PAYMENT MANAGEMENT INSIGHTS FOR FASTER, SAFER … · 2014. 5. 8. · Payment Management Insights...

PAYMENT MANAGEMENT INSIGHTS FOR FASTER, SAFER GLOBAL EXPANSIONA FRAMEWORK FOR DIGITAL COMMERCE SUCCESS

Payment Management Insights for Faster, Safer Global Expansion February 2014

OVERVIEW

IN THE DIGITAL ECONOMY, THE WAY YOU MANAGE PAYMENT HAS BECOME A CRITICAL FACTOR INFLUENCING TIME-TO-MARKET AND FINANCIAL SUCCESS.

CONTENTS

INTRODUCTION02

WHAT MAKES PAYMENT MANAGEMENT CRITICAL TO GLOBAL SUCCESS03

A FRAMEWORK FOR ACTION04

1A. Optimizing checkout pages 06

2. Fraud management12

1B. Calculation of taxes and duties07

1E. Payment plans11

1C. Currency presentation08

1D. Payment methods09

SALES CONVERSION CONSIDERATIONS05

2. Fraud management14

5. Settlement and reconciliation 20

3. Acquiring and processing16

4. Customer service and fulfillment19

BACK OFFICE AND OPERATIONAL CONSIDERATIONS 13

CONCLUSION21

Page 01


INTRODUCTION

If your company is like most, your global expansion plans are ambitious. Whether targeting one country or many, there’s pressure to get to market faster and accelerate financial returns. In the digital economy, the way you manage payment has become a critical factor influencing time-to-market and financial success.

As CyberSource engages with businesses around the world to support their eCommerce and mCommerce expansion plans, we find that they want to understand the payment considerations involved and how other companies are addressing them. This guide provides a framework for thinking through these issues, and provides strategies you can use to deliver on your expansion initiatives. It will help you understand what to focus on and how to avoid common mistakes when it comes to one of the most critical success factors for global growth: payment management.

Country-Specific Payment Considerations

This paper provides a general payment planning framework for global expansion and illustrates key points using examples from countries across the world. If you'd like more information about payment considerations for a particular country, please contact us for one of our country factsheets, which include information on online payment preferences and other factors affecting payment management and operations.

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WHAT MAKES PAYMENT MANAGEMENT CRITICAL TO GLOBAL SUCCESS

Most businesses appreciate that because of cultural, economic and other differences between countries, they can't just replicate what they do in their domestic market and expect success in a new market. This applies to everything from product and service offerings to fulfillment and customer service. It applies to payments too.

Every market has its own payment mix, mandates, checkout and risk management considerations – each of which may affect your market reach, sales conversion and operating efficiency. Consider:

1. Impact on market reach and time-to-market Offering the right mix of payment options can

mean the difference between addressing a fraction of the market or all of it. Confident fraud management operations can open markets and extend reach, whereas insufficient capabilities can restrict access. In our experience, establishing connectivity to support new payment types and mandates can delay market entry by up to six months or more, and require new commercial relationships – whereas companies that employ a payment platform strategy can scale almost on demand.

2. Impact on cost and complexity Fraud risk on cross-border sales is typically

2.5x higher than domestic eCommerce transactions1. With the right tools and expertise you can manage this risk, but for companies lacking such capability fraud losses can undermine expansion gains. Similarly, as checkout practices are tailored to each market, IT and operating complexity can grow – with more connections to implement and manage, more checkout and device variations to create and maintain, more processing activity to reconcile, and possibly more time zones and languages to review orders in. With the right insights and strategy you can successfully manage this complexity, but without such, your ability to cost-effectively scale your business may be compromised.

We've seen that when businesses fail to address these complexities, they experience high costs, low conversion rates, and delays in time-to-revenue – even when targeting a country where digital commerce is firmly established. On the other hand, we've seen that when businesses have a sound strategy in place, they can realize higher checkout completion, steadily rising online order values, and high levels of repeat business.

OFFERING THE RIGHT MIX OF PAYMENT OPTIONS CAN MEAN THE DIFFERENCE BETWEEN ADDRESSING A FRACTION OF THE MARKET OR ALL OF IT.

1 CyberSource Fraud Management Survey, 2013.

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A FRAMEWORK FOR ACTION

Payment management is a cross-functional business process, so we recommend the adoption of a planning framework that is process-based: starting from the first point of customer interaction and seeing the implications through to reconciliation and settlement.

Within this framework, there are two sets of considerations: those that relate to Sales Conversion, and those that relate to Back Office & Operations (with fraud management being a consideration shared by both). Working through the framework can equip you to make informed decisions that are best for your business, based on a thorough understanding of the checkout and payment management factors and choices involved.

