Cross-border payments are booming. The Bank of England predicts the cross-border payments market will reach $250 trillion by 2027, up from $100 trillion in 2017. Accelerated by e-commerce (which accounted for $4.2 trillion – 18% – of the global retail market in 2020) and mobile payments (GlobalData research finds finance app downloads hit over 4 billion in the same year), a global market of goods and services is now at the average customer’s fingertips. Any company serious about their growth prospects is looking to cash in.
However, not all growth prospects are created equal. The e-commerce market is expanding everywhere, with GlobalData predicting a global compound annual growth rate (CAGR) of 12% between 2021 and 2025. This rising tide continues to lift traditional e-commerce centres, with CAGR of 9.84% projected in the USA over the same period. But a new generation of still-transforming high growth markets are the driving force. In Singapore, for example, the CAGR projection for e-commerce over the 2021-2025 period is 16.2%, rising to 17% in the Philippines and 18.2% in India. With big growth in untapped markets comes big opportunities for major e-commerce players. They will need sophisticated cross-border payment solutions to make the most of them.
Roman Tazetdinov is Head of Geo Expansion at Worldline’s Digital Commerce department. “In principle, high growth markets or emerging markets have the same complexities,” he says. “But when we speak about advanced models like Europe and the US, payments have commoditised there and you don’t have significant barriers to managing funds between countries. When we go to high growth emerging markets, on the other hand, we see that they are trying to limit the capital outflow from the market.” Although massive emerging markets like China, India and Korea have relaxed some of their capital controls in recent years, restrictions on turning one currency into another remain. Businesses can be cut off from the fruits of their labour.
Sheer quantity of payment means may also exceed cross-border rookies. Alipay mobile wallets now dominate in China and are spreading across Southeast Asia, competing with traditional operators like Visa and Mastercard and bringing novel security requirements with them. South Korea, for example, has eight different major card brands, each with subtly different dispute processes and payment timeframes. All this against the backdrop of 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 might spend months jumping through administrative hoops to get a cross-border payment solution set up – only to find that, in the time it takes for their first transaction to clear, the value crashes.
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, and the other is product and technical implementation.”
Airlines are an instructive example. While an American airline can readily perform dollar transactions with domestic customers, it may also operate in dozens of other jurisdictions – each with their own currencies and payment platforms. “This is where we come into the game,” says Tazetdinov. “Within one contract, we can provide all local payment capabilities, in all countries of coverage, and we convert all the currencies accepted locally. Then we settle funds in merchant bank accounts.”
Worldline offers one straightforward remittance stream rather than myriad separate ones from national payment service providers. And the need for a firm to create costly local entities, wading through bureaucracy before funnelling cash back to headquarters, disappears. In short, all the hard work is done already.
Worldline’s network of global partners offer unparalleled local knowhow, taking care of compliance and implementation issues in one fell swoop. Payments can be collected easily, then settled in a merchant’s headquarters to make the process as streamlined as possible. Currency fluctuations are taken care of too, with conversion rates for Worldline customers fixed on the day of a transaction. While it may take a day or two for funds in the local currency to be acquired and converted, this conversion always takes place under the rate initially fixed. “What you have here is complete insulation against exposure to any currency fluctuations,” explains Tazetdinov. All the uncertainty of high volatility markets like Korea is removed – leaving merchants to reap the high growth rewards.
Tips and tricks for the future
Cross-border payments continue to expand. Regulation and customer preferences in fast growing markets continue to evolve. A solution that holds today could be overtaken by events. Pix, for example, was launched by Brazil’s central bank in November 2020 to promote digital payments. It gives users personal identification keys to allow direct transactions, reducing the need for intermediaries and slashing clearance times. Pix swiftly revolutionized the country’s instant payments landscape – bogged down in red tape only months earlier – picking up 180 million users by February 2021.
Elsewhere, cash still dominates. Pakistan, Bangladesh, Indonesia and the Philippines represent a collective market of 750 million people. The systems they gravitate towards as reliance on cash wanes are an unknown quantity in the present. Payment service providers will have to get to grips with them quickly in the near future.
Another important point related to diversification in alternative payment methods. For instance, Tazetdinov namechecks PayPal as an alternative payment provider whose success is rooted in customer centrism, notably via chargebacks: “any customer can easily claim back the transaction when they are unhappy with the goods or services provided.” Yet Tazetdinov notes lack of market maturity means these customer-centric mechanisms are lagging in some high-growth regions; creating the infrastructure to make digital payments possible in the first place is still the priority. As these markets do mature, and customer centrism becomes the order of the day, merchants will have to respond nimbly.
Employing the services of a provider like Worldline can futureproof a firm’s transition into the cross-border payments world; local partnerships enable a nimble response to regulatory and behavioral changes. However, merchants must approach new markets strategically. This means being able to assess what a successful cross-border payment plan looks like. Using approval rates on transactions is one approach: if they are low, merchants may be falling foul of local transaction code rules or barriers against big purchases. To keep the cash flowing, they must monitor and respond to potential blockages.
Another recommendation Tazetdinov makes is that, rather than approaching a new market on a broad front, merchants should tailor initial activities towards a specific client or sector. Doing so allows them to establish a cash flow while ironing out difficulties – providing a firm foundation to expand operations further. “That will give your partnerships and your product teams the space for creativity, to come with new ideas, test them with the markets you want to expand into and maybe even find a new niche to develop further,” he says.
Whatever a client’s needs, Tazetdinov and other experts at Worldline are on hand to help. They have an industry-leading understanding of factors depressing approval rates, local partnerships to help bring them back up to scratch and the agility to help businesses expand – however turbulent the surrounding circumstances. As rising prices and uncertain growth makes their road ahead more treacherous, cross-border payments are one pitfall that firms can avoid.
To find out more about how Worldline can help your business expand via a fast and efficient cross-border payment strategy, download the free whitepaper on this page.