Payment cultures

The Cybersource 2012 UK Online Fraud Report reveals a steady growth in the numbers of British retailers with overseas customers. Overall, 59 per cent of all 200 retailers surveyed were trading internationally.

Of those, 52 per cent sell to customers in Germany, 81 per cent to France and 75 per cent to the US. 53 per cent have customers in Australia. Other countries cited in the survey include the Netherlands (72 per cent), Spain (68), Italy (63), Sweden (62),

Canada (58); and Brazil and Mexico (both 36). Maddy Riordan, head of international marketing at outdoor sports equipment specialist Wiggle, says the share of online sales at home is roughly equal to that for overseas sales, but that overseas sales are growing at a faster rate.

But there are some important considerations retailers need to bear in mind when developing their strategy for processing international payments efficiently and securely.

At Wiggle, the international payments strategy is guided by research into which payment methods are most popular. “We find that when we add a new payment method we get a high proportion of new customers coming through,” says Maddy Riordan. “Our ideal position would be to offer every payment method in every country, but that’s hard to achieve, so we start with the most popular methods, then go to the second most popular if that’s appropriate, then perhaps the third and so on.”

Many retailers, including Wiggle, use one or more payment service providers (PSPs) to provide cost-effective access to multiple methods. There are a dizzying number of payment methods worldwide, from direct bank transfer-based services like iDeal in the Netherlands to the direct debit-like Elektronisches Lastschriftverfahren (ELV) transactions favoured by large numbers of German consumers; and the various e-wallets like PayPal, or Alipay in China.

Working with a PSP is clearly a good option for many retailers. “As a UK merchant, if you’re not offering local payment methods to consumers abroad you’re putting yourself at a disadvantage,” says Julian Wallis, country manager for the UK at Ogone Payment Services.

Ogone has a partnership with e-money specialist that means it can process non-credit card payments in multiple currencies, with payments passed onto rather than to a bank or acquirer. So there’s no need for a merchant to set up a bank account in every country; and it can charge for purchases in foreign currencies but receive the payment from in its own preferred currency.

Barclaycard’s SmartPay online payment gateway offers similar benefits. “It enables a merchant to link between its website and the various payment schemes,” says Andy Simmonds, head of corporate channels at Barclaycard Global Payment Acceptance. “That also allows the look and feel of the customer’s website to be maintained through the payment process.”

The PSP has built a payment hub that gives merchants access to 100 payment methods and processes payments in 160 countries. “Most don’t use all of them, but they can if they want to,” says Michael Norton, managing director,

Jonathan Williams, director of payment strategy at Experian stresses the need for retailers to monitor local regulatory conditions and changes. In the EU the Single Euro Payments Area (SEPA) initiative, implementation of which will finally be complete by 2015, means SEPA cross-border payments are treated in the same way as domestic payments, making them easier and more cost-effective to process.

Williams gives the example of an Experian client, a magazine publisher, which is using SEPA to centralise processing of direct debit payments from subscribers across Europe, rather than processing them separately in each country.

But this also illustrates another problem: although the new arrangements made no practical or financial difference to consumers, they seemed to find the transition from a local payment arrangement in their own country to what appeared to be an international transaction unsettling. “They didn’t want to make what they saw as a cross-border payment when they were used to a local transaction,” says Williams.

It’s easier to understand the appeal of some of the newer online payment methods. The Dutch direct online bank transfer system iDeal was launched in 2005 and has become very popular very quickly, with the number of transactions passed through the system rising from 4.5 million in 2006 and 15 million in 2007 to 68.8 million in 2010.
“iDeal is a very secure system,” says Williams. “It’s easier for retailers. iDeal payments tend to be much cheaper than credit card payments and it is cheaper to understand exceptions.”

The ELV system used in Germany is less attractive to retailers, but popular with German consumers. “As with direct debit in the UK, the consumer is very much in charge,” says Gabriel Hopkins, head of ecommerce products at payment processor WorldPay. “They’ve got about three months to say ‘That wasn’t me’ and get their money back. Fraudsters could use it to target merchants that aren’t so savvy: you might have a jewellery retailer who dispatches goods, then the payment is turned around and the ‘customer’ can’t be found.”

Hopkins is much more enthusiastic about the German Giropay system, now used for five to ten per cent of payments there and similar to iDeal. “It’s important for merchants to understand the payment types in risk terms,” he says.

Clearly, security is hugely important. The Cybersource fraud report highlights risks posed by particular countries or areas of the world. 32 per cent of retailers surveyed had blocked orders at country level because of high levels of fraud.

3D Secure technologies like Verified by Visa or MasterCard’s SecureCode have helped to secure online card payments. They can be targeted by sophisticated phishing attacks, suffer from the weaknesses of a password-based system and can, in some circumstances, annoy customers so much they abandon a transaction; but they work, even if the number of consumers enrolled in these schemes varies by country.

Visa will also soon be launching, a new digital wallet service that will allow cardholders to shop online and via mobile devices without sharing card account information with merchants. Other card solutions, like Visa CodeSure cards, which incorporate a mini digital display and keypad, onto which cardholders enter their PIN to generate one-time secure codes for transaction authorisation, may also become more widespread.

Automated security screening solutions enable retailers to verify a customer’s identity. GB Group’s identity management technologies can verify the device used in a transaction, as well as assessing the location, name, address and telephone number of the customer. They can run checks at a deeper level if appropriate.’s FraudGuard solution checks every transaction against up to 30 fraud criteria in real time, including address verification, IP address matching, card address registration and device fingerprinting.

In the longer term it’s possible to envisage consumers using a token mechanism on a mobile device to pay for goods online and in a bricks and mortar store, perhaps via an encrypted Bluetooth link, or something similar.

Emma Lindley, global channel and commercial director at GB Group, anticipates a time when validated online identities will enable individuals to deal on the same level with multiple merchants. “I think we’ll see identity and payment coming together over the next few years,” she says.

In the near term, whether the customer is abroad or in the UK, there is a need for more education to ensure they are well-informed enough to trust the payment processes at their disposal. But even if the customer does understand what’s happening, he or she is still likely to get annoyed if the transaction takes an age to complete. The aim must always be speed and simplicity. And retailers should always take care of the basics: reliability of payments systems and minimisation of data or processing errors.

But behind all of these considerations are the strategic decisions retailers must take when attempting to expand into new markets. “The only lesson I would say is don’t assume everyone’s like UK customers,” says Maddy Riordan. “So if you were trying to reach customers in the Far East and you only offered credit card payment methods that would be like a company from there setting up here and only offering cash on delivery.” Matching the right horses to courses will make expanding overseas a much less risky bet.

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