Local Payment Methods – Think Locally to Grow Globally

Drive International Success with Local Payments

Businesses are no longer limited by physical borders. Understanding customers’ payment preferences and offering local payment methods creates an optimal checkout experience that increases sales.

This guide looks at how culture, behavior and available technology all impact how customers choose to pay in their respective markets. It explains why offering local payment options is important, and shows how businesses can easily accept and make payments that align to their consumers’ preferences.

Local Payment Methods – Think Locally to Grow Globally

1: What Are Local Payment Methods?

Also known as alternative payment methods (APMs), local payment methods are regionally preferred payment types that aren’t credit cards. These include digital wallets, bank transfers, cash vouchers, local debit networks, open invoicing and other methods used around the world to pay for goods and services in-store and online.

There is a huge opportunity for merchants to expand their markets beyond their domestic borders:

• The global ecommerce market is forecasted to grow by $100.63 bn between 2020 and 2024¹
• Sales across borders have grown by 21% between January 1 to June 14 this year, when compared with last year’s figures for the same period²
• By 2022, cross-border ecommerce is projected to account for 22 percent of ecommerce shipments of physical products³

Engaging Customers Across Borders Requires:

• Understanding what they want in a product
• Localizing communications channels
• Offering the payment methods that consumers trust and use

To effectively reach an international audience, you need a local payment gateway that can offer your customers payment options other than PayPal. You need next-generation payment solutions that support all the ways consumers expect to pay, including local cards, as well as local payment methods such as bank transfers, ewallets and cash.

In countries with lower levels of financial inclusion there is a greater demand for payment options that do not require a bank account. Culture preferences also have to be factored in. For instance, in many South American countries where more expensive items are paid for in installments, merchants need to make a provision to allow this practice.

Support for local payment methods and the ability to dynamically present those methods that customers recognize and trust is a fundamental requirement for an effective payment solution.

2: What Are The Different Types of Local Payment Methods?

Merchants need to understand the wide range of options they have to collect payments from cross-border customers and what the local preferences are in their target markets. Aligning to local payment methods that are recognized and trusted will grow sales, reduce cart abandonment and develop a loyal global customer base. Here is an overview of the most popular local payment methods.

Credit Cards – Depending on the country, customers may be limited to using their credit cards for domestic purchases only. To handle transactions from customers in other countries, merchants need to be able to process these “domestic only” cards through a local entity.

Digital Wallets – Digital Wallets or ewallets offer both security and ease of use and are predicted to represent half of global ecommerce sales by 2023.⁴ An ewallet securely stores users’ payment information and passwords and allows users to make and receive electronic payments. The digital wallet software is downloaded as a mobile app onto a smartphone or in other formats for a physical device or on a personal computer. Mobile wallets like GrabPay and AliPay do not need to be linked to a bank account and can be topped up with cash deposits at convenience stores and other participating locations.

Bank Transfers – A bank transfer allows consumers to transfer money to and from bank accounts around the world. The consumer is provided with a unique reference number and details of the bank account where they can make their payment – by telephone, mail or online. Bank transfers are ideal for customers that either do not have a credit card or do not want to use it for a transaction.

• In the Netherlands iDEAL is used for almost 55% of online transactions.⁵ During the checkout process, customers can select this payment method to be redirected to their online banking environment where they can authenticate the payment.
• The UK’s Faster Payments allows customers to transfer funds between two accounts in the UK in a matter of seconds. Both the sending and receiving banks must use Faster Payments and the payments can be made online, over the phone or in branch.
• Unified Payments Interface (UPI) is an instant payment system developed by the National Payments Corporation of India (NPCI), an RBI regulated entity. UPI allows you to instantly transfer money between any two parties’ bank accounts.

Installments and Pay Later – “Buy Now, Pay Later” options allow customers to pay for their purchases over an extended timeframe and are growing in popularity. In Australia where BNPL is popular, AfterPay offers both installment and credit programs.⁶ Payment in installments is a common service expected in the region, especially for more expensive items. For these payment options, the merchant pays the provider a % commission plus a fixed fee for every transaction.

Open Invoicing – This method of payment involves sending the goods purchased to the customer with an invoice that is either paid during the designated time frame or the customer returns the goods to the merchant. There is no advance payment made by the customer and the merchant bears all the risk. Open invoices are among the most popular methods for purchasing goods online in Germany. Although there are a number of digital payment methods available, Germany has a legacy of buying from catalogs and this has created a strong preference for invoicing as a payment method.⁷

Cash Vouchers – These cash-based systems combine online shopping and retail payments. During the checkout process the customer is provided with a coupon or voucher. This coupon is brought to a retail outlet where it is scanned and the payment is made in cash.

