5 minute read
As multinational businesses seek to expand into emerging markets, cross-border ecommerce is expected to reach a value of $2.25 trillion by 2026, up from $579 billion in 2019.
What's driving this growth? Increasing globalization of our economy makes it simple for customers to buy what they want–domestically or internationally. At the same time, more and more businesses accept a wide variety of local payment methods, making it easier than ever to pay cross border.
The ease of cross-border shopping means there is a significant growth opportunity for multinationals to enter new markets, attract new customers, and increase revenue. However, selling internationally means you need to rethink how you accept payments. If you're not careful, higher fees and lower authorization rates can impact your ability to profitably compete in new markets, leaving your business on the sidelines instead of across the border.
If you have a presence in countries outside of your home market, consider taking advantage of domestic acquiring to reduce cross-border payment complexity and increase your revenue.
The challenges of cross-border payments
Local payments and cross-border payments are treated differently. Here's the difference.
There are two banks for every credit card transaction: your acquiring bank, which requests permission for a card payment, and the customer's card issuing bank that authorizes the payment. When selling locally, these two banks often have pre-established relationships, generating the level of trust required to keep authorization rates high and costs low.
However, with a cross-border transaction, there's a good chance the two banks might not know each other. This means greater scrutiny and higher risk, increasing costs for the merchant. These increased costs come in the form of interchange fees. Different countries, merchant types, and payment methods all impact the risk of the transaction and, therefore, the interchange fee. In general, cross-border interchange fees are higher than fees for domestic transactions. Interchange fees account for the bulk of the total transaction costs, making them critical in controlling your payment processing costs.
But higher costs are just the beginning. Cross-border transactions are also likely to have lower authorization rates if the issuing bank determines that the risk is too high. If the bank doesn't authorize the payment, the transaction is canceled, leaving you with a lost revenue opportunity and an unhappy customer.
How domestic acquiring helps
With domestic acquiring, also known as local acquiring, you can complete a transaction using an acquiring bank in the same country as your customer. This is now considered a domestic transaction, and it creates the local relationship you need to control costs and improve authorization rates.
While you can set up domestic acquiring banking relationships for each country where you operate and sell, this can leave you with dozens of partners and relationships to manage. It also puts you on the hook for staying current with changing payment rules and regulations in each country, which can be challenging to understand if you don't have local market knowledge.
With domestic acquiring, you can complete a transaction using an acquiring bank in the same country as your customer.
The easiest way to manage payments in multiple markets is to work with a single payment provider who can provide domestic acquiring for you. That's why we deliver a domestic acquiring solution in almost 60 countries globally and local expertise with offices in nearly 40. This gives you a single relationship to manage payment acceptance in your key markets while reducing your interchange fees and improving your authorization rates.
Businesses that sell globally shouldn't overlook the opportunity to maximize authorization rates, reduce costs, and improve the customer experience through a domestic acquiring solution.
Ready to sell smarter around the globe? Learn more about our domestic acquiring solution and download our guide on consumer payment preferences around the world.