Cross border commerce continues to grow at rapid rates, presenting retailers with untapped opportunities to expand their addressable market by selling goods and services in new regions.
However, global growth is easier said than done. Selling in new regions requires businesses to navigate complex regulatory nuances, understand localized customer preferences, and manage fluctuating currency. Doing these things is foundational to addressing the biggest pain point of cross-border commerce – high costs. Businesses that do not effectively optimize their global commerce models are often paying 4% to 6% in transaction costs to sell across borders, compared to significantly lower costs to sell domestically. According to our internal estimates, these inefficiencies saddle businesses with up to $45 billion in costs each year, impacting profit margins and the viability of cross-border expansion.
Carat from Fiserv works with leading brands to optimize global commerce, leveraging global scale and technology to address cost inefficiencies while delivering secure and reliable buying experiences that customers trust. Based on our work with global clients, here are three strategies we’ve found pivotal to selling across borders.
1. Thinking Locally
Understanding the local market is fundamental to global commerce, and critical to keeping the cost of cross border transactions from slicing into profit margins. Take, for example, a U.S. clothing retailer paying 5% in transactional costs when they accept a payment from an international customer. By optimizing their ecommerce model the retailer can significantly lower the cost of selling in the region. A few ways they can do this include:
- Registering the business with local tax authorities
- Enabling consumers to pay with Local Payment Methods (LPMs), such as Girocard in Germany or Pix in Brazil
- Connecting to alternative payments networks such as UnionPay or EFTPOS
2. Leveraging Currency
When selling in a new region, enabling a localized checkout experience is important to driving customer loyalty. A retailer can pull several levers to ensure customers, regardless of their location, don’t encounter an intimidatingly unfamiliar checkout experience.
Turning on LPMs is one way to present a locally relevant buying experience. Research shows that customers prefer to make purchases in their native currency, and many will abandon their cart if the retailer does not present pricing in a familiar currency. So, if a retailer is selling to a customer in Thailand, presenting the sale in Thai Baht as opposed to U.S. dollars improves the checkout experience by creating familiarity and transparency for local buyers.
3. Covering FX Risk
Combining our two previous strategies, retailers are using currency solutions and optimization technology to mitigate the risk of accepting foreign currency, while also creating a better customer experience.
Sticking to our example of a U.S. clothing retailer selling in Thailand, consider a pair of jeans priced to sell domestically at USD $29.99. The current exchange rate to Thai Baht is 1043.95, but presenting this price point creates two issues. First, daily changes in the global economy impact foreign exchange (FX), which can add as much as 1% to the cost of a transaction. Secondly, a price of 1043.95 is not a familiar price point for customers, which adds friction to the buying experience.
To address both issues, retailers can build rules into their ecommerce engine to present the sale for 1099 Thai Baht, a price more familiar for customers buying goods and services, which also creates incremental margin to cover FX risk.
To Grow Across Borders, Optimization is Key
With capital costs continuing to rise, it is imperative retailers optimize cross-border payments if they hope to grow globally. By leveraging local payment schemes and currencies, creating familiarity, and managing FX risks, businesses can reduce the cost of cross-border acceptance while creating a localized buying experience for their global customer.
Chris Abele is Vice President and General Manager of Global and Emerging Payments at Fiserv. At Fiserv, global and emerging payments are part of Carat, the global commerce platform that orchestrates payments and experiences for the world’s largest businesses. With Carat, leading brands can unify their commerce, optimize transactions, and imagine and realize new ways to engage with customers.