Cash on Delivery (COD) refers to a transaction where the recipient makes payment at the time of delivery. CODs account for 5% of global ecommerce and are popular in those countries where there is a lack of financial infrastructure and where bank account and credit card penetration are low.⁸ COD continues to be the most preferred mode of payment for consumers in India as well as in European countries including Croatia, Romania, Russia and Serbia.⁹ For customers there is no risk of loss of their money and the product can be checked before the payment is made.

3: Why Does My Business Need Local Payment Methods and What Are The Benefits?

Offering local payment options that align to customer expectations creates a positive user experience, increases conversions and develops brand trust and loyalty.

Enhanced customer experience – For a business expanding into new markets and developing a cross-border customer base, a seamless checkout experience is essential. To reach the largest portion of the market possible and minimize cart abandonment local payment options that customers recognize and find convenient must be offered.

Greater conversions –  If customers do not see their preferred payment options, merchants risk the possibility that they may never return. The customer may have invested time in finding the product and the actual conversion was prevented by the limitations of the checkout process. By offering local payment methods, conversion rates can be improved.

Trust and loyalty – By offering customers their preferred payment methods, language, and currency smooths the path to a sale. Local payment methods give customers the impression that they are buying from a local merchant with a physical presence in the market. This can provide a greater degree of trust in a transaction and help to develop loyalty to the brand over time.

4: What Types of Businesses Should Offer Local Payment Methods?

With the shift to digital payment methods happening around the world, you need both cards and local payment methods to increase cart conversions, grow your sales and reach the customers you’ve been missing in local and international markets. Here’s a look at some of the segments that stand to benefit most from embracing local payment methods.

Online Marketplaces – Popular online shopping platforms offer a large variety of products either across an entire range of categories or a specific one. Marketplace sales account for 52% of global online retail sales and with more global transactions. By offering customers local payment methods during the checkout experience, sellers on the platform can access a larger customer base, to grow their sales and drive loyalty and adoption for the platform.

B2C Digital Goods and eCommerce – With an average 79% of online shopping carts abandoned, global businesses looking to scale need to allow customers to pay in their preferred local methods – whether that’s cash, cards, bank transfers, post-paid invoices or ewallet.  – to simplify international expansion and increase cross-border conversions.

B2B – Making and receiving cross-border payments can be slow and problematic as both customers and suppliers look for their preferred method for payment. By offering local payments, businesses can simplify and expedite B2B payments for workers and suppliers and improve their cash flow.  

Gig Economy – The Gig Economy requires a platform that offers flexible, local payment options and banking alternatives to engage and retain workers. Gig economy platforms need to provide timely payouts to workers using locally preferred payment methods such as ewallets, cash or bank transfers across multiple countries.

Banks – Account holders look for innovative features and a better digital experience from their banks. Those banks that offer cross-border transfers and global access to cash will expand faster.

Lenders – Borrowers’ digital experiences have increased their expectations for lending. Local payment methods that offer fast and seamless repayment options can differentiate lenders in this competitive market.

Remittance Solutions – Cross-border payments are problematic due to fees, delays and inconsistent global support, restricting who you can pay, how you can pay and when you can pay. Global money transfer platforms need to expand disbursement capabilities and remove limits on how funds can be transferred.

5: What Local Payment Methods Are Most Popular in Different Regions?

There are a wide range of payment methods and their popularity and acceptance vary from country to country. Businesses looking to grow adoption, loyalty and sales in any market need to consider a range of factors to best align their payment options with the preferences of consumers in those markets.

There is no “one size fits all” approach for merchants. The solution is to offer customers their preferred methods of payment based on their financial habits.

Asia Pacific

Asia-Pacific is the largest ecommerce market in the world. Two of the top five countries with the highest online retail sales are in this region.¹⁰ China alone accounts for more than half of all global ecommerce revenue and India is one of the fastest-growing ecommerce markets in the world.¹¹ In terms of payment options, the preferences are very localized and driven by a number of factors.

• In India 74% of ecommerce is cross-border, but despite the popularity of digital payments driven by efforts of the Indian government, cash continues to be a very popular method of payment.
• In Japan 99% of the population only speaks Japanese. Websites, including ecommerce pages must be optimized for Japanese expectations. With the older generation driving online and mobile sales, this is a demographic that businesses need to consider. A large proportion of citizens live in urban areas with easy access to physical stores, so online retailers, that may not be able to compete in terms of convenience, may need to be competitive on price.
• Singapore has both an affluent and tech savvy population as well as a mature payment structure. Credit cards are the most popular form of payment, but Singapore is one of the APAC region’s top three ewallet markets.
• Thailand, the second-largest ecommerce market in South East Asia has huge potential for growth. The dominant payment methods are ewallets and bank transfers and up to 40% of Thai’s shop on social commerce platforms such as Facebook and Line.

