Retail in Asia

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Taking Stock: Why payment matters in Asia’s e-commerce space

As global retailers expand to Asia, two things come into focus: the market opportunity is huge, but only if merchants can overcome the hurdles.

NTT Communications’ recent survey "Breaking into the e-commerce Market in Asia: Opportunities and Challenges" reveals three key challenges that global merchants must address: meeting local tax regulations and compliance (50 percent), local market needs (46 percent) and language barriers (44 percent).

Tyrone Lynch, Vice President, eBusiness of NTT Com Asia, said one of the biggest misconceptions of merchants coming from more mature markets is that practices done in in their home countries are applicable globally.

"The US is a very large market in itself. It is one market and you have common standards. Between US and Europe it’s very similar. You come to Asia, it has many countries. Each country has a different currency, different regulations and different practices. It is not unified in the sense of one market, you look at it as individual markets with different regulations and rules," he explained.

In the payment methods alone, Lynch said in the mature markets, credit cards like Visa, MasterCard or American Express are dominant, but in Asia it is not the case. In China, he said the debit cards are more predominant and there are varied alternative methods like Alipay.

"If you don’t offer the payment method preferred or the most prevalent in the market, it’s going to limit your success," he said.

Consumers will also have different motivations to purchase. In mature markets, he said retail professionals often look at marketing from a very research-based perspective. With Asia’s diversity, there are much more varied ways to understand the nuance of he market and capture the attention of the consumer and understand their purchase decisions.

"Even how your navigation looks and matches with the preferences of a particular country you are looking for (matters)," he said. If you apply that to payments, you have to understand how people are comfortable to pay and are able to pay."

Local versus global

Lynch emphasized that in some markets, it is preferable to have a local acquirer or local processing capabilities for credit cards to avoid cross-border fees.

"For instance, if you have somebody in Hong Kong processing local credit cards, transactions with a Hong Kong-based merchant will incur a particular fee. However, if an overseas card like a Singapore-issued credit card is used to make a purchase in Hong Kong (even if it is only online), then the merchant is charged a higher fee for cross-border fee," he explained.

There are, however, instances when a global merchant may not want to process locally in a particular country and prefer to process credit cards offshore. In some countries like China where it is a requirement to establish a legal entity and comply with other regulations, offshore processing may be an easier option.

"If they can do this offshore and still be able to accept payment from the Mainland Chinese population in the way that they prefer to pay, but receive your settlement funding overseas, then it is more efficient and eliminates the headaches," Lynch said, adding that NTT Communication provide solutions for both strategies.

For a large global e-commerce player, he said the company developed solutions that allowed them to access the market through their preferred payment method which is China-issued cards, mostly debit cards. The conversion rate was very high.

"What that means is many successful transactions going through. We are able to push the rate to well over 80 percent but still maintain extremely low cases of attempted fraud," he explained. "That is combined with other multiple currency transactions we are doing around the region for them and managing it through a single management portal."

There are other solutions, he said, such as the ‘like for like’ settlement, which means when a consumer pays in renminbi, the merchant can receive the settlement in renminbi even if they are receiving it outside China or across borders. This limits the merchant’s exposure to foreign exchange cost.

China focus

The NTT survey was conducted from March to April this year. Respondents include 100 CFOs from the UK and the US working for global e-commerce merchants (with around USD12 million revenue annually in e-commerce) looking to expanding to Asia).

Lynch said among the findings is that despite the challenges, motivation for global merchants to bring their e-commerce business into Asia is high and the most common reasons cited were increased revenue (85 percent), supply chain efficiency (56 percent) and increased demand (52 percent).

It is true, he said, that the opportunity is huge; the size of the Asian e-commerce market is around $3 trillion.

Of the territories in Asia, merchants are generally focused on Mainland China (79 percent), which topped the list of regions in merchants want to expand into. It is followed by Hong Kong at 66 percent and Taiwan 57 percent.

"China is the largest piece as it is a huge market and growing rapidly. I don’t think Hong Kong is a large market but it is an access point to selling into China. It is the same with Taiwan, it is also a growing market," Lynch said.

Elsewhere in Asia, opportunity also abounds, he added. Disposable income is rising in many places. In many countries, the younger population is becoming more tech savvy and willing to buy online.

"Besides China and greater China, the survey also mentioned Japan where the size of the market is big. India, of course, is a big market. But there’s some very interesting things coming up like Indonesia which has over 200 million people, relatively young population and high growth as well," he said.

Taking Stock is Retail in Asia’s fortnightly column dedicated to showcasing opinions from experts in the retail industry.