While established markets like the US and the UK continue to battle it out to be crowned the hub of fintech innovation, if the last five years have taught us anything, it is that increasing levels of digital payments innovation are occurring in all corners of the globe.
The value of global digital payments is expected to reach more than $4 trillion USD by the end of 2020, powered by the growth of e-commerce that has been accelerated by the COVID-19 pandemic.
Much of this growth will be driven by emerging markets, with digital payments in emerging Asia projected to grow 30 percent annually to 2022 (led by China, India, and Southeast Asia). According to the most recent World Payments Report – released before the pandemic – the Middle East and Africa will also see annualized growth of 20% over the coming years.
The growth of cross-border e-commerce
Purchasing behaviors have evolved remarkably in recent years and the global rise in smartphone adoption has only served to exponentially speed up this evolution. With this has also emerged a growing demand and expectation for cross-border e-commerce.
Increasingly tech-savvy consumers the word over expect one-click convenience they’ve grown used to. They know frictionless payments are technically possible and they fully expect the market to cater to their needs regardless of whether they are shopping with a local merchant or one based 9,000 miles away. Think local, act global at action.
Particularly with the ongoing uptake of mobile commerce or “m-commerce”, cross-border e-commerce now represents one of the biggest business opportunities available to merchants around the globe. According to a recent survey, cross-border online sales grew 21% from January to June 2020 compared with the same period one year ago.
However, as is often the case, opportunities come hand in hand with challenges, and many determined merchants are being held back by cumbersome cross-border payment infrastructure and processes which are hindering their ability to meet and transact with potential consumers.
Attempts to offer a seamless cross-border experience are further complicated in high growth markets where alternative payment methods – which refer to payments made using something other than a credit card like cash, coupons, bank transfers, prepaid cards etc. –still represent as many as two-thirds of all payments. By way of contrast, in more established markets local payments preferences are still evident and prevalent. For example, in Poland the most popular payment method, used by 62 percent of Polish e-consumers, are real-time bank transfers called ‘pay-by-links’.
Simplifying cross-border payments
In order to break down these market nuances interoperability and open platforms are critical to the fintech companies, financial institutions and businesses that are trying to encourage cross-border trade and operate internationally.
The good news is we’re already seeing examples of regulators attempting to tackle these issues. In Europe, for example, the full implementation of the Payment Services Directive 2 (PSD2) in September 2019 aims to break down banks’ previous monopoly on user data. In short it will allow merchants to retrieve account data from a consumer’s bank with permission and is driving the emergence of a new payments ecosystem.
At PayU we are also trying to do our part to make cross-border payments easier for merchants and consumers alike. Launched in 2017, the PayU payment orchestration platform aims to use technology to solve cross-border e-commerce challenges by using a single API integration to access 2.3 billion potential new customers in major high growth markets across Asia, Central and Eastern Europe, India, Africa, Latin America, and the Middle East.
Rather than adopt a traditional cross-border model, using an international acquirer, the PayU payment orchestration aims to redefine the way cross-border payments can be undertaken. By making direct connections to in-market acquirers and local alternative payment methods, the PayU payments platform enables international merchants to offer a wider array of payment options, while processing payments locally. Not only does this allow merchants to reach more customers by offering additional payment methods, but it also improves the customer experience.
Expanding consumer credit through digital payments
Credit is another significant challenge for many cross-border merchants as there remains a reliance on traditional methods of credit authorizations. Merchants from mature markets are often hesitant to lower their risk threshold and rely on non-traditional payment verification models – which in turn can be prohibitive to connecting customers and businesses with each other.
On the flip side, a consequence of the rise in smartphones is that it brings with it a corresponding rise in data regarding a customer’s spending and earning habits. As the amount of data increases, new techniques are being used to build credit intelligence and more accurately understand an individual’s credit rating. For example, AI and machine learning are being incorporated into credit models, enabling underwriting which uses thousands of variables all changing in real time.
At PayU we are developing and supporting these new techniques and their potential to unlock credit and financial services for underserved populations.
Breaking down cross-border payment barriers
With digital payment volumes continuing to increase and with the rise of cross-border e-commerce in emerging markets, the opportunity for going global has never been greater. However, if the predicted growth of cross-border trade is to be realized, complicated and out-of-date payment infrastructure and processes will need to be addressed.