Is American e-commerce about to be caught napping?

With a slow-growing domestic market and their own consumers increasingly shopping cross border, US e-commerce sites are starting to realise they need to compete globally. But are they ready for it? And are their payment service providers?

A.T Kearney´s “2015 Global Retail E-Commerce Index Report “put it in a nutshell: with the global explosion of e-commerce, being able to effectively sell across borders is going to be a key differentiator between the next round of online-retail winners and losers. By being good at selling across borders, the winners will be able to expand into new markets without the cost of having a physical footprint in those markets [1]. This will give them the competitive edge over rivals still locked into just their domestic markets.

The challenge this poses is especially relevant to for US-based online retailers. According to eMarketer, in 2015 the total value of ecommerce worldwide was $1.67 trillion. US domestic sales accounted for around 20% of that figure. By 2019, the global value of e-commerce is predicted to rise to $3.5 trillion. But the US share will fall to just 15%. One of the main reasons for this is that by 2019 US-customers will only make up around 9% of the world’s online shoppers [2].

Double your revenue by selling cross border

According to the recent study conducted by Ipsos MORI on behalf of PayPal, only 36% of US online retailers sell outside the US. And most of them only sell to Canada [3]. The majority of US e-commerce sites still focus exclusively on their domestic market. This is despite the fact that, according to the PayPal study, the businesses that do sell cross-border report nearly double the sales revenues of those that don’t.

Unsurprisingly, those retailers already selling cross border are keen to grow their international reach. And another 33% of US-based online retailers intend to start selling to non-US customers as soon as they can. But are American retailers really ready to keep pace with online sellers from other parts of the world?

One size does not fit all

One area in which US online retailers lag behind is in localisation. Most European and Asian e-commerce sites offer a localised customer experience in each market. Many US stores, on the other hand, simply roll out their domestic shop unchanged to non-US customers. But one size does not fit all in global commerce and adapting to local market preferences is one of the key success factors in online retail.

This is particularly true for language. According to a study, fully and professionally localising your website can help you increase conversions by up to 70% [4]. But despite this proven benefit, Amazon — the standard-bearer for US e-commerce — has localised its site into just 8 languages. Its Chinese competitor AliExpress, on the other hand, has over 100 localised sites for markets around the world (though sadly, many of them have been machine translated to a relatively low standard).

And when you look at the range of different currencies supported by US e-commerce sites, the comparison with international competitors is even bleaker. Most US online retailers do not support a wide range of foreign currencies. And US merchants have yet to adapt to the reality that the credit cards they’re familiar with from their domestic market, often do not have a large market share overseas.

In many countries alternative payment methods (APMs) — including real-time online banking payments, cash-based e-payments, direct debit- and invoice payment solutions — are an important and growing segment of the payment market. Any e-commerce site that only supports card payments, is effectively turning away many, in some markets most, of its potential customers.

A good example of this is the Netherlands, with its €18-billion e-commerce market [5] in which more than 60% of all transactions are made with an online-banking payment scheme called iDEAL. For any e-commerce site selling to the Dutch, it’s actually credit cards that are the “alternative”.

Nor is it only the Dutch who prefer trusted local payment methods. Studies show that almost 50% of customers say they may abandon a sale if their preferred payment option is not available [6]. If US-based e-retailers ignore that fact, they will continue to lose market relevance globally. This is particularly true as, with so much competition, customers can easily just go to a different site and buy the product they want there. There’s no need for them to compromise on non-preferred payment methods or waste their time entering their card details, when their preferred payment scheme is ready to use at the click of a mouse.

American PSPs and acquirers have to change first

If US merchants are to succeed on the global market, they need trusted payment service providers and acquirers, to support them. Those providers should be able to offer not just the best possible selection of local payment-schemes but also the knowledge and expertise required to implement those schemes in the way best suited to each market.

This is a challenge the large US payment providers will have to face quickly. If they don’t there are new competitors, such as Stripe or Bluesnap, who will quickly gain market share at their expense. There are also global players — many of them with roots in Europe, where APMs are already well established — that are already targeting US-merchants with an offer that includes a comprehensive range of local payment schemes.

Nor is the threat to US payment providers just in the APM-market. Once a merchant has decided to partner with a new payment provider — for instance Adyen, WorldPay or Ingenico/Globalcollect — in order to gain access to APMs, then it makes very good sense to reduce complexity by consolidating card payments with that provider too.

It is understandably difficult for many large American PSPs and acquirers to change. They are used to decades-long success based on card-processing alone and to nearly unlimited growth in their domestic markets. But there are already some PSPs that have recognised the need to adapt to these new challenges and have begun to invest into an e-commerce offering beyond just cards. Others will need to follow quickly in order not to risk losing their market power due to missing a trend, as many big players before did in other industries.

It is in the nature of Americans and American business to be able to adapt quickly to challenges. So it seems natural to assume that U.S. online-retailers and their current local payment partners will adapt this time, too. But one thing’s for certain: the deck is being reshuffled right now. The question is: who will still be in the game once the hand has been played?

[1] https://www.atkearney.com/consumer-products-retail/e-commerce-index/full-report/-/asset_publisher/87xbENNHPZ3D/content/global-retail-e-commerce-keeps-on-clicking/10192

[2]http://www.emarketer.com/public_media/docs/eMarketer_eTailWest2016_Worldwide_ECommerce_Report.pdf

[3] https://www.paypalobjects.com/digitalassets/c/website/marketing/global/shared/global/media-resources/documents/us-deck-paypal-merchant-insights-usa-report-2016.pdf

[4] Localisation Increases Conversion by an Average of 70%, Translate Media, 23 May 2013.

[5] Edgar, Dunn & Company for PPRO, 2016

[6] PPRO Group, 2014