Where to Start Your Global Expansion & Why
Where to Start Your Global Expansion & Why
Going global with your business is a magnificent idea for any merchant – but the trick is sorting out where to begin. In this article, we’ll explore how to find that starting point, as well as a few other related payment processing considerations that merchants must have top-of-mind as they start out (assuming they want to beat the odds, that is)!
The first consideration is coming up with a shortlist of potential countries to kick off your expansion. A shortlist is important, as you’ll want to carefully consider many factors before committing to one locale. It’s best to start small, as each country has unique requirements.
But wait! Before you create that list, keep in mind one defining factor: starting your global expansion in a low-risk country is crucial. These countries offer an accessible and encouraging gateway to the world at large. It’s a chance for merchants to get their feet wet, with less risk of getting caught in the tide and going under – which happens more often than anybody thinks. A bad experience can temporarily, if not permanently, leave you stranded, and ruin your reputation in a new country.
Working with merchants for a good number of years now, I've heard them say things like, “I want to start selling in Morocco or Nigeria.” And my response guides them toward exploring the risk profile of these countries, as well as asking crucial questions like:
- What will be the real return on investment for your efforts in these markets?
- Does your processing partner have routes for these markets?
- And - how about starting with a low-risk, easy-to-enter market?
But even then, how does one determine “low risk?”
Identify Low-Risk Countries – Then What?
When you’re entering a new market, you’re putting your company’s resources into an exciting, new investment. Investments always come with risk - the trick is to be able to understand that risk before losing your shirt. When you look at a new market, you look at politics there, the economy, internet usage, and even mobile adoption. One key item to look for when investing ecommerce resources into a new geography is that country’s fraud profile, which is pretty easy to sort out, as multiple entities rank them and a simple google search reveals them.
At Reach, we know which countries pose the greatest risk, and our approach to fraud is robust yet flexible. It’s designed to react to emergent and ongoing fraud patterns around the world, as they’re constantly changing, with fraudsters seeking to stay one step ahead of merchants. They typically do so with little trouble. But, our relationships with multiple established fraud information providers ensures that data sets are not only current, but industry-leading, so we’re able to mitigate fraud before it happens.
The trick to combating fraud isn’t merely sorting out which country poses the greatest risk though. The focus needs to be on what one should do with this information – and why. When you’re entering a new market, ask yourself, “Do I even know what fraud looks like here?”
As we’ve detailed previously when discussing risk, for the most part, merchants are woefully undervaluing the financial, reputational, and functional dangers involved until it’s too late. Before they know it, they’re facing unexpected and entirely avoidable payment processing barriers.
Your Global Expansion Could Hit a Hard Stop
Imagine you’ve gone through the time and expense to set up a website to sell your products in another country, and mistakenly fulfill a flurry of fraudulent purchases. No worries – your processor will cover the losses, right? Well, not exactly.
Although they’ll cover the losses up to a certain point, they’ll also flag you as an irresponsible merchant with lax fraud protocols and will cut you off sooner than you think. What then?
And then consider the folks whose cards were fraudulently used on your site to make these purchases. They’ll dispute the charge, but will tell a friend or ten about the problem – potentially posting about it online too. Now your reputation in that foreign market is tarnished, and consumer perception is everything.
But even if you’re lucky and that doesn’t happen (though it will), probably the most underestimated, and typically unanticipated part of the ‘global risk equation’ when selecting a country for expansion revolves around local processing.
Processing Payments Locally
Consumers want to pay in the currency they’re used to using. If you were buying something from China and were required to pay in Renminbi instead of USD (for example), you might cancel the sale rather than be bothered with trying to figure out the exchange rate and what you will finally end up paying. But the challenge goes well beyond offering local currency. Merchants incapable of offering local currency options are certainly not offering local processing, and that’s a rather large storm to weather.
When merchants do not process transactions locally, there are foreign transaction fees that hit both the consumer and the merchant, which isn’t ideal when you are trying to expand your business and foster strong relationships with your new, global customers. Plus, it eats away at your bottom line - fees add up fast.
To process locally, merchants need to set up an international entity to process payments via local entities and using local banks. This is the only way they can avoid the extra cross-border fees. It’s as complicated as it sounds, extremely expensive, and a logistical nightmare, even for larger brands.
The good news? Once it’s done, merchant approvals increase. So, those consumers whose payments were rejected for no good reason (beyond being in a different country) will now go through! The bad news? Merchants can’t get this done on their own- every new market is a new administrative nightmare.
But fortunately, the heart of our operation is offering – and acting as – the Merchant of Record (MOR) for those seeking to expand globally.
The Merchant of Record Model Makes Global Expansion Possible
We not only mitigate risk, we create local processing and local currency capabilities for merchants. It’s something no other payment processor does, and we’re always excited to help so many merchants continue to grow and expand to new shores!
And finally, which country do I personally recommend merchants start out with?
Japan is a market that, depending on what you're selling and how you sell it, might welcome you with open arms. With low fraud levels and high ecommerce penetration, it's a great geography to start with when dipping your toes into the global ecommerce market.
As you’re considering your options, reach out and talk to us!
We’re happy to offer guidance around fraud and other concerns that should inform your decision-making. We can also talk you through a host of payment processing and “setting up shop” considerations that you’ve yet to consider, including MOR options that you won’t hear about otherwise.