Why Merchants Shouldn’t Chase Shiny Objects in Cross-Border Markets

Merchants looking to sell in cross-border markets should take note of important rule: “Do your homework,” says Souheil Badran, Senior Vice President and General Manager, Digital River. In a recent interview with MPD CEO Karen Webster, Badran broke down the top strategies for merchants who are taking their business (and success) overseas, including what goes into establishing a local presence and how they can reduce shopping cart abandonment rates.

KW: How do you solve the cross-border problem for your clients?

SB: Many different ways. The first thing we look into is what kind of business they’re in and who their customers are – the end users actually making the purchase. We look at different factors to make sure they fulfill the purchase – for example, is the site secure enough, is it reputable? In addition to focusing on the trustworthiness of the site, when it comes to the checkout process, we step in and work with our clients to ensure that customers can expect the same thing from a cross-border transaction as a local one.

In order to drive the higher authorization rates, online merchants need to consider localizing their global payments programs to process those transactions locally.

KW: That makes sense because shopping cart abandonment cross-border is high. What are you seeing from merchants that you’re working with in the “before” scenario?

SB: There are really two components. One is that in some countries, it’s very hard to conduct transactions overseas – cards will get declined automatically.

From our own observations, we’ve seen what local acquiring can do – for example, we have the ability at Digital River to systematically allow transactions through one of nine local acquirers using a consumer’s card information and billing address. This allows us to ensure the best possible chance of receiving a successful authorization. And in many cases, a card transaction is less risky when processed through a local acquirer.

We also partnered with local acquirers in Australia, Brazil, China, the U.S., Europe – pretty much all of the major countries – to ensure we have that presence where local processing is most important. In Australia, we’ve seen close to 10-15 percent of successful authorization rates become less risky.

KW: You mentioned that there are a number of countries where idiosyncrasies make transactions complicated. Are these problems consistent for all merchants, or do they vary by merchant size and category?

SB: Our focus is on both SMBs and enterprise clients. In general, they remain pretty consistent across all merchant categories from a regulation standpoint. While larger merchants have the resources and the know-how to establish their own local presence in the countries that are particularly important to their business, small-to-midsized merchants can benefit more from outsourcing payment processing to a provider that can help them start accepting international payments faster, help manage the risk of accepting international payments and increase their authorization rates in other countries.

KW: Russia is an interesting country – and they are in the news a lot these days from a political perspective. But from a payments perspective, consumers in Russia really like cash because, among other things, they don’t want their purchases tracked. How do you help merchants solve that kind of cross-border payments complexity? 

SB: Years ago, Russia was a cash-dependent state and consumers trusted the banking system and were driven by cards for in-store and online transactions. Nearly 60 percent of online shoppers still favored cash and delivery transactions But we’ve seen more Russian consumers move to credit cards for online purchases. What we’re also seeing is alternative payment methods becoming more common for making online payments.

MasterCard found in a study that 74 percent of Russians processed bankcards, and as of 2011, 40 percent use their bankcards for retail purchases. We’re starting to see the continued adoption of the local digital wallets as online payment methods, and as we move toward omnichannel, we’ll see more transactions online.

KW: Let’s move on to Brazil. There are lots of people online, but not a lot of purchases happening that way. How does Digital River handle that type of environment where there’s a lot of potential? 

SB: Let’s start with some facts about Brazil. The online population alone is 78 million, which is larger than Spain, France and the U.K. combined. This substantial population is also driving e-commerce activity, which is fantastic, and it’s grown from $600 million in 2009 to $11.97 billion in 2013. By the end of 2014, it is expected to grow to $13.37 billion.

But when merchants are looking into Brazil for cross-border opportunities, the challenges they will face include bank regulation and the complexity of export/import regulations.

The best way to establish business in Brazil is to establish a local entity. The other thing that merchants have to understand is the behavior of the consumer around payments – it’s very common in Brazil to buy now and pay later. For example, if I’m buying a laptop for $1,200, I’d prefer to pay $100 a month for a year. That’s very common even with clothes and shoes.  That same behavior has moved online with a system called Boleto, so unless you’re supporting Boleto in Brazil, especially in an online world, you’ll have a hard time selling your goods and services online.

