payment service providers will have to deal with them quickly in the near future.
Another important point related to the diversification of alternative payment methods. For example, Tazetdinov cites PayPal as an alternative payment provider whose success relies on customer centricity, particularly through chargebacks: “Any customer can easily reclaim the transaction if they are dissatisfied with the goods or services provided.” However, Tazetdinov notes that a lack of market maturity means that these customer-facing mechanisms lag behind in some high-growth regions; The creation of the infrastructure to make digital payment possible in the first place is still in the foreground. As these markets mature and customer-centricity becomes the order of the day, retailers must respond quickly.
Engaging the services of a provider like Worldline can future-proof a company’s transition into the world of cross-border payments; local partnerships enable rapid response to regulatory and behavioral changes. Still, retailers need to approach new markets strategically. This means you can assess what a successful cross-border payment plan looks like. Using transaction approval rates is one approach: when they’re low, merchants may be in conflict with local transaction code rules or barriers to large purchases. To keep the money flowing, they need to monitor and respond to potential blockages.
Another recommendation from Tazetdinov is that instead of approaching a new market across the board, traders should tailor initial activities to a specific customer or sector. This allows them to build cash flow while ironing out difficulties – a solid foundation for further business expansion. “It gives your partnerships and your product teams creative room to come up with new ideas, test them against the markets you want to expand into, and maybe even find a new niche to expand on,” he says.
Whatever a client’s needs, Tazetdinov and other Worldline experts are on hand to help. They bring an industry-leading understanding of the factors driving approval rates down, local partnerships to bring them back up to speed, and the agility to help businesses expand – no matter how turbulent the surrounding circumstances. As rising prices and uncertain growth make their path more treacherous, cross-border payments are a trap businesses can avoid.
Download the free whitepaper on this page to learn more about how Worldline can help your business grow through a fast and efficient cross-border payments strategy.