News & Insights · Approx. 5 minute read
International B2B Payments: Why Local Currency Matters
In an attempt to avoid unwanted complications, some ecommerce payments providers are finding success by focusing on one or two international markets, while others are targeting more niche markets around the globe.
dLocal, for example, focuses on emerging markets. The company, whose biggest market is Brazil, is continually broadening its global reach. In mid-August 2021, dLocal announced the expansion of its international B2B payments to the Middle East and North Africa, starting with Egypt and Morocco.
These niche markets are expected to catapult into high growth opportunities based on factors such as regulatory reform, technology advancements and demographics. In Egypt, for example, a population of mostly young shoppers (50% under age 30) is driving the transition to online shopping and payments, according to dLocal.
“These nascent markets offer incredible growth opportunities for innovative, trail-blazing companies,” said Sebastian Kanovich, the dLocal CEO.
“While there are market barriers, many cross-border e-commerce opportunities are emerging in both Egypt and Morocco where governments are making efforts to improve financial inclusion through digital banking supported by payments solutions,” he said.
Certainly, payments providers need to accurately understand how buyers want to pay in the various markets they are in.
Globally, Visa® and Mastercard® Still Lead—For Now
According to 2Checkout’s 2018 benchmark report on digital commerce trends—important because it reveals so-called “normal,” pre-pandemic behavior—Visa and Mastercard continue to dominate among payment methods, accounting for over two-thirds of global online sales; followed by PayPal at 19%, and American Express at 7%.
Merchants trying to expand into international B2B payments without a knowledgeable partner will quickly discover that some countries show very strong preferences for local payment methods. For example, as a seller, you can’t operate in the Netherlands and not accept iDEAL, said Jochen Kaempfer, a principal at A.T. Kearney who focuses on banking and payments. To sell in Mexico, you need to accept payments through OXX; in China, the big payment method is Alipay; sell in in Brazil, and people prefer to use local credit cards.
“For B2B payments companies that are focused on the US, it can be a shock to realize that cards aren’t the primary method of payment in many countries,” Kaempfer said.
And what about crypto?
And What About Crypto for International B2B Payments?
One challenge for payment providers is the proliferation of new payment methods. If you want to maximize sales, you have to support those payment methods across the world—and you need to support lots of different currencies, said Erich Litch, CRO of 2Checkout.
One area to watch is how payments companies will deal with the world of cryptocurrencies for international B2B ecommerce, said our CEO Brandon Spear. There are some online merchants who accept cryptocurrencies currently, but there hasn’t yet been widespread adoption. “There’s still a little uncertainty about how this is all going to play out,” he says.
For example, it’s still unclear how respective governments will regulate cryptocurrency; whether the underlying technology can keep up with large numbers of payments; and whether there will be enough liquidity to make them a viable option for international B2B payments, Brandon said. Even so, Brandon predicts cryptocurrency will eventually become a viable option for international ecommerce transactions. “It’s just a question of time before it ends up happening,”
International B2B Payments and the Importance of Scale
It can be very difficult for start-up payment companies to simply jump into the global ecommerce market. “A lot of companies don’t realize how much scale it takes to work globally,” said Michael Ting, Head of Products & Payouts at PayPal.
Consider, for instance, the prospect of different tax laws in every region. Just keeping track of the different rates, currencies and conversions can make it even more challenging for new and existing processors to do business in multiple countries, Companies may need to hire local experts in each of the jurisdictions, or outsource to a third party. Either way, it has to be built into a payment company’s economics.
Other Opportunities for Payments Providers and ISOs
Another trend that is changing the landscape for payments companies is the proliferation of online marketplace
The growth of these marketplaces—and the desire for sellers to peddle their wares internationally—also means multiple opportunities for payments companies on both sides of the business—payments collection and the disbursement of mass payments.
Payouts used to be handled solely by banks, when it was individual buyers and sellers working together directly, but that’s changed as the marketplace business model has evolved, said PayPal’s Ting.
“The fact that there are all these people who are earning really small amounts of money and need to be paid is a new phenomenon. It didn’t exist 20 years ago,” he said. With thousands and thousands of individuals buying and selling, modern marketplace payments require technology and scale, he said. A lot of the banks are now providing more of the infrastructure to move the money, but leaving the details to innovators to handle the user experience, he said.
There are even opportunities for ISOs to win business in the burgeoning space of international e-commerce.
Many startup merchants can bypass ISOs by working with an international B2B payments company that deals with cross-border ecommerce. But there are also brick-and-mortar merchants that want to sell their wares online to people in other countries. ISOs have an opportunity to forge partnerships to help their merchants do this—and maintain and enhance that merchant relationship in the process, said Conal Cunningham, GM at Inovio Payments, a global payment gateway provider whose parent company is North American Bancard.
While many merchants are interested in selling their wares online globally, a typical ISO won’t have the connections to allow them to do that. “ISOs don’t have to be out of this race. They can compete, but they have to get out of their comfort zone and find some partners to help them deliver what the marketplace is demanding,” Cunningham said.
Learn more about international B2B payments with TreviPay, a leading global provider of embedded payments. Start a conversation now.