Online stores think local to grow global

Duncan Robinson

When it comes to ecommerce, the world is far from flat.

Although goods can zip across the globe quicker and more cheaply than ever before, international ecommerce hits a stumbling block when it comes to parting customers from their roubles, reals and rupees.

Sha Ying | CNBC

A shopper in São Paulo may prefer to pay in instalments, while many Muscovites would rather feed their roubles into a type of reverse ATM than pay by card for online goods. Consumers in India, meanwhile, will only hand over the cash once an item has been delivered.

Such local payment preferences can make life very difficult for ecommerce groups with global ambitions.

But the added hassle is worth it. Ecommerce in emerging markets is booming. In India, annual ecommerce sales will more than double from $12 billion today to $31 billion in 2017, according to new figures from eMarketer, a research group.

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In Brazil and Russia, ecommerce sales are expected to jump about 45 percent between now and 2017, according to eMarketer. By comparison, ecommerce in developed markets such as Australia will grow by just a fifth.

But with great potential comes great inconvenience. Offering consumers a seemingly simple change in payment options to accommodate local norms often requires an inordinate amount of work. – a hotel-booking division of U.S. travel group Expedia – found this out the hard way when it allowed customers to pay for hotels when they check out, as holidaymakers from southern Europe and Russia prefer.

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This seemingly minor tweak to please customers in just a handful of markets involved rewriting the contracts had with 250,000 hotels and a full year of tests to make sure the functionality worked on the new website. "It was the biggest technology project in 2013," says Matthew Walls, a vice-president at

The hotel-booking website let its Brazilian customers pay in instalments – or parcelas – from early last year. This involved joining with a Brazilian financial services group, who will take on the credit risk – but for a fee, which weighs on margins. "If you really want the Brazilian customer, this is what you have to do," says Mr Walls.

Although credit card usage in Brazil grew 63 percent between 2007 and 2012, according to research group Euromonitor, high interest rates make credit cards unaffordable for many, meaning that instalments are here to stay.

"It's ingrained in our culture, especially among the new middle classes," says Ricardo Rocha, a professor of finance at São Paulo's Insper business school. "It represents a huge challenge for foreign retailers."

But it is a challenge with potentially large rewards: Brazil's ecommerce market is set grow from $18 billion to $26 billion in the next four years, according to eMarketer.

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Western retailers expanding into emerging markets have to fall into line with each market's rules, points out Lord Alli, former chairman of British fast fashion group Asos. Lord Alli launched Koovs, a fast fashion retailer aimed at Indian women last year.

While increasing numbers of Indians now have internet access, credit and debit card penetration is lagging behind. To get around this, Koovs – which is hoping to float in London later this year – lets customers pay for their goods on delivery, like takeaway food.

"Our job as retailers is to serve our customers," says Lord Alli. "My job isn't to tell them how they want to pay, or convert them to credit cards, or beat them over the head because they want it delivered by hand. Our job is to be at their service."

The added expense of payment on delivery is simply a cost of doing business in a fast-growing market, says Lord Alli. "It is slightly more costly, but every market has its peculiarities. If they want to pay by cash, you have to make it as easy as possible. If you lose margin there, you have to gain somewhere else."

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In Russia, 58 percent of consumers prefer to pay for an online order with cash, according to a survey by Morgan Stanley. Companies such as Qiwi – a Nasdaq-listed payments group – have sprung up to cater for this demand. Qiwi operates payment terminals that act as reverse ATMs into which Russians feed wads of roubles when they pay for everything from household bills to online orders.

It is expensive and inconvenient – as any Muscovite who has to nip outside in the middle of January to pay their internet bill will tell you.

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But it is also ubiquitous. Accordingly, more and more western companies – among them Groupon, Apple and – are signing up with the service.

"Each market has its nuance," says Nick Robertson, chief executive of Asos, which launched a Russian language website last year. "It's essential if you're going to operate globally, you have to operate the best payments methods."

Asos now operates in markets such as China, as well as Europe and North America. But payment in developed markets can still be a headache. In Germany, only 10 percent of consumers say that they prefer to pay for goods on plastic. By comparison, 70 percent of Brits do, according to YouGov.

To get around this lack of enthusiasm for credit and debit cards, Asos has teamed with companies such as Klarna – a Swedish start-up that lets consumers pay for goods only once they have been received – to help the retailer part Germans from their euros.

Despite the regional variations, retailers have reason for optimism. The smorgasbord of payment methods shows signs of shrinking. Credit and debit card penetration is increasing in all markets, particularly among young people, says Mr Robertson of Asos. "Demographics are moving in our favour," he says. "20-somethings use debit and credit cards."

But until then, retailers with international ambitions have to play by local rules. "Never punish your consumer for the way they pay," says Lord Alli. "It's irrelevant how they pay; I want them to buy."

Additional reporting by Samantha Pearson in São Paulo.