Sales Conversion Back Office & Operations

1. Checkout localization

2. Fraud management

3. Acquiring& processing

Mandates & regulations

5. Settlement & reconciliation

4. Customer service& fulfillment

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Currency presentation

Payment methods

Payment plans

Optimizing checkout pages (Form fields and device)

Calculation of taxes and duties

Checkoutlocalization

Fraudmanagement

WWW.ONLINESHOP.COM

1D

1E1B

1C

1B

1A 1C

1D

1E

2035

1A

A: 200B: 4 x 50

SALES CONVERSION CONSIDERATIONS

The first segment of the framework covers the key considerations that directly affect the customer's checkout and payment experience, which has an impact on customer reach, sales conversion and revenue generation. From currency presentation to payment methods and fraud management, the decisions you make about these can affect abandonment rates during the checkout and payment process, and how likely customers are to return.

cited in the survey relate to

PRICING AND PAYMENT

3 OUT OF 6 TOP PURCHASING

OBSTACLES

The Key Payment Management Sales Conversion Considerations

In a worldwide survey2, online shoppers were asked about obstacles to completing an international purchase. Three of the top six obstacles related to pricing and payment, with all three being cited by more than a quarter of respondents:

in the final purchase price.

As we've worked with customers around the world, we've found that there are six key elements of checkout and payment localization that affect sales conversion: five associated with checkout localization, and fraud management. We discuss each in turn below.

2 Pitney Bowes: Global Online Shopping Survey, ORC International, 2011.

CHECKOUT

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145SUBTOTAL

200

SHIPPINGTAX

TOTAL


1A. OPTIMIZING CHECKOUT PAGES (FORM FIELDS AND DEVICE)

Form Field Localization

Even where the language of a new market is nominally the same as your domestic market, terminology will differ: 'state' vs 'province' vs 'county' for addresses in English-speaking countries, for example. Address formats may differ, from the typical position and format of the postal code to the way apartments within buildings are identified and whether post office boxes are common or not. Title and name formats may also differ, in both their length and order of appearance.

The payment ramifications of terminology and format differences run deeper than wording. It's important that your checkout page presents the information in the order and format customary in the relevant country, and that you check compatibility of the field formats and length with downstream payment systems. When these things are not attended to, genuine transactions may be flagged as fraudulent (because customers are confused about what to enter into a field); or, worse, the transaction may fail if, for example, your fraud or recurring billing systems may be unable to accept the information due to format or length.

Mandates Relating to Checkout Forms

In some countries, particularly in Asia, banks require the checkout form to be hosted by a payment provider or the bank (rather than the merchant), to address payment security concerns. If you currently host your own payment and checkout forms, you may need to modify your checkout architecture to accommodate these requirements.

STRATEGIES FOR SUCCESS

To minimize the complexity of creating and maintaining multiple checkout formats, businesses are using responsive forms that detect the format of the device being used, and automatically present checkout in the appropriate format. If you use the checkout pages of a payment service provider or are thinking of doing so, consider whether your chosen provider can support you with the flexibility you need:

(today and in future).

and format.

of checkout page elements.

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Internet users in selected countries who primarily purchase items via mobile device, June 2013


Even with mobile optimized pages, checkout on a smartphone can be difficult if the customer is required to fill in a lot of details. Two strategies successfully used by businesses to reduce mobile abandonment rates are:

Digital wallets. By adding one or more digital wallet payment options that are popular with smartphone users among your target audience, you let them avoid all the form-filling, making it significantly easier to complete transactions.1-click checkout. By securely storing the payment credentials of your customers, you relieve them from having to complete the checkout form on subsequent visits.

Both these strategies improve eCommerce checkout on any device, but the greatest benefit is experienced by mobile shoppers.

Device Recognition and Optimization

If you're not actively supporting mobile checkout today, or do not have a scalable strategy for supporting different device formats, this is an area that may warrant focus as you expand globally. Fully 18% of internet users in China primarily use a mobile device to purchase items. In India it's 15%3. In any country there may be preferences for tablet and smartphone use that matter to your business.

Supporting multiple form factors and operating systems can create IT complexity even in domestic markets. If not managed properly, this complexity multiplies exponentially as you expand globally and find yourself supporting multiple languages and payment formats as well.

3 Retailmenot.com: Shoppers Trend Report, Ipsos Public Affairs, 2013.

1B. CALCULATION OF TAXES AND DUTIES

As illustrated by the survey mentioned earlier, presentation of taxes, shipping and customs duties has a clear effect on sales conversion. Customers may abandon checkout if the total cost of the purchase (goods and services, taxes, duties, shipping) is not clearly presented. For this reason, many of the businesses we work with calculate applicable taxes in real time and present them at the time of checkout.

Your tax obligations depend on how you've chosen to do business within a new country, and we deal with those considerations later in this paper (within the framework of back office and operational considerations). Wherever you are bound by local sales-related tax laws you'll need to decide whether you or a third party will handle the calculation, and we recommend that you seek legal advice to understand what you are required to display on the checkout page.

Country % of respondents

China 18

India 15

Great Britain 10

Australia 8

US 8

Germany 6

Sweden 5

Canada 4

Italy 4

Netherlands 4

France 2

Total 8

Source: RetailMeNot.com, ‘Shoppers Trend Report’, Ipsos Public Affairs, 2013.