KW: How do you actually enable these large multi-national merchants that really want to behave like local merchants in those countries, accepting the currency, language, and all of the things that represent “local” to a consumer?

SB: We’ve leveraged our experience from our own records – in 2013 Digital River processed more than $30 billion in online transactions. We’ve gotten that expertise when we ourselves have gone in to establish local presences as a solution for others to leverage. We can act on their behalf not just as a payment gateway that supports all local payment methods, but also as a merchant and seller of record.

For example, we recently supported the launch of a streaming music service in Brazil in conjunction with the World Cup. We were able to work with the service, acting on their behalf to help them lower cross-border payments fees and make the solution more local for Brazilians.

KW: So it sounds like that also helps merchants decide which markets to enter and what the ROI calculations will be. Is that something that you offer to help them determine if it’s viable to enter a specific market?

SB: We do. For example, if someone wants to get into a new market, they can go out and hire consulting firms, lawyers, tax preparers, or they can talk to someone like us so that we can share what we’ve learned about the market with them. When it comes to payments, it’s also traditional for merchants to say that they want to accept all payments types in a country. But what we do is ask them to step back and look at who they are selling to, which services they are offering, and we narrow down the payments types to the most effective ones so shoppers aren’t confused by all of the payment types on the checkout page, but rather are leveraging the best ones.

So yes, we have a discussion with our clients based on our life cycle management where we take them end to end not just to get into a market but also to ensure that they continue growing in that market.

KW: How do you help a merchant determine what payment option is best to offer in a market? What data do you look at?

SB: Because of the way we are structured as a merchant in our own right, we look at cross-border from several data points. First, we look at the industry that a merchant is serving, which payment types have worked for us in that specific market. Then, we determine where we see the highest authorization success and what the country-specific payment types consumers are using the most.

Ultimately it’s up to the merchants to decide which payment types to accept, but we share our knowledge with them as a service to help them make that decision.

KW: Digital River made news not long ago when it decided to accept bitcoin. Is that a method of payment that merchants are asking for, or are you anticipating that it will be something merchants will want and you’re ready for it?

SB: We are ready for it. Today, bitcoin has launched in over a thousand of our properties. I will say that we’re not necessarily seeing a huge amount of bitcoin users, but people understand that it is available to them when they want to use it. While bitcoin is becoming more mainstream and we’re seeing a lot of interest in it, there’s still a lot of education that needs to happen – not just on the merchant side.  Consumers also need to understand why they’d want to adopt it and start using it as a payment method.

KW: It sounds like you have lots of insight from dealing with merchants of all sizes in a variety of countries. Is there one takeaway that’s consistent across all countries and merchants related to cross-border transacting?

 SB: My biggest advice would be for merchants to do their homework before jumping in headfirst. It’s exciting to hear about opportunities in other countries, but just be sure to not chase shiny objects. A few years ago, there was a lot of hype about BRIC, and there were many strategies formed about how to get into those countries. What we tell our clients is to speak with the experts, read more articles on news sites like PYMNTS.com in order to understand what it means to get into that country.

In general, though, if an organization is looking to expand beyond its domestic market, they need to do their homework.

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Souheil Badran
Senior Vice President and General Manager, Digital River

Mr. Souheil Badran has been Senior Vice President and General Manager at Digital River World Payments AB, subsidiary of Digital River Inc. since July 2011. Mr. Badran leads all aspects of the company’s global payments strategy, including strategic development, sales and marketing, product management, operations, mergers and acquisitions. Mr. Badran joined Digital River with extensive experience in high technology organizations –leading sales and marketing, product management, strategic development, mergers and acquisitions and high-growth initiatives. Prior to Digital River, Mr. Badran served as senior vice president and general manager of First Data Corporation’s e-commerce solutions group, a team that focused on e-commerce and card-not-present commerce. He served as Vice President of VeriSign Security Services- International and Channel Operations at VeriSign, Inc. Mr. Badran served as President and General Manager of Americas and Asia Pacific of Rebtel Networks AB since March 19, 2007. Mr. Badran received his M.B.A. in Marketing and undergraduate degree in Computer Studies from Cardinal Stritch University in Milwaukee, Wisconsin.

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