US e-tailers weigh the dangers of inactivity

By our guest author Neeraj Gupta, Leader, Product Management, Vantiv, Inc.

The US e-commerce market is the world’s most highly developed. It’s worth $562b a year. In many ways, it still pioneers best practice. But America has a problem. Its e-commerce industry is all dolled up but has nowhere to go, at least domestically. US e-commerce growth rates are around 10 to 15%. Now, if US e-commerce was a Eurozone economy, that kind of growth would be just great. But sadly — or maybe happily — it isn’t. And compared to most other major markets, even a 15% growth rate is pretty slow.

In Russia, for instance, e-commerce is growing at a rate of 42%, in China it’s 32%, in India 45%. But even that’s not the full story. The growth rates in developing markets are high now, despite the fact that a relatively small portion of the population is online. In India, for instance, only 15% of the population has access to the Internet, compared to around 80% in the USA and most developed markets. If e-commerce growth rates in developing markets are high now, they’re going to get even higher as more and more people come online and start spending.

What does this mean to US merchants?

For US merchants the most obvious consequence of this is, that if they want to grab the biggest share of a growing world market, they’ll need to start operating cross-border. This alone is a compelling enough reason for the American online retailers to start taking the international market seriously.

But the challenge is actually more fundamental than that. The fastest growing markets are also likely to be the ones that drive competition and innovation. If US retailers don’t expand internationally, they risk being left behind while their competitors from Asia and other fast-growing markets set the pace and define best practice.

But to expand successfully, US online merchants are going to have to change the way they do business. For a start, they’re going to have to localise. According to one recent study, more than 50% of users say they’ll only buy from sites that use their native language [1]. For markets without a high level of proficiency in English, for instance in Southern Europe, that rises to over 60%.

Many US sites currently only operate in English and, possibly, Spanish. Even in multi-lingual, English-friendly markets such as Scandinavia, this puts them at a disadvantage compared to local competitors.

The rise of APMs

A crucial, and until recently often neglected, part of localisation is the localisation of payment methods. According to the Baymard Institute, average cart abandonment rates are currently around 67%. That’s a lot of lost sales.

One of the main reasons for abandonment is poor customer experience. It’s difficult to imagine a worse customer experience, than reaching the final stage of the checkout and discovering that your preferred payment method — the one you use all the time — isn’t available. According to one YouGov survey, 50% of consumers will simply cancel their purchase if they can’t pay using their preferred payment methods.

This is what makes alternative payment methods (APMs) so important. APMs are, broadly, any online payment method other than credit or debit card. In mature markets, common APMs are things such as direct bank-transfers or e-wallets. In the developing world where people very often don’t have a bank account, they include various kinds of cash-based payment schemes. For instance, a user might buy something online but then pay — using a unique reference code, tied to their purchase — at a local convenience store. Once the store notifies the online retailer that payment has been received, the purchase is shipped.

It’s actually a misnomer to describe these payment schemes as ‘alternative’. In many markets, they are the preferred payment method for most online shoppers. In the Netherlands, for instance, over 59% of online purchases are made using bank transfers. In Latin America, 39% of all online transactions are made using APMs. And because only 22% of Latin American shoppers have a credit card, this figure is expected to grow as more consumers come online.

Already in 2017, APMs account for 50% of all online payments made. Any US merchant that doesn’t offer locally preferred APMs at the checkout, will be at a severe disadvantage against both local competitors and more savvy American outfits also expanding overseas. The growth of US cross-border trade is expected to drive the increasing demand for, and adoption of, locally preferred payment methods.

[1]. Can’t Read, Won’t Buy: Why Language Matters on Global Websites. By Donald A. DePalma, Benjamin B. Sargent, and Renato S. Beninatto