If the pandemic proves one thing, it’s that e-commerce has truly and irrevocably taken hold of the global marketplace. Amazon’s Q2 2021 results alone show this, with the online shopping giant reporting a 16% operating cash flow increase to a total of $59.3 billion for the previous twelve months, in comparison to $51.2 billion reported at the end of June 2020. Going global is no longer a choice; customers all over the world can access products thousands of miles away at the click of a button, and forward-thinking sellers must remain visible, efficient, and agile to keep up.
Given the prevalence of online aggregators like Amazon and eBay (which also recently reported a successful second quarter, with revenue up 14% to $2.7 billion), it makes sense that sellers prioritize global expansion via these (and other) online marketplaces. However, success in these spaces is not guaranteed, and businesses can face unique hurdles as they attempt to diversify online.
Cross-Border Sales Challenges
Although diversifying avenues to access sales across international borders is an essential strategy for any forward-thinking business, there are challenges in the process.
For example, many sellers paying Chinese suppliers in USD do not have a comprehensive understanding of the inner workings of conversion rates. Moreover, how conversion rates can alter the pricing of goods isn’t always common knowledge and can fall into the minutiae of deals that could be much more economical, had attention been paid to the differences between international currencies.
Sellers also come up against seemingly unavoidable hurdles like transfer errors - or delays - as funds move slowly through traditional methods, involving multiple parties. In the most severe instances, international payments can fall victim to money laundering and wire transfer scams, leading to a need for increased importance placed upon validation and security.
In 2019, the Federal Trade Commission (FTC) stated that a total of $423 million was lost in wire transfer scams in the previous year, and this has only increased. The FTC received more than 2.2 million reports of fraud in 2020; reports of losses totaled nearly $3.3 billion.
Three Key Areas: Money, Time, and Risk
Online sellers need to maximize financial resources and economize on time while maintaining the security required to avoid scams and fraud seen over the last few years.
When growing a network of suppliers, ensuring that they are trusted and vetted is paramount in preventing and protecting against risks. Of course, there are red flags that businesses should look out for: a supplier changing the payment recipient at the last second, for example, or requesting payment to a personal account. But even for a business with plenty of manpower, checking suppliers individually to verify their honesty is not an adequate use of time.
Safety and success boil down to truly knowing the customer and a relationship with a global payment partner that can support sellers in verifying their suppliers. As a result, sellers growing and expanding their businesses garner trust and validation in their supplier relationships, limiting their risk and exposure to scams while strengthening their supply chain.
Another critical facet of this three-pronged approach to successful international e-commerce is to ensure secure and fast payments wherever a supplier is in the world. Shockingly, right now, the average amount of time it takes for a company to pay a supplier is 66 days, based on global data. Moreover, experts even predict that this figure for days that sales are outstanding (DSOs) is likely to increase as the year continues.
There is a solution: paying suppliers in their local currency, in an international (yet local) approach, saves time and money. Adopting this strategy enables sellers and suppliers alike to sidestep foreign exchange and application fees and complete cross-border transactions with agility.
An intelligent payments partner understands that even the most prominent global providers should localize their approach. The best partners will fully comprehend how the global supply chain impacts both suppliers and sellers and validate both ends of the chain to provide the support needed to help businesses grow.
It is no secret that capital management is a crucial area of focus for any business in today’s economy, and controlling costs when it comes to supplier payment is no mean feat. Traditional payment rails no longer keep up with the pace required of globalized online businesses. Accessing real-time payments delivered in local currencies cuts time and costs by astronomical amounts.
Instead, a forward-thinking merchant will apply automated payment methods and direct-to-supplier transfers. The best payment partners enable brands to do this without heavy exchange fees or security risks. Only by monitoring a payment from point-to-point, carefully managing a supply chain from seller to supplier, can this be achieved.
Kenny Tsang is Managing Director of FinTech Unicorn PingPong Payments.
This article originally appeared in the 2021 International issue of PARCEL.