From cash and coins to written checks and credit cards requiring PINs, the ways we pay for products and services have rapidly evolved over the past two decades. Fintech has developed and embraced new technologies that are advancing the methods we use to pay, making transactions easier than ever.
The emergence of additional payment methods, paired with e-commerce, compel U.S. merchants to consider global sales opportunities. Successful expansion into new markets requires providing consumers the freedom to utilize their preferred payment methods. Sounds complicated, right? There’s a solution: Local Payment Methods (LPMs).
LPMs are well-connected
LPMs, defined as an alternative payment option to traditional credit card payments that also addresses domestic economies, is predicted to account for 55 percent of all global online purchases by 2019. LPMs open the door for consumers to purchase goods and services online using bank transfers, direct debit, e-wallets, prepaid vouchers (like Oxxo, a popular method of payment in Mexico), digital payments and more, rather than credit cards.
LPMs have significantly evolved in variety and complexity over the past five years. In coming years, more and more consumers will use LPMs as their primary means of payment – perhaps even more than cards. We’re already seeing this trend in several regions around the world. In China, for example, 57% of payments are made via e-wallets and only 16% of the population have a credit card. Furthermore, LPMs are more popular than cards in mainland Europe.
While LPMs are gaining traction around the world, they’re barely hitting the radar of U.S. merchants. In sharp contrast to the previously mentioned regions, in the United States card-based transactions still represent 75 percent of all e-commerce purchases. Recent research by PPRO documented that 50 percent of online shoppers worldwide have abandoned a purchase at checkout, with over 60 percent reporting they did so either because their preferred payment type wasn’t available or because the payment process was too complex.
As LPMs continue to expand in variety and adoption, we expect continued variance in business and consumer demands and expectations between the U.S. and other countries. Here’s how we think payment methods and global consumers’ expectations for using LPMs will evolve in the next five years:
Cash and plastic will no longer be king. With the explosion of e-commerce showing no signs of slowing down, experts predict that the use of cash will phase out over the next 20 years. Globally, by 2021, the portion of payments made by credit card are projected to decrease from 29 percent (2016) to 15 percent. The portion of e-wallet transactions are on track to increase from 18 percent to 46 percent. In short: less cash and credit card use, and more e-wallet use.
Given high e-commerce growth rates, competitive merchants must accept LPMs to be accessible to a global audience.
Household spending will rise. Millennials and GenXers aren’t the only generations embracing online shopping. Baby boomers and Silver surfers are also incorporating e-shopping into their everyday life. By some predictions, global household spending by people aged over 60 will reach $15 trillion by 2020, twice as much as was spent in 2010.
With a surge in spending and understanding that global customers prefer a frictionless payment experience when shopping for goods and services online, consumers will expect the seamless payment options offered with LPMs.
Merchants who are only “thinking local” will be forced to go global (or else…). Currently, many U.S.-based e-commerce sites have yet to be optimized for accepting LPMs, resulting in loss of global sales reach. A recent FedEx-sponsored study of 9,000 consumers and more than 30 small- and medium-sized businesses with international e-commerce operations found that a striking 82 percent of global respondents had made a cross-border purchase online. Furthermore, it valued global e-commerce revenues at around $1 trillion and predicted these will rise exponentially over the next few years.
E-commerce sites make sales if they’re optimized to the needs of the consumer. Merchants must ensure that customers in a given location are offered only the products and payment methods relevant to that location, in regionally-appropriate language and format.
The world is full of potential customers, and a merchant with an interest in entering new markets can’t afford to ignore the massive sales potential of offering LPMs. It’s time for U.S. merchants to look at the bigger, global picture and prepare to prosper by accepting of a range of locally preferred payment methods.