Going Global at Home
A look at how U.S. merchants are attracting foreign consumers with payments tools and services.
By Michael Coleman
As an ambitious restaurateur in San Francisco’s bustling Pier 39 tourism mecca, Bob Patrite was eager to tap into the ever-expanding pipeline of Chinese visitors who pour into the cosmopolitan city each year.
In July, Patrite found a way to do just that—and he barely had to lift a finger. That’s because global corporate giant Alipay, a digital payment platform operated by China’s Ant Financial Services Group, announced a partnership to create a seamless payment experience for Chinese travelers visiting Pier 39.
Now, Patrite’s restaurant, Fog Harbor Fish House, is one of 40 businesses ensconced in the iconic retail, dining, and entertainment destination that offers its Chinese patrons the opportunity to pay with Alipay. The mobile app also offers Chinese travelers the ability to hail an Uber car and book Air BnB’s accommodations, while also receiving promotional discounts and suggestions about the best places nearby to shop, eat, and play.
“It’s more than just a payment tool,” Patrite explains. “It can also be used as a search and discover tool to find and look at businesses. I saw that as a marketing tool to put our store in front of potential guests prior to them even coming to the country. It allowed me to do some marketing in an environment that is sort of foreign to me, so to speak.”
New Preferences
Alipay’s growing presence in the U.S. marketplace reflects a larger trend of American merchants aiming to capitalize on expanding retail and travel markets from China, South America, Europe, Australia, and beyond. Founded just three years ago, Citcon is a rapidly growing cross-border mobile payment and marketing platform that connects brands with Chinese consumers. Citcon integrates different payment forms, including Alipay, WeChat Pay, and China UnionPay, for U.S. merchants.
Evelyn Yang, marketing director for the Santa Clara, California-based acquirer, says international travel trends are dictating a new payment reality for merchants hoping to capture Chinese shopping dollars. Meanwhile data from eMarketer indicates that more than 525 million people—roughly 45 percent of the Chinese population—will use mobile payments in 2018. That number will increase to more than 577 million consumers in 2019.
“There is a push from the consumer side,” Yang says, noting that U.S.-based merchants—both online and brick-and-mortar—are starting to see Chinese shoppers leave the point of sale when they’re told they can’t use a familiar payment platform displayed in their native language such as Alipay, WeChat, or UnionPay.
Chenni Xu, a spokeswoman for Alipay, says her firm’s research shows that 4 million Chinese tourists visit North America annually and spend $4,000 to $5,000 each, excluding airfare and hotels. The spending sprees total about $16 billion per year, with much of it concentrated in New York, Los Angeles, San Francisco, Boston, Vancouver, and Toronto.
U.S. merchants that aren’t adapting to offer cashless or card-less payment alternatives for their shoppers could be missing out on potential business, especially as the trend accelerates, according to Xu. “Chinese are huge on cashless payment. They aren’t used to carrying cash or even credit cards anymore.”
Of course, Chinese citizens aren’t the only people with deep pockets who like to travel the world on shopping sprees and spend money online. Just ask Cleveland Brown, CEO of Payscout, a U.S.-based merchant services provider specializing in card-not-present transactions that allow merchants to accept credit cards and electronic check payments through their websites and mobile devices.
Brown says that Payscout is actively involved in helping U.S. merchants cater to Brazilian shoppers online. But it hasn’t been easy. Brazil’s closed-loop network policy, which restricts Brazilian cardholders to only using their credit/debit card within the country, creates a major impediment for retailers outside the country hoping to capitalize on Brazil’s immense spending power.
Payscout Brazil, a Payscout Inc. subsidiary, acts as a pipeline between merchants and the regulatory red tape. Through its payment network, online retailers can receive direct payments from cardholders in Brazil—a workaround of sorts.
E-commerce sales in Latin America as a whole are expected to grow more than 5 percent this year, reaching nearly $2 trillion, making it the fourth largest retail market, according to eMarketer. Brazil alone will account for almost one third of those sales.
Brown says more and more U.S. companies are clamoring for help in tapping the vast potential of such foreign markets, and payment companies are jockeying hard for a piece of the action. “It’s very competitive, and it is getting more intense from different companies really wanting to provide this value-added solution to merchants that are now requiring it,” he says. “I don’t believe in the luxury anymore to just sell domestically. I think it’s a requirement to understand the global market and be able to sell to global consumers, because the competition from a merchant perspective is moving out of the domestic realm, especially with the access you have from an e-commerce perspective.”
But Brown and other payments experts interviewed say merchants can’t expect to simply jump into foreign retail waters unprepared. “We begin by educating the merchant on cultural alignment,” Brown says. “As a payment ingenuity company what we’re really concerned with is cultural alignment to make sure we eliminate payment friction. It is making sure you enable local payments types to occur.
“We want to give the merchant that education from a payment perspective and make sure the (currency) conversion is there, so they can focus on their products and services,” Brown adds. “Fundamentally, what a merchant should think about is, ‘How are my products and services aligned with this international clientele? Do I have the right pricing, do I have the right feature sets in certain markets and even understand how people purchase in certain markets?’”
Cultural alignment also can mean adapting to retail norms of foreign shoppers. For example, in Brazil installment payments are common, but they’re almost nonexistent in the United States. By understanding local payment types and how they work and offering them, merchants can establish a higher level of trust with the foreign consumer, says Brown.
