Credit isn’t always king. In fact, only a small proportion of the world’s population has access to credit. But, this does not reflect how much money these shoppers have in the bank. To successfully tap into markets where cash is king, e-merchants need to look at regional financial structures and cultural payment norms.
Understanding Why Cash is Still King
Cash-based societies tend to share some common financial system characteristics.
First: Their economic and financial structures are often under developed.
- It’s harder to identify people and track their financial histories; therefore,
- It’s harder to gauge a consumer’s credit worthiness through a quick risk assessment using protocols such as national identification numbers and credit histories; therefore,
- Consumers have limited credit lines and must use cash or other payment methods for expensive purchases.
Example: Brazil doesn’t have a developed credit history ecosystem in place, so consumers have limited credit schemes with low credit limits – between £50/$78 and £300/$470.
Example: India has credit cards that are issued by a bank only after borrowers make a fixed deposit. Following the deposit, the bank extends credit up to approximately 80%.
Second: Even when consumers are able to secure a credit line, credit cards in traditionally cash-based societies often come with very high annual percentage rates (APR).
- Banks in cash-based societies typically assign APRs based on a few generalized tiers and limited consumer information; therefore,
- APRs remain high so that the credit risk associated with individual consumers within a tier offsets others regardless of their true credit worthiness; therefore,
- Consumers have to pay off their credit balances during a single billing cycle or they face hefty APR-driven fees.
Example: In India, consumers face 30%–45% APRs.
Example: Brazil has one of the highest APRs globally, starting around 120%.
Cashing In With Localized Payment Methods
It is not impossible to move beyond cash-based payments, even though the financial systems in some markets make it difficult.
The following best-practice strategies help online merchants cater to more traditional cash-based markets – and make the online buying experience familiar and secure.
- Offer payment installment programs and charge subscriptions on a more frequent basis — monthly or weekly instead of quarterly or annually. This helps alleviate the need for larger credit limits and high APRs.
- Don’t assume cash-based societies only purchase in cash. There are many regional payment methods preferred by local shoppers. For example, Russian online shoppers prefer Yandex.Money and Qiwi.
- Avoid the cost of integrating multiple regional payment methods by partnering with a global payments provider that already has local market expertise and a portfolio of localised payment methods.
What’s the Future of Payments?
While the idea of a completely cashless world is certainly interesting, it is not realistic. Cash will continue to exist for the foreseeable future.
Despite the evolving nature of the payments landscape, there is one thing online merchants can count on — companies that understand and cater to the cultural payment preferences of the local shopper will have the greatest chance of winning the customer and closing the sale.