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LOCAL PRESENTMENT/ACCEPTANCE

As long as your payment processor or acquirer is licensed to process payments in the currency of the country you're selling to, you can present your goods and services to customers in that currency. When a customer makes a purchase, it is processed in their currency. Typically, your acquirer will offer a list of international currencies you can fund in.

Pros:

and use any of the payment methods you offer.

using currency tables to manage the conversion and protect your business against currency fluctuations. You can also adjust your prices to account for local market conditions such as competitive forces or local purchasing power.

Cons:

for each country website, which can be cumbersome if you have an extensive catalog or you're targeting many countries.

Note: Local presentment may be subject to legal obligations and regulations.

DYNAMIC CURRENCY CONVERSION (DCC)

A DCC service detects the currency in which the customer’s card is issued and offers them a choice of paying in your base currency or the billing currency of their card.

Pros:

rate is updated at pre-defined intervals and the price conversion is automatic when customers choose their currency at checkout.

against currency risk.

Cons:

the origin of the customer's card, DCC only applies at checkout. During shopping, customers can only see pricing in your base currency.

stipulate, among other things, certain disclosures that must be made to customers.

Note: DCC may be subject to legal obligations and regulations.

MULTI-CURRENCY PRICING (MCP)

An MCP service lets you dynamically convert your base prices into multiple currencies (certain limitations may apply). The exchange rate is updated at pre-determined intervals.

Pros:

customers choose a currency from a list, or choose the currency for them based on the site they're visiting or where they are located. You can display the dynamically converted prices to customers as they browse your site.

Note: If you want the local currency price to be a round number rather than whatever the conversion produces, you may want to create rules to accommodate rounding.

Cons:

slightly more complex to manage than DCC. However, the benefits of MCP are well worth this additional requirement.

Note: MCP may be subject to legal obligations and regulations.

Some businesses find themselves in a situation where they cannot create individual websites for each country they are doing business in. Or, because of their geographic location or type of business, they attract customers from a wide range of countries.

To provide these consumers a familiar currency experience and ensure maximum conversion, businesses can offer one of the following types of currency conversion services:

1C. CURRENCY PRESENTATION

Sales conversion can be improved when customers are presented with prices in a familiar currency. If you set up a local acquiring relationship, or you already have one, you can price and process payments in local currency (we cover the differences between local and global acquiring later in this paper).

If you're selling cross border you can still present prices in the customer's currency, but your customer may be charged a foreign exchange fee by their issuer, which appears as a separate line item on their credit card statement. We recommend clearly indicating that additional fees may apply, so that your customers are not surprised when they receive their card statement.

You should also be aware that some countries have mandates about currency presentation. In Brazil, for example, the Association of Brazilian Credit Cards and Services Companies (ABECS) recommends that financial institutions decline internationally originated transactions presented in the Brazilian real, and some of the top banks have started acting on this recommendation.

There are three main ways to present pricing in the customer's currency while processing payment in your base currency:

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Source: European Central Bank statistical data warehouse 2012.

Your ability to appeal to customers and maximize sales in a new country will depend on understanding local payment preferences and responding appropriately. When you ignore a key method of payment, you may be putting an artificial cap on your revenue potential for that country. But deciding whether to offer a new payment method is often a matter of comparing the potential for additional revenue with all of the operational risk and cost that it adds.

There are wide differences in distribution of key payment methods across Europe

1D. PAYMENT METHODS

Belgium

Germany

Ireland

Greece

Spain

France

Italy

Netherlands

Austria

Portugal

Finland

Sweden

United Kingdom

0 20 40 60 80 100

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Credit Transfers (also referred to as Bank Transfers)

Direct Debit

Card Payments

Checks

Other


Card Issuing Bank %

Kookmin 15.8

Hana 6.8

Woori 6.8

NACCP 6.7

IBK 5.6

City 3.1

SC First Bank 1.5

Other 6.6

Total 52.9Independent Card Company %

Samsung 10.6

Shinhan 20.2

Hyundai 9.8

Lotte 6.3

BC 0.1

KDB Capital 0.1

Total 47.1

4. Cannibalization vs Incremental Sales

There's no point adding a payment option if it doesn't actually bring you more customers or increase the value of their purchases. To add new revenue, a new payment method must attract customers who will likely refuse to use any of the other methods you offer. Often there comes a point, typically if you're considering adding a fourth or fifth payment option, where adding the new method may have no effect on revenue; it simply changes the payment choice of your current customers.

5. Implications for Operational, Back Office and IT Complexity

Each payment method has its own operational and cost implications, but that's not the only issue. Complexity tends to multiply as you add more options, because of the added challenge of managing and reporting across diverse payment methods. The factors you need to weigh against expected revenues include:

Effects on fulfillment. We discuss these issues within the framework of back office and operational considerations later in this paper.Effects on reporting and reconciliation. We discuss these issues within the framework of back office and operational considerations later in this paper. Effects on IT. Every electronic form of payment you offer requires connectivity to the relevant payment processing organizations and/or banks, and needs to be implemented appropriately on your checkout pages. Checkout pages must now cater to multiple device formats as well as multiple operating systems. Every form of payment, electronic or not, ultimately needs to be integrated with financial, logistic, customer service and other applications. The IT burden and cost can quickly rise as the number of countries and methods of payment increase.

