By Artem Timoshenko for LTP
How to Choose a Payment Services Provider
The first thing you need to do to start monetizing your products in an exotic country is to select a supplier of payment services. For any project that has previously operated in just one market, it is important to understand that the tariffs charged by payment service suppliers are by no means the main criterion when making your choice, as your payment partner will play a key role in your business. To get started:
- Analyze which specific markets the company will be entering and the key targets it aims to achieve in these markets;
- Decide where the legal structure will be incorporated. A startup is unlikely to be able to decide on a legal structure by itself, as it lacks detailed knowledge of all the countries concerned and their tax systems. The optimal solutions should, therefore, be suggested by a provider.
These two steps will significantly narrow down the list of suitable payment services. Only then, in stage three, should one begin negotiating with specific payment system providers, paying due attention to their tariffs and the finer points of working with them.
The best deal will definitely be bank cards from international payment systems (their tariffs are publicly available and completely transparent). But in regions where they are not popular or are used alongside alternative means of payment, it is important to offer people tools they are familiar with. In this golden age of cross- border commerce, the absence of a familiar payment method could deter a customer or drive him straight into the hands of a competitor.
Acquiring by alternative means of payment that are popular in exotic countries is more expensive (operators used to charge commissions of 40-50%, but these are now in the 4-10% range) and their operating costs are higher, because they have their own user base and often have few or no rivals, which means they are in no hurry to cut the cost of their services.
The most promising alternative methods today are mobile operators and social networks or messengers. And they will continue to grow as mobile internet and smartphone penetration increases. But there is a chance that alongside this growth there will be tougher competition and a reduction in the cost of services. At the same time, in a number of African countries and in many places in Latin America people prefer to pay for purchases (where physical goods are concerned) by cash upon delivery, and in some places via special payment terminals or bank bills. This is usually due to high levels of fraud in the region or due to low penetration of financial services.
In Brazil, they have an equivalent to our payment terminals, known as Boleto. When paying by this method on the website, the user receives a coupon and then goes to any nearby supermarket and pays there in cash. It can take days or even weeks to credit the funds to the seller because, naturally, these actions do not occur simultaneously. There are also other alternative methods of payment in Latin America, which involve lots of small payments because nobody keeps large amounts of money in their mobile account or virtual accounts.
Another important nuance is that even if an operator’s brand is present in several countries this does not mean that its tariffs will be identical across the region. Major operators have their own aggregator partners, added to which the financial status and even tax rates of individual countries also make a difference.
The Asia Pacific digital commerce market is the biggest in the world. It grew by 38% in 2015 and now accounts for 53% of global turnover. And this figure is forecast to reach 63% by 2018. Asia is a multifaceted and densely populated region, where payment system preferences vary greatly between developed and developing countries. Yet there is one common trend: people in Asia are switching to the alternative methods offered the by the digital world. Mobile wallets are growing in popularity in developing countries, where the number of users is twice that in the developed countries of Asia.
The biggest Asian market is China, with local payment services Alipay, Tencent and UnionPay calling the shots. Alipay and Tencent are direct rivals: the first was set up by the giant Alibaba and operates both online and offline; the second has flourished in China’s most popular messenger, WeChat.
Shoppers in South Korea, Taiwan, Hong Kong, Japan, the Philippines and Indonesia are pretty keen users of bank cards. Over 30% of online purchases in Indonesia and Thailand are made via social networks (Facebook and Line), which have introduced new commercial functions in that region. In South Korea, the number of users of local e-wallets Naver Pay and Kaka Pay doubled in 2015 to reach 10 million,
- 53% of global turnover is accounted for by the Asia Pacific digital commerce market
- 63% of global digital commerce trade will be accounted for by the Asia Pacific region by 2018
- 30% of online purchases are made via social networks in Indonesia and Thailand
- 10 million Naver Pay and Kakao Pay e-wallets were registered in South Korea in 2015
Popular Payment Services
China Alipay, Tencent (WeChat), UnionPay
Indonesia and Thailand Facebook, Line, payment cards
India Payment cards, M-Pesa, OxiCash, ITZ
South Korea, Taiwan, Hong Kong, Japan, Philippines Payments cards, Naver Pay, Kakao Pay
In India, payment cards took 40% of the market in 2014, with mobile payments accounting for 2% (and this segment is growing, according to Vodafone). The remainder was split between all sorts of wallets or cash post payment (which predominates in Vietnam). But mobile payments have grown particularly fast in India over the past two years. Not long ago there was an uproar over the government’s anti-corruption policy, as a result of which large-denomination banknotes were taken out of circulation. The government is encouraging Indians to pay via their mobile phones, and although by no means all of the population is ready for this there are good reasons to believe that mobile commerce will develop rapidly there. People in India are currently using services such as M–Pesa, OxiCash and ITZ.
The biggest cross-border providers of payment services in Asia are Alipay, Tenpay, PayEase, AsiaPay, NTT Com Asia, PaySec, Red Dot Payment, MOLPay, 2C2P and E-context Asia.
Africa is distinguished by its poor bank infrastructure (few banks, branches, cardholders and ATMs) and low internet penetration. For a large part of the population, the mobile telephone is the only means of accessing the internet. ATMs and bank branches exist only in the major cities of Africa. In a number of African countries, operators offer free traffic within Facebook (and Wikipedia, but that’s a different story), giving that mobile network a good chance of becoming the region’s main online store over time. The region has a large number of languages and currencies in circulation, with some payment services using only local currencies and others using the dollar.
The M-Pesa mobile wallet from Vodafone and MFS Africa is popular with Africans. In 2015, WeChat messenger and Blackberry’s BBM entered the market, both of them offering built-in payment tools, and are now gaining in popularity. The top country in terms of mobile payments is Kenya, where two-thirds of all purchases are made by mobile wallet. This method is also popular in Nigeria and – for security reasons – in Somalia (read more about this here)
M-Pesa Advertising in Kenya
Cash payment upon delivery is also popular in Kenya. In Egypt, Nigeria, the UAE and Saudi Arabia this method is chosen by more than half of all shoppers. The exceptions are South Africa, where bank cards are popular, and Morocco, where they are growing fast. In South Africa, one of the most developed countries in the region, the most popular payment system is PayPal, followed by Ukash (a voucher system for paying online without a bank account or any other kind of account), M-Pesa and Zapper mobile wallets, another mobile solution called FlickPay, the electronic transfer system and the Cell Pay Point payment service. In some North African countries (Tunisia, Egypt, Morocco) the following payment systems are used: SagePay, Myate, Inenico, Skrill and Wafacash.
2/3 of purchases in Kenya are paid for by mobile wallets
Popular Payment Services
Egypt, Nigeria, UAE, Saudi Arabia Cash payment upon delivery
South Africa PayPal, bank cards, Ukash, M-Pesa
Tunisia, Egypt, Morocco SafePay, MyGate, Ingenico, Skrill, Wafacash
Due to the danger of robbery, mobile wallets are popular in Somalia.
The biggest cross-border providers of payment services in Africa are: 3G Direct Pay, HyperPay, MyGate, Network International, PayFort, iVeri, Pay4lt, PayFast, PayU, Peach Payments and Setcom.
The countries of that region are being shaken by political and economic crises and by the collapse of the Chinese stock market. Add to this the falling exchange rates of their national currencies, devaluation, a lack of trust in the banking system, the popularity of cash as a means of payment and the boom in internet fraud, fear of which is a major impediment to the spread of online payments.
All of this has left its mark on the popularity of the various means of payment. In Brazil, Colombia, Mexico and the Dominican Republic, bank cards account for a large share of online payments but face serious competition from PayPal, cash payment upon delivery or in local banks, and also local payments systems. In Brazil, the country’s own Boleto Bancario handles one-third of online payments. Together with bank cards issued by local payments systems, it accounts for 93% of the market. In Colombia, both cash payment and bank cards are popular, with 61% of the market, even though VISA and Mastercard international payment cards are used there. At the same time, approximately half of online purchases in Brazil are paid for by mobile phone, a method that is also becoming more popular in Colombia.
Local payments systems are popular in Mexico, where international systems – meaning bank cards – have a 28% market share. Although this is quite a low penetration rate by Latin American standards, bank cards are predominant in online payments. Of the alternative payment methods, pre-paid Telefonos de Mexico cards, PayPal and direct payment in banks are relatively popular in Mexico.
Overall, online commerce is growing fast in Latin America, especially in Argentina. Chile, too, has a large number of online shoppers. As people in Latin America spend a lot of time on the social networks, the experts predict that it is they that will become the most active shoppers.
- 93% of payments in Colombia are by bank card
- 61% of the payment market is Brazil is accounted for by bank cards and the Boleto Bancario system
- 28% of the payments market in Mexico is covered by bank cards
Popular Payment Services
Brazil Boleto Bancario, PayPal, bank cards
Colombia VISA and Mastercard bank cards
Mexico Bank cards, PayPal, Telefonos de Mexico
There is another curious trend in Latin America that has developed on the back of the region’s many crises. People in certain countries of the region have shown enormous interest in the bitcoin. In Venezuela, with its cheap but not always available electricity and horrendous devaluation of the bolivar, bitcoin mining has become the only way of ensuring a normal life for the IT-literate. Venezuelans use bitcoins to buy clothes, cosmetics, household items and all but food supplies food abroad, while assiduously hiding from the authorities and criminals. This trend is beginning to spread to neighboring countries, though it is far from being a genuinely mass phenomenon. So it would be wrong to regard the bitcoin as an important payment tool in Latin America at this point in time.
The biggest cross-border providers of payment services in Latin American today are allpago, PayU Latam, Braspag, MercadoPago, PagSeguro, Banwire, Conekta, AstroPay, Ripple LatAm and maxiPago!
When entering the markets of Latin America, Asia and Africa the first thing is to be prepared for the fact that you will have to work with alternative payment methods almost as much as with the bank cards we are all familiar with. There are lots of these methods, and acquiring will definitely cost more than with VISA and MasterCard. In countries where cash-based payments are popular (through bank branches, self-service terminals or upon delivery) crediting funds for goods or services will take longer than you wish.
Nevertheless, Africa, Latina America and Asia are three big and dynamically growing markets with huge potential, despite their technical specificities. Each region has its own major providers of payment services offering, amongst other advantages, good local expertise. But the global players are also present in these regions, bringing the benefits of global expertise and the ability to act as partners in several regions simultaneously.