Accessing High Growth Markets: how growth hungry businesses can tap into the changing face of e-commerce
In this guest article, Guillaume Tournand, Vice President of Growth at Worldline Digital Commerce, discusses high-growth market and the consumer use of the e-commerce landscape.
Around the world, the traditional shopping ‘on the high street’ model has been shifting to the online world for the past two decades. Emerging markets, also known as High Growth Markets, have seen the most growth. These include hugely important and rapidly expanding economies such as China, South Korea, Latin America, and India.
The populations of these and many other High Growth Markets are benefitting from immense change in just about every aspect of life. GDP per capita is soaring, literacy is up, life expectancy is higher than ever, and their country’s digital economies are booming. Likewise, consumer spending is expected to rise exponentially alongside eCommerce penetration, creating the ideal environment for growth.
Taking the above countries as examples, and putting them into a global context, China is the world’s largest e-commerce market accounting for 46.3% of all retail e-commerce sales worldwide, South Korea is currently the third largest e-commerce market in Asia and the 10th largest economy globally, while the Latin American region is a burgeoning market for digital commerce, with forecasts projecting a further 25% growth by 2025 to reach a total of over $700bn (£579.5bn).
India is the world’s third largest FinTech hub, behind the US and the UK, with Reports showing that FinTech Investments there almost doubled to $3.7bn (£3.1bn) in 2019, up from $1.9bn (£1.6bn) the previous year.
Factors fueling this growth include increased domestic and cross-border spending, greater market penetration of digital goods, and a wider acceptance of digital payments with particular emphasis on investment from retail banks in digital technologies such as mobile apps and eWallets. Whilst these trends were already on the rise prior to 2019, they were hugely accelerated by the impact of the global pandemic which highlighted the urgent need for digitalisation around the world.
Clearly these are markets that few internationally astute businesses would willingly ignore. While sharing many elements in common, each has its own unique characteristics, political and regulatory issues, and most importantly, local customs and shopping behaviours.
How then does an ambitious cross-border business successfully break into and maximise the extraordinary opportunities such burgeoning marketplaces present? As international businesses continue to flock to such ‘honeypots’, those companies need to understand the key payment trends, challenges, and opportunities they will face hoping to capitalise on this rapidly expanding ‘brave new world’.
Understanding the local payment landscape
Online businesses which are expanding internationally need to know the rules by which they operate. In order to accept payments from around the world a thorough understanding of the local payment landscape is crucial.
For example, in South Korea, 80% of the online payment marketplace is dominated by cards. Half of these are local cards while the remaining 50% are co-branded. So, credit card companies there are moving swiftly to build a safer and more convenient international payment system for Korean consumers.
Likewise, along with its own social media platforms, China has developed its own payment processors, payment apps, and e-commerce sites that, to a Western audience, may seem like an alternate world. Apps common in the West such as Facebook are actively blocked in China, resulting in local versions such as WeChat, Q-Zone, and Sina.
TikTok is a Beijing-owned company, which means it is available in China as well as in the West and has around 600 million daily users in China alone. Alipay which is a popular eWallet with more than one billion users, dwarfs both Apple Pay with just 441 million and Google Pay with 227 million.
Alipay is part of the e-commerce system of its parent company retailing giant Alibaba, which provides everything from online shopping to eSports to cloud computing and artificial intelligence.
Therefore, through a thorough understanding of how to maximise the opportunities presented by having such local market insight, well-prepared international internet retailers will avoid the pitfalls facing their unwary or unsophisticated competitors.
Barriers to Entry
In order to process payments locally in many high-growth economies, businesses are usually required to set up a local entity which can, in some instances, take several months. Alongside that lies the perennial issue of having to understand and adapt to a very distinct language, culture, business practices, and local regulations – each of which is critical to operating successfully in this marketplace.
Furthermore, payment authorisation is often undertaken in the local currency, but sometimes, such as in South Korea, these are restricted currencies and cannot easily be repatriated outside of that country.
More generally, most Latin American consumers prefer domestic payment methods, including when they shop online. Across the region, the use of domestic credit and debit cards, prepaid cards, bank transfer solutions, and business wallets, account for the vast majority of transactions.
Hence there are some deep-rooted issues and complexities that need to be addressed when looking to provide businesses and their consumers with the optimal ‘payment experience’. Businesses in particular want swift, secure, and seamless access to their revenue streams back in their country of origin. Again, local knowledge, and dealing with partners who understand these issues and know how to navigate them, is paramount.
Finally, regulation and other legal restrictions also play a big role in differentiating each individual market or jurisdiction. It is of course critical that any business must be highly acquainted with what is required of him from a legislative perspective and able to keep abreast of all changes.
This may include the need to set up a local entity through which to carry out business – although good advice with a well-plugged-in payment services provider can often negate the need for this expensive and time-consuming obligation.
In the long term, the offline-to-online shift will continue and High Growth Markets will benefit the most. Consumers that started buying online more frequently and across a broader set of sectors are more than likely to maintain their habits, especially as fulfilment and user experience continue to improve, removing frictions from the purchasing process.
Consumers across all of these fast-growing economies are becoming ever more demanding in the level of service they receive throughout the purchasing process. They want slick yet efficient choice and options for how, when, and where they pay, particularly online.
Although the opportunities presented by these markets are overwhelming it requires insider knowledge to allow businesses to understand the payments ecosystem within them. It is not easy to keep up with the speed and complexity of change, making it difficult to stay on top of payment best practices without guidance.
Any business seeking to capitalise on this tremendous pent-up demand needs to understand the rules, follow the trends, and deliver on expectations. They would be well advised to assess, very carefully, the best partner to help them through these challenges and who can help them achieve their ambitions.