Why has the cross-border e-commerce market not yet fulfilled its potential?
The history of e-commerce involves merchants searching for an ideal payments system — one that both minimizes fraud and attracts consumers via its trustworthiness, ease-of