Five things to consider when weighing the cost and benefit of adding a payment method1. Cost of Payment Acceptance

Some payment methods simply cost more than others. The fees associated with bank cards can rise sharply for cross-border transactions (we illustrate this when discussing back office and operational considerations later in this paper; see the figure on page 17). Fees for bank transfers can be insignificant in comparison, and in countries where there's a high preference for bank transfers, this may affect your payment mix.

2. Alignment with Product/Service and Target Audience

It's the preferences of your potential customers that matter, not overall country preferences. A population may have different preferred payment methods for different product types such as clothing, furniture and downloadable digital content. Or preferences may differ according to the age or income of your target customers. If your brand is exclusive and your audience frequently uses credit cards, a low country preference for credit cards may not matter in your case.

3. Local Card Markets and Restrictions

Our experience in Brazil tells us that it has a very high prevalence of card payments, but some 30% of the credit cards used there are authorized only for domestic transactions. South Korea has eight domestic card networks and more than 20 card companies and issuing banks4. Denmark has its Dankort debit card scheme. You can't just assume that the cards being used by your target audience are international, and you may need to establish a relationship with a local acquirer in order to accept and process a local card. We cover the issue of acquirer relationships later in this paper, within the framework of back office and operational considerations.

4 Korea’s Credit Card System: Issues & Potential Measures, Jae-Youn Lee, 2011.

S. KOREA'S FRAGMENTED CREDIT CARD MARKET: Market share of leading players


Many of the companies we've worked with have found the following tactics useful in augmenting sales in particular markets:

Germany: risk for consumer sales, because buyers have wide leverage to dispute withdrawals; but it's very attractive for business-to-business sellers, because chargebacks are typically low in B2B transactions.Brazil: offering domestic payment methods such as Hipercard, a local credit card, or Boleto Bancário, which allows customers to pay by cash at a physical bank branch or by using an ATM.Japan: reaching customers who may not qualify for a credit card by offering konbini payments, where the customer can order goods online, select to pay at a konbini (convenience store), receive a payment ID, and make a payment off-line within six days.China: offering digital wallets such as Alipay, Tenpay, and PayEase, which allow customers to pay in various locally preferred ways (including local debit cards or even cash on delivery).

Source: Korea’s Credit Card System: Issues & Potential Measures, Jae-Youn Lee, 2011.

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Mandates Relating to Payment Methods

Some payment related requirements, such as PCI DSS for card transactions, are universal. Others are country-specific or region-specific. In Europe, the Single Euro Payment Area (SEPA) initiative imposes requirements on direct debits and credit transfers. Consumer rights laws governing returns, complaints and refunds differ from country to country. Similarly, countries differ in their privacy and data protection laws for account, address and payment information that you hold about customers.

Whether or not you're bound by a particular mandate will depend on how you're doing business with the relevant country. As we make clear when discussing the back office and operational considerations of expansion later in this paper, it's vital to explore all of the implications of cross-border and local trading and to take the appropriate legal and financial advice to ensure that you don't encounter any unexpected surprises.


One of the ways businesses control the operational complexity of global expansion is to limit the number of payment methods they offer. Each situation is unique, but as a general rule you're likely to see diminishing returns after about four payment methods.

Expanding businesses have also had success in minimizing IT and other back office complexity by partnering with a payment service provider that acts as a single hub for payment connectivity and management. Depending on the provider, this can reduce complexity in a number of ways. Examples include:

through a single connection to the provider.

and payment types.

In some countries, credit limits or purchase frequency limits on certain payment methods may require you to accommodate more than single-time payments. In Brazil, for example, credit card payments are common, but spending limits are low and interest rates high. This makes interest-free installments very popular. We've worked with a well-known global consumer electronics brand that initially decided not to accept installment payments when entering Brazil, but soon changed its mind. The changes in fraud screening, order management and reconciliation processes were worth it, given the importance of installments to the target audience.

This isn't an isolated example. A major international sports brand selling high-priced customizable apparel in China enjoyed strong demand for its products, but discovered that a meaningful portion of its targeted customers were unable to complete online purchases due to low credit limits associated with a particular payment instrument. The problem was resolved by offering installment payments.

Sometimes it's simply culture that creates a preference for installments. Customers unused to credit cards may prefer being debited each month rather than paying the full amount up front and managing payments over time. We recommend that you assess the credit limits (or related parameters) of payment types in your target market(s) to determine if payment plans other than those you are accustomed to offering are warranted.

1E. PAYMENT PLANS

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It's well worth understanding how attitudes to 3-D Secure differ by country, so you can make informed decisions about whether to use it to improve customer protection and reduce your liability. There are countries where 3-D Secure is quite common, despite not being formally mandated. Companies have had success implementing it in the UK and Russia, for example, without increasing abandonment rates.