More Than Mobile
In 2017, Payscout added a cutting-edge payment tool to attract global shoppers: virtual reality (VR). Consumers can now don a VR headset to shop in 3-D and make purchases from U.S. merchants without leaving their country. The Payscout VR Commerce app is integrated with Visa Checkout and allows users to make payment within the service. Once a consumer accesses a participating store, he or she can explore products interactively by rotating items, enlarging, and viewing in greater detail.
The app also includes a menu-driven checkout experience, which securely confirms the user’s purchase and incorporates the payment credentials and shipping details from Visa Checkout. After the payment is processed, the system triggers an interface to the merchant’s fulfillment center with all the order details.
“The Chinese are the biggest consumers of virtual reality content,” says Brown. “The fact at we are one of a handful of companies who are principal members of UnionPay allows us to transition our U.S. merchants to offer services to Chinese consumers in VR in their local payment types and currency.”
At press time, Mastercard announced the launch of a similar 3-D shopping experience in partnership with tech firm Next Retail Concepts. The first use of the virtual shopping service was with premium retail brand Fred Segal at 29Rooms in Los Angeles in December, with further expansion on the horizon.
Another tool for making the shopping experience easier for foreign consumers is dynamic currency conversion, in which the transaction amount is converted by a merchant or ATM to the currency of the payment card’s country of issue at the point of sale. DCC, as it is commonly called in industry parlance, is a necessary tool in luring foreign shoppers, according to Brian Frey, vice president of global currency solutions at First Data Corporation, which offers the service.
“As the global expansion in e-commerce continues to evolve and take shape, shoppers want the ability to understand what they are purchasing in a currency that makes perfect sense to them,” Frey says. “They want to have full transparency, and they want to understand what is going to hit their credit card statement. Whether you are talking about high-end retail or even discount, it’s really a viable product for both.”
A study of cross-border shopping habits by PayPal seems to indicate this. The survey of 34,000 consumers in 31 global markets showed that three in four would prefer to have an option to pay in local currency, and six in 10 check conversion rates before paying.
“When you offer pricing in a currency that is not the native currency of the cardholder, it’s like speaking a different language—it really is,” Frey adds. “If you’re not speaking the language of that cardholder in an e-commerce environment, it could mean they decide not to make a purchase, or maybe they’re interested but they bail out.”
Frey contends that DCC is indispensable for U.S. merchants setting their sights abroad, but the service also has been criticized for lack of transparency and high consumer fees.
DCC is only available as a service when a merchant signs up for a service with an acquirer, according to Frey. The acquirer is mandated by card association rules to register each merchant offering DCC and to have the solution certified by the card brand. Each acquirer offering DCC may operate its solution/offering in its own way; however, each must meet very stringent rules specific to disclosure, choice, transparency, and more, Frey explains.
Market Potential
Canada, the United Kingdom, and Australia currently offer the biggest U.S. cross-border growth potential for e-commerce, according to market research by shipping and e-commerce firm Pitney Bowes. But the research also shows significant opportunity in Brazil, Germany, China, and Australia. Southeast Asia also shows strong promise, especially Indonesia as the government is loosening restrictions on foreign investments, and its massive population is gaining spending power and increasing internet access. Meanwhile, Mexico is a U.S. retailer’s best bet for expansion in Latin America, due to its stable economy and rising middle class, the report found.
Looking toward the future, Brown says he expects Asian countries generally to provide U.S. merchants with robust revenue opportunities both through e-commerce and tourism. “If you’re looking at global consumption you can’t ignore Asia,” he says. “You can’t ignore 6.6 billion cardholders.”
He also says the European Union and Canada, while more competitive for U.S. merchants, offer attractive opportunities. “It’s very similar in terms of consumer expectations, and it’s an easy transition for U.S. merchants to sell to Canada,” Brown says. “It’s an easier transition to sell into Europe than it is into Brazil or China.”
Tedd Huff, vice president of product for Nuvei, a provider of technology-driven global payment processing solutions, advises payment companies hoping to help merchants sell products abroad or attract foreign shoppers in the U.S. to specialize.
“If you want to lure the foreign shopper, choose a region,” Huff says. “Pick a region and become extremely proficient in that region. If Central and South America is where you’re going to kick butt, then focus there and be sure you have the best product offering in that market. If you want to do what everyone else has done and follow the English-speaking international countries then you can do that too, but it’s a lot more difficult because there is more competition.
“If you think you’re going to pick up the Chinese market, I suggest a lot of research because although it sounds great, the expenses and the way you have to set up and configure everything to really hit that market in that country is difficult,” Huff adds.
With e-commerce exploding globally and more and more American merchants and payments companies hoping to capture the lucrative international market in their domestic brick-and-mortar stores, experts advise doing a lot of homework first. More practically, it means adapting technology used by consumers in the country you hope to target, adopting a mobile-first strategy in targeting these consumers, allowing flexibility in payment types, and offering deals they can’t find anywhere else. TT
Michael Coleman is a contributing writer to Transaction Trends.
This article originally appeared in the Winter 2018 edition of Transaction Trends magazine. Click here to view the issue.