Three Stages of an International Online Payments Program

By: Eric Christensen

Entering international markets is becoming more than simply an option for companies; it’s a requirement for future success in the global e-commerce landscape. Although most companies know that they should expand internationally, it’s not as simple as it sounds. Companies that I’ve spoken with often ask me how they can expand their payments program internationally, where do they start, and how can they deal with complexity and risks associated with unfamiliar territories. The simple answer that I typically give them is to work with us and let us help them manage their program. But for the purposes of this blog, I wanted to offer some specifics on ways to get started. I’ve outlined the three stages most companies go through as they build online payments programs for international markets.

One of the most important things to keep in mind as you look to expand your payments program internationally – preferred payment methods are deeply rooted in culture, economics and politics. Failure to accommodate these customs could derail your efforts to acquire customers in new markets.

To give us a frame of reference, let’s imagine that we’re a U.S.-based company that is looking to expand internationally. Most companies go through three stages that include accepting:

  1. Cross-border payments in USD;
  2. Cross-border payments in local currency; and
  3. Fully localized payment methods.

By examining each stage, we’ll understand the full scope of challenges and see why expanding cross border is much harder than it looks.


Stage 1: Accept Payments in USD

Let’s say your company is ready to expand into the BRIC countries. Your market research says there is especially high demand for your product in Brazil and Russia, so you set up an online store in each country.

You have no local legal entities, so you accept USD credit card payments. Consumers will likely experience high decline rates and are charged potentially high currency conversion fees by their banks.

For now, the company hesitates to pour resources into building a local presence. This is a classic Catch-22. Your company wants demonstrated revenue potential before funding localization, but the Brazilian and Russian stores cannot achieve their full potential without it. Some companies falter here and withdraw. Others grow slowly and trust in the market potential.

As a general rule, which can vary based on the volume of sales, when you notice that your authorization rates are 5-10 percent below what you expected or drop to the 70 percent range, it’s time for additional investments and a move from the first stage to the second one.


Stage 2: Accept Payments in Local Currency

The second stage marks your company’s decision to accept payments in local currency, which in our example would be Brazilian reals (BRL) and Russian rubles (RUB).

Although your card decline rates will go down, you’re still faced with challenges. In Brazil, credit card decline rates will still remain high due to cross-border transactions. In Russia, you’d still face a lack of credit card payments. In both countries, your margin takes a hit because you convert BRL and RUB to USD through your domestic bank.

Again, sales figures may tamper psychologically with expansion plans. A year into the foreign adventure, your company could still turn back or simply maintain the status quo. But, a company seeing at least 5-10 percent of global sales coming from a specific country will probably decide to create a local entity.


Stage 3: Assimilate and Offer Fully Localized Payment Options

To be competitive with local businesses, a transnational company must localize its legal, political, cultural, financial and human processes. At this point, your company will establish a local legal entity, focus on culturally appropriate marketing, work with local banks and hire more local team members.

This, however, is where the real problems and potential begin.

First, recognize that starting a business in the United States is far easier than in most countries. Each year, the IFC and World Bank release an Ease of Doing Business Index. The United States is ranked fourth, Russia 112th, and Brazil is 130th out of 185 countries. Remember that you’re stepping into an unfamiliar business climate.

Second, corruption in many countries can be volatile towards foreign entities. Transparency International’s annual Corruption Perceptions Index 2012 ranked the United States 20th, Brazil 69th and Russia 133rd out of 174 countries. Foreign companies should not assume that they are immune from public sector issues. Indeed, they may be even more vulnerable to it if they lack an in-country network.

If your company navigates these challenges, the upside could be significant. In Brazil, your local entity could begin to offer installment payments, which means your card declines would plunge. Further, invoicing would be local and currency conversion would no longer be an issue. You would have local legal and financial representation and the option to get funding in BRL. However, getting to this stage is roughly a two-year and $2 million investment.

Perhaps the investment pays off, or perhaps your executives ask, “Why didn’t we partner with someone and just skip to stage three?” That’s why, I often recommend for companies to skip these stages and work with us to enter these markets.

Fighting the Current

Although it seems that others in the world are just like you, do not expect online buyers to adapt to your country’s preferred payment method without aggravation. Payment methods are deeply ingrained in culture. Your company must adapt to these forms of exchange. The speed of this adaptation will depend on the risk your company is willing to assume, and the amount of success you are able to achieve.

If you’d want to learn more on this topic, please download our white paper.

I’d like to hear from you, have you expanded your payments program internationally? If so, what was your key to success?

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