While it is common to view fraud management only as a back office function to protect against loss, in the context of global expansion it's important to view it also as a sales conversion consideration, for at least two reasons:

Fraud management extends market access. Some companies shy away from selling into countries believed to carry a high risk of fraud. In our experience, while certain countries or certain payment types may be more risky than others, there's none that can't be considered if you have the right approach to fraud management. Fraud management affects sales conversion. Over-zealous fraud management may lead to the rejection of genuine orders and drive genuine customers away. Conversely, a well-honed fraud screening process will help you accept more genuine orders without increasing chargebacks, leading to a smoother customer experience and happier customers.

Additionally, some countries may have mandates relating to authentication services (such as 3-D Secure, for example), which may affect the customer's experience of checkout.

We discuss fraud management considerations in greater detail in the back office and operational considerations section of the paper.

Mandates Relating to Fraud Management:

SecureCode, American Express SafeKey, JCB J/Secure) is a protocol defined by the card networks to provide additional security for online card transactions. It requires registered cardholders to identify themselves with a personal password every time they transact with a relevant card. 3-D Secure may be mandated in certain countries. Examples include (but aren't limited to):

MasterCard: requires merchants to support SecureCode for Maestro on all eCommerce transactions worldwide. Issuers and Acquirers in Italy:

in Italy. The Reserve Bank of India: mandates 3-D Secure for card-not-present transactions.

As you form your plans to enter a new country, it's important to assess whether payer authentication services are required to complete checkout.

2. FRAUD MANAGEMENT

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Mandates & regulations

BACK OFFICE AND OPERATIONAL CONSIDERATIONS

The second segment of the framework covers the back office and operational considerations associated with global payment management. The success of a digital commerce expansion initiative depends not just on maximizing revenue through effective sales conversion, but on doing so quickly, efficiently and securely. From a payment processing perspective, targeting a new market imposes new requirements on financial and IT teams, and may require significant changes in business processes. Unless these are well thought through and controlled from the start, they can undermine profitability and jeopardize the long term viability of the project.

There are four key back office functions most affected by the needs of checkout and payment localization when targeting a new market. We discuss each in turn below.

Back Office & Operations

2. Fraud management

3. Acquiring& processing

4. Customer service& fulfillment

5. Settlement & reconciliation

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Companies may fear taking on international sales because of perceived fraud risks. While it's true that fraud rates can be high if not managed appropriately, it's also true that proper tools and insights may make it possible to manage fraud to acceptable levels in countries perceived as risky, opening up markets previously dismissed. The key is global visibility of fraud patterns and an understanding of differences in consumer behavior.

Being aware of the differences between anomalous and normal behavior is the foundation of any effective fraud management strategy. This is especially important when managing fraud globally. Purchasing behavior can differ widely in different countries. As a result, the fraud management strategies and rules that you use to maximize revenue and minimize chargebacks in your domestic market may not be a good fit in another country.

Consumer Behavior

In the UK, it is common for individuals to have multiple credit cards, so an email account associated with multiple cards wouldn’t be a concern, while a single credit card with multiple emails would be unusual. However, in India, families often share a credit card, so it would be normal to see a single credit card associated with multiple emails.

There's simply no substitute for local knowledge when it comes to being able to adapt screening rules to different norms of behavior in different countries. This knowledge ideally comes both from experience of managing fraud in the country, and from lots of data correlating local purchasing behavior with patterns of fraud.

2. FRAUD MANAGEMENT

FORRESTER ADVISES THAT GLOBAL FRAUD MANAGEMENT SOLUTIONS SHOULD HAVE EXPERIENCE WITH "REGIONAL NUANCES IN CONSUMER BEHAVIOR, PAYMENT METHODS, REGULATIONS, AND FRAUD PATTERNS..."

Source: Market Overview: eCommerce Fraud Management Solutions, 2014, Forrester Research, Inc.

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Here are three common fraud management strategies we see companies using to speed time-to-market and make their global expansion initiatives successful:

Utilizing as much data as possible. Experienced businesses not only use a lot of data, but also many data types to create more linkages and correlations between transactions. They tend to combine country-specific data, data verification sources, and a global network of risk data insights, among other sources of data. Using analytics that can be localized. Global businesses often use risk models and analytics customized to local and regional fraud characteristics for greater accuracy. These same companies are implementing 'passive mode' testing of rules to understand conversion impact before placing rules into production. Supplementing in-house resources with local experts. To gain local experience, companies may contract with regional or local experts to help devise strategies and monitor results. In some cases, companies are outsourcing manual review operations to experienced commercial teams to gain time-zone and language coverage. A major UK retailer contracted with CyberSource to provide such services as a means of entering France.

Data Types

When you operate in different countries as we do, you learn (for example) that single names are common in some countries/cultures, but in Brazil, names may have five, six or seven components and none of them may be readily identifiable as 'the' first name or family name. If you fail to adapt name fields and you capture names incorrectly, you risk genuine purchases being rejected or flagged for review.

Everything you capture on your checkout page is a source of data feeding your fraud screening tools, but you need the right sources and tools to validate it. For example, mistakes in completing address fields are common at checkout, but there are third-party service providers that can validate and correct addresses to ensure subsequent data checks and risk analyses are accurate.

Local Practices

Every country has different rules and regulations in place that are important to capture in your fraud screening strategies. For example, when Canadian residents move to a new province, there's no phone number portability so they have to get a new mobile number. This means you can use phone numbers in Canada to indicate region of user identity. In the US where there is phone number portability, the phone number is less reliable as an identifier of location or identity. In Brazil, everyone has a national tax ID number called CPF (Cadastrado de Pessoas Físicas). You can use the CPF number at checkout to further verify the identity of the buyer and the validity of the purchase transaction.Market regulations and policies make information about Americans readily accessible, so businesses targeting the US market should seek more data points and data verification sources in their fraud screening.

When you understand these kinds of country-specific requirements you have the ability to use them for more effective fraud management.

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To support the payment methods that you want to offer to customers in a new country, you may need to establish new payment processing relationships. This section covers some of the considerations involved.

The Question of Domicile

Looking through the lens of payment operations, it may be advantageous to have local domicile in a country you're targeting: it usually affords you lower rates for credit card processing, enables you to offer payment methods such as bank transfers and direct debit, relieves your customers of exchange rate fees, and in our experience leads to lower failure rates for card processing for some businesses. (For a complete list of benefits, see the section on 'local vs global (or regional) acquiring' below).

But establishing local domicile has broader ramifications. These include but are not limited to:

Rules vary by country, but local domicile may require you to register your business, obtain a business license and open a bank account. You may also be required to establish a physical office with employees. You'll need to comply with applicable local tax laws and carry out all of the other activities associated with running a business.

Operating locally may require you to take on foreign exchange risk that cross-border trade doesn't. Some governments may impose withholding taxes, and you also need to take local inflation rates into account. In addition, some countries (Brazil, China and India, for example), may subject the repatriation of funds to various restrictions.

As an alternative to establishing local domicile in every country you want to target, you could opt for domicile in one or more countries in the region. This may allow you to take advantage of intra-regional acquiring to lower your merchant account rate for card acceptance in the entire region, not just the country of domicile (see the figure on page 17 for a comparison of different acquiring models).

We recommend that you seek advice from legal and financial experts on the regulatory, tax and banking implications of becoming a local business; and that you find out about any restrictions or guidance that your local acquirer may have on merchant account configuration and funds settlement. All of these considerations should be weighed against the benefits of maximizing revenue through local operations.

Local vs Global (or Regional) Acquiring

To process payments from customers in a new market, you need a relationship with an acquirer authorized to accept the relevant payment type for that country. For some payment methods this may be either a global or a local acquirer. Some payment methods in some countries require you to hold a local merchant account, which usually requires domicile.

If the choice between local and global acquiring determines what local payment preferences you can cater to, it may impact revenue generation. Even when this isn't the case, your choice of acquiring relationship may affect the cost and risk of payment processing in a number of ways. These include:

Fees. Interchange rates for card transactions may be lower with a local acquiring relationship than for intra-regional transactions while inter-regional (cross-border) rates are always going to be higher than either local in-country or intra-regional rates. For example, compare:

Visa in-country rate for France (card-not-present CVV2 transactions): 0.28%*

Visa in-country rate for Italy (card-not-present CVV2 transactions): 0.75%*

Visa intra-regional rate within EEA (card-not-present CVV2 transaction): 0.60%*

Visa inter-regional rate for US merchant selling online in Europe: 1.44 – 1.97%*

Add to this, significantly higher assessment (scheme fees) for cross-border transactions, you can expect to pay a rate that is several times higher for doing cross-border commerce.

Payment acceptance. Issuing banks may sometimes decline a higher proportion of payments when the acquiring bank isn't local, even if it's a global or regional acquirer with access to local BINs.Currency risk for refunds. Cross-border trading with local currency presentation has implications for the handling of returns and refunds. Currency conversion charges and fluctuating exchange rates can cause you to take a loss when refunding a customer in their local currency.Establishing processing connections. Along with securing a merchant account for the payment types you intend to offer, you need to establish, certify and maintain connections to one or more processors that service the relevant acquirers and payment types (unless you're lucky and are already connected to an appropriate processor). This can be time-consuming, with a direct effect on your time to revenue.

3. ACQUIRING AND PROCESSING

* Rates as of February, 2014

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Impact of Domicile on Acquiring Relationships and Payment Card Costs

Your acquiring bank will generally provide guidance on domicile requirements. The table below describes some of the requirements, advantages and disadvantages of establishing local, intra-regional, and inter-regional acquiring relationships, based on our experience with all three.

LOCAL, IN-COUNTRY DOMICILE

Requirements:

Domicile:In-country legal presence

Business bank account:In-country

Merchant account:In-country

Sales volume:Must be high in each country

Advantages:

account rate in most cases.

Disadvantages:

establishing domicile: Time, cost, tax, potential repatriation issues.

complexity with multiple local banking relationships.

Example:

You want to sell in Germany and have a German business presence.

INTRA-REGIONAL ACQUIRING

Requirements:

Domicile:In the region

Business bank account:Where merchant account is located

Merchant account:Regional acquiring bank

Sales volume:High where domiciled, can vary across region

Advantages:

regional, local rate where domiciled.

relationships to manage.

especially if entering multiple countries, one domicile covers region.

Disadvantages:

establishing domicile: Time, cost, tax, potential repatriation issues.

complexity, depending on bank/processor network.

Example:

You want to sell in Germany and have a business presence in another European country.

INTER-REGIONAL ACQUIRING RELATIONSHIP

Requirements:

Domicile:Headquarter location

Business bank account:Headquarter location

Merchant account:Domestic bank at headquarter location

Sales volume:Flexible

Advantages:

to set up.

Disadvantages:

currency, customer may bear exchange rate impact.

Example:

You want to sell in Germany and have a U.S. presence only.

Your headquarters

Your headquarters

Your headquarters

You must have a banking relationship and established presence in this country.

You must have a bank and established presence in at least one of these locations (doesn‘t have to be the same).

Merchant bank and domicile.

Sell

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Because establishing the right acquirer and processing connections can take time and require local knowledge, businesses often prefer to use a payment partner that already has global connections and expertise. There are two models for this:

Global acquiring. A global acquirer can offer the simplicity of a single commercial relationship to facilitate processing in several countries. They may have local acquiring licenses or relationships in specific countries, but you should ensure that these cover the markets and payment methods that matter to your current and future plans. A disadvantage of this model is that a change in acquiring relationship requires a revision to your payment infrastructure, and though there may be a single commercial relationship, multiple IT connections are sometimes required to connect to the various processors utilized by the acquirer.

Global payment gateway. A global gateway can be 'acquirer agnostic'; typically they'll connect to multiple global and local acquirers, payment providers and processors. The advantage is that you can access a wide choice of payment partners and easily change these without changing your payment system, but you will need to establish commercial relationships with each of the acquirers you do business with. It may be easier to establish these commercial relationships than initiate the IT projects that would otherwise be required if you don't have a gateway strategy and want to switch or add acquiring relationships.

Mandates Relating to Processing

If you're expanding to Europe, consider the implications of SEPA, the Single Euro Payment Area. The goal of this regulatory initiative is to create a standard format for processing electronic payments across 33 markets in the European Union, effectively integrating the many existing national credit transfer and direct debit schemes into a single scheme with common rules and regulations. SEPA schemes define rules and standards that have to be observed by you and your payment service provider Make sure your chosen payment service provider supports SEPA and related regulations in other countries and regions.

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PAYMENT ACCEPTANCE

Bank Card Bank Transfer (Offline) Bank Transfer (Online) Direct Debit

Domicile Requirements No Yes Yes Yes

Checkout Process Capture acct. #, Collect bank data, reference #

Collect bank data Collect bank data

Specialized Processing Payer authentication None Auth based on customer fund availability

Unlimited chargeback rights without customer mandate

Order Conversion High Medium High High

RISK MANAGEMENT

Bank Card Bank Transfer (Offline) Bank Transfer (Online) Direct Debit

Credit Risk None Medium Medium Medium

Fraud Risk Medium Low to none Low to none Medium

Customer Dispute Rights Avg. 180 days None None 4 – 49 days, depending on country

Summary of Back Office & Operational Considerations by Payment Type

The payment types you accept in different countries may have an impact on your fulfillment operations and your handling of returns. For example, if your systems are designed around card payments, you probably start order fulfillment as soon as payment is authorized – typically as the order is placed.

This may need to change if you now want to accept a payment method that doesn't include an authorization step and where receipt of payment confirmation is delayed (a bank transfer or direct debit, for example). You may want to wait until payment confirmation has been secured before you fulfil the order; but this can take anything from less than a day to several days.

Your fulfillment strategies for new payment methods will be determined by your company's policies and risk tolerance. Make sure that these are taken into account by your expansion planning and that you can make any necessary modifications to your processes and systems to handle delivery and returns accordingly.

4. CUSTOMER SERVICE AND FULFILLMENT

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Settlement Considerations

As you expand to new markets, you may have to adapt your processes to different timelines for settlement and funds clearance. These may vary widely between countries or for different payment methods within countries. In Brazil, for example, we expect merchant funding for credit card transactions to take 30 days. In Europe, the SEPA mandate covers settlement timelines and, depending on the type of direct debit, fund transfers take between one and five business days (with variations depending on how often your bank makes payments to your account).

Repatriation Considerations

If you think you will be incurring expenses in your country of expansion, you may choose to settle in the local currency. However, as mentioned when discussing the question of domicile, in some countries (Brazil, China and India, for example), the repatriation of funds may be subject to regulations that may affect your treasury operations if you use a local acquiring relationship and settle funds locally.

Customer Dispute Considerations

Customer dispute rights vary by country and by payment type, and these variations may affect your return policies and accounting practices. Card-based payments, for example, carry a dispute rights window that ranges from 45 days to 'unlimited' in different countries, with the average being 180 days.

In Europe, SEPA outlines various protections for customers in relation to direct debits. For example, if your business were to contravene the Payment Services Directive established by the European Council, your customers would have a 'no questions asked' refund right during the eight weeks following the date that their account was debited. You would have to refund payments collected during this period if requested by a customer. With unauthorized direct debit withdrawals – which happen if you don't have the appropriate mandate – the consumer's right to a refund extends to thirteen months5.

Payment Reconciliation Considerations

Reconciliation can be very challenging as you expand to new countries. Reports from different institutions differ in format, structure, and level of detail supplied. Sometimes they don't include critical information required to identify and reconcile transactions reliably (which can be a particular challenge if you are supporting installment payments). Or you may need to modify your reconciliation system to support slight changes between the order amount and confirmed payment amount, as some countries round the amount to the nearest whole number for certain payment types (for example, a bank transfer).

Managing reconciliation across multiple countries and payment types also creates an IT challenge, since all of the data from various systems and sources needs to flow into your financial management systems. The more countries you expand to and the more payment methods you offer, the more complex it becomes for financial and IT teams to manage – especially if payment and banking decisions are made by local teams with little attempt to achieve global consistency.

5. SETTLEMENT AND RECONCILIATION


Global companies have had success in simplifying settlement and reconciliation by using a global payment platform capable of consolidating and standardizing multiple report formats and simplifying integration with back office systems. This approach enables them to make appropriate local decisions without creating a reconciliation nightmare.

5 http://www.europeanpaymentscouncil.eu/pdf/EPC_Article_204.pdf

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NEXT STEPS

To discuss your situation and needs and find out how CyberSource can help you expand your operations across the world, please contact us at any one of our global locations.

CONCLUSION

Payment management is critical to the success of your global expansion initiatives. Your ability to localize checkout effectively and efficiently, deal with local currency and tax presentation, offer the optimum mix of preferred payment methods and plans, and manage fraud successfully – all have clear implications for revenue generation through their effects on market reach and sales conversion.

Equally important are the back office, operational and IT processes that enable and support your customer-facing choices. These may directly affect your time to market and the cost, complexity and risk of expansion initiatives. It's therefore vital to understand the implications of fraud management and payment choices for treasury functions such as acquiring, settlement and reconciliation; operational functions such as order fulfillment; and the technology that underpins digital commerce initiatives.

Whether by yourself or with the help of a payment service provider, working your way through the framework of considerations we've provided, doing the appropriate research, and taking appropriate advice, will help you make informed decisions about checkout and payment.

Doing so will maximize your chances of success as you expand your digital commerce operations globally: you'll speed up your time to revenue, reach and retain more customers, convert more sales, minimize fraud, and maximize the acceptance of genuine sales.

The CyberSource payment management platform can help you accept payments online and on mobile devices across the globe. Our extensive network of acquiring partners and payment methods is adding over 20 local acquiring partners each year, mostly in emerging markets. With CyberSource you can achieve your global ambitions with speed, safety and confidence.

Expand Faster

A single connection to CyberSource provides you access to secure payment acceptance and comprehensive payment management services in over 190 countries. This global coverage, together with out-the-box, responsive and localized checkout templates; currency and tax support; and on-demand in-region order review teams, helps you reach your market expansion goals with speed.

Expand Safer

With CyberSource you get access to the world's largest fraud detection radar, powered by more than

processed annually. Our fraud experts are located throughout the world to provide additional insight and operational scalability. Add to that our ability to help secure payments globally and help ensure compliance with relevant mandates such as PCI DSS; you'll have less to worry about when it comes to risk management.

Expand with Confidence

operations, world renowned for security and reliability. We tap into expertise across the breadth

to provide in–country payments and fraud management insights. Our experience and expertise in global payment management can help you approach growth with confidence.

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ABOUT CYBERSOURCE

worldwide use CyberSource and Authorize.Net brand solutions to process online payments, streamline fraud management and simplify

Europe. For more information, please visit www.cybersource.com.

CONTACT US

NORTH AMERICAFoster City, CA, United Statest. +1 888 330 2300t. +1 650 432 7350e. [email protected]

LATIN AMERICA & THE CARIBBEANMiami, FL, United States

t. +1 305 328 1998e. [email protected]

JAPANTokyo, Japan

t. +81 3 3548 9873e. [email protected]

ASIA PACIFICSingapore

t. +800 6363 083 (Singapore)

t. +1800 816 575 (Malaysia)

t. +1800 8756 8388 (Philippines-Globe)

t. +1800 10 802 7222 (Philippines-PLDT)

e. [email protected]

EUROPE, MIDDLE EAST & AFRICAReading, United Kingdom

t. +44 (0)118 990 7300e. [email protected]

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PAYMENT MANAGEMENT INSIGHTS FOR FASTER, SAFER … · 2014. 5. 8. · Payment Management Insights...

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