Europe

The vast cultural differences between European countries is reflected in the wide range of payments used for online purchases. Debit and credit cards are most popular in Western Europe, whereas credit cards and cash are favored in Eastern Europe.

• In Italy PayPal is the preferred payment followed by cash.
• The Netherlands iDEAL card is more popular than debit cards, cash or bank transfers.
• With only 20% of the Russian population using credit cards, it is not surprising that cash is the preferred payment method.¹²
• Sweden is close to becoming a cashless economy with one 13% of adults using cash to make purchases. The preferred payment method is debit card followed by Klarna – a provider that offers “a shop now, pay later” model.¹³

Latin America

eCommerce accounts for only 4.2% of all retail sales, with Brazil accounting for almost one third the total in the region. Smaller countries are growing at a faster rate and high smartphone penetration rates are driving higher levels of mobile commerce.

• Cards are the most used means of online payment in the region, but many of these are local and can only be used domestically.
• Cash and voucher systems are popular for the large number of unbanked as well as those that do have bank accounts.¹⁴
• The number of ewallet users in Argentina, Brazil and Mexico is forecast to grow
• Mobile wallets have not developed a strong presence in Latin America possibly due to a lack of trust in the security of mobile payments.
• A QR code based payment method called RappiPay available in Columbia, Argentina and Brazil is planning to have 100,000 locations accepting this service by the end of 2019.¹⁵

6: How Do I Accept Local Payment Methods and Integrate Them into Checkout?

Offering customers a choice of local payment options is essential for any business looking to grow internationally. The preferences for local payments differ in every country. Keeping pace with these methods and managing integrations, licensing and compliance is for individual payment methods and countries is prohibitively time consuming. That’s why merchants need to leverage an all-in-one local payment solution that does the hard work for you.

7: How Do Fees Work for Local Payment Methods?

Rapyd offers a Simple Pay-as-You-Go pricing model to allow merchants to access any or all of the locally preferred payment methods they need to support their growth.

8: How Do I Manage Risk and Fraud Monitoring with International Payments?

Privacy and data security standards protect businesses and individuals from fraud, with many countries having their own unique set of regulatory and licensing requirements to securely govern payments. Understanding and managing compliance across markets requires extensive effort and expertise. Working with a payment platform that simplifies payment processing makes it easier for businesses to manage their compliance obligations and offer local payment methods, securely, anywhere they do business.

Start Accepting Local Payment Methods Anywhere with Rapyd Collect.

Sources:

1. https://www.researchandmarkets.com/reports/5135376/global-e-commerce-logistics-market-2020-2024
2. https://www.digitalcommerce360.com/article/global-ecommerce-sales/
3. https://cedcommerce.com/blog/cross-border-ecommerce-infographic/
4. https://thepaypers.com/ecommerce/digital-wallets-to-represent-half-of-global-ecommerce-sales-by-2023-fis-study–1240916#
5. https://ecommercenews.eu/ideal-used-for-59-of-dutch-online-purchases/
6. https://mozo.com.au/credit-cards/articles/buy-now-pay-later-report-2019
7. https://www.emerchantpay.com/insights/online-payments-germany/
8. https://worldpay.globalpaymentsreport.com/#/en
9. https://onlinesales.ai/blog/cash-on-delivery-ecommerce-growth-india/
10. https://www.researchandmarkets.com/reports/4846178/asia-pacific-b2c-e-commerce-market-2019
11. https://www.jpmorgan.com/europe/merchant-services/insights/reports/expanding-ecommerce-business-international
12. https://tcdata360.worldbank.org/indicators/h83ea0f24?country=RUS&indicator=3360&countries=BRA&viz=line_chart&years=2011,2017
13. https://www.riksbank.se/globalassets/media/statistik/betalningsstatistik/2018/payments-patterns-in-sweden-2018.pdf
14. https://www.prnewswire.com/news-releases/latin-america-online-payment-methods-report-2019-300797295.html
15. https://www.reuters.com/article/us-rappi-visa-brazil/delivery-startup-rappi-partners-with-visa-to-offer-pre-paid-cards-in-brazil-idUSKCN1TK33F