Guest Perspective: Emerging Markets – Revenue Opportunity, Growth Drivers & Tapping into Local Spending

By Andrew Schneider, President and Co-Founder, Emergent Payments

Emerging Markets - Revenue Opportunity, Growth Drivers & Tapping into Local Spendin There has been a monumental shift in the economic importance of emerging markets to e-commerce in the past decade. Markets and regions including China, South East Asia, Latin America and India have become significant, high-growth contributors to the global economy and the opportunity is ripe for global merchants to participate and compete for increasing emerging market spending. This is true for general e-commerce merchants but particularly for digital merchants such as online services, games, entertainment and e-learning that can tap into broadband distribution to reach global customers.

Market Size

Global business-to-consumer e-commerce worldwide is forecasted to reach $1.7 trillion in sales this year, driven by emerging market growth. This represents a 17 percent CAGR in 2015 and is primarily attributable to the Asia-Pacific region—notably China, Indonesia and India—where sales are expected to reach $681.2 billion, outpacing North American sales. Last year, it was estimated that Asia-Pacific spending would claim over 46 percent of digital buyers worldwide.  Other global markets that are significant contributors to double-digit global growth include Argentina, Mexico, Brazil and Russia, among others.

Market Drivers

What is driving this significant growth and what can we expect in the future? A recent EY report outlines four dynamics at the root of this shift towards emerging market e-commerce dominance:

  • Population – Emerging market populations of spenders outpace those of developed markets. Twenty-five percent of emerging market consumers are 14 years old or younger compared with 16 percent in developed markets. With an affinity for social networking and global brands, this population is the future of global spending.
  • Connected Devices – Increasing accessibility to networked devices is an underlying requirement for e-commerce growth. Smartphone shipments are forecast to grow 200 percent by the end of 2018 in key emerging markets including India, Indonesia and Russia.
  • Broadband – Another prerequisite for e-commerce growth is broadband penetration. The current EY 2016 forecast is two billion broadband connections in emerging markets—twice that of developed markets.
  • Income – Stronger emerging market economies with increasingly higher prevailing wages are pushing consumers more frequently into positions of disposable income.  EY estimates there are 268M BRIC households that have an income over USD $10,000 which is more households than the US and Eurozone combined. 

With the main enablers/drivers of networked e-commerce in place coupled with strong demand for digital applications and cross-border commerce, there is significant revenue potential for global merchants in emerging markets today. Particularly for digital merchants who have the ability to self-distribute via broadband to consumers worldwide. But even with the proven market potential and technical capability in place there are barriers to monetization. 

Application Usage and Cross-Border Demand

The above factors lay the foundation for strong global e-commerce markets. And once in place, emerging market consumers have also shown to be voracious consumers of digital applications and cross-border e-commerce. Some examples: As it relates to social-networking applications, it took Twitter three years to reach 50 million consumers globally but took Weibo (a Chinese microblogging application) only 14 months. In another example Facebook captured 50 million Indian users in its first four years—the same amount of time it took to net 50 million users in the rest of the world.

In connection with cross-border e-commerce, a good example of demand in emerging markets is Brazil. According to E-bit, total e-commerce spend in Brazil rose 24 percent generating $13.3 billion in sales in 2014. However 40 percent of shoppers purchased from sites located outside of the country. Another example is Amazon’s recent announcement that it grew its cross-border e-commerce business in China by 300 percent.

Lastly, the online games market which has been the leader in cross-border digital e-commerce for more than 10 years is slated to reach $74.2 billion this year with near equal revenue splits between Asia, Europe and N. America, according to SuperDataResearch.

Cards Not Present
Credit cards dominate as the preferred method of payment for e-commerce transactions in the U.S., but this is not the case in most global markets. Even in established markets such as Germany, credit is used far less than methods such as online bank transfer methods (Sofort), direct debit (SEPA, ELV) and other local instruments. The same situation prevails in other Western European countries including the Netherlands (iDeal). The dynamic is amplified in emerging markets where local methods can make up 70 percent of payment volume in some cases; truly, cards are not present.

In a 2014 Brazilian e-bits study of e-commerce trends, it was noted that while 57 percent of purchases were made using credit cards, 23 percent of purchases used Boleto Bancario. This fact underscores the need for international merchants to understand and support locally preferred methods. Like many markets, even credit cards have a local twist: in Brazil, it is important to tap into local card acquiring, otherwise merchants may experience decline rates exceeding 60 percent from international processors. Monetizing in Brazil also requires certain local requirements, taxes and obligations including IOF and an understanding of cross-border repatriation rules and currency exchange.

Similar situations apply to almost every emerging market around the world. Indonesia is the #2 fastest growing e-commerce market, yet only about 2 percent of the population uses credit cards and there is a large unbanked population. In fact, there is a prevailing distrust of credit cards due to high fraud rates. For a merchant to successfully monetize they need to offer local payment methods including ATM BCA, BCA KlikPay, ATM Mandiri, Mandiri Clickpay and cash payments through Indomaret, among others.

Country-Specific Methods

Emergent Payments has been powering cross-border e-commerce for digital merchants for more than eight years and has compiled information on the best performing methods in each territory. 
Here is a small sample of country-specific methods that we have seen perform well over that period of time and recommend to our merchants:

Brazil: Local credit card acquiring, Boleto Bancario, Elo, Aura, Brazil online bank transfer (HSBC, Caixa, Economica Federal, Banco do Brasil)

India: Credit and debit cards, Rupay, Netbanking (HDFC, Axis Bank, State Bank of India, ICICI, etc) and Paytm. Cash on delivery is still the most popular method
Argentina: Credit and debit cards, local cards (Tarjeta Naranja, Nativa Nacion, Cabal, Argencard, Cencosud), cash payments (Rapipago, Cobro Express) and MercadoPago e-wallet.

Nearly two dozen ways to pay are represented in just these three markets. Multiply the same dynamic across a dozen emerging markets or globally across nearly two hundred markets and optimization becomes a real challenge. So while the opportunity exists to monetize within a $1.7 trillion global e-commerce opportunity, the most important challenge to solve is often how to accept a payment. 

Emerging Markets - Revenue Opportunity, Growth Drivers & Tapping into Local Spendin Andrew Schneider is president and co-founder of Emergent Payments ( formerly Live Gamer ). Schneider and his team gained insights and expertise around developing and servicing the monetization needs of game publishers around the world and, in particular, in the complexities of handling payments in international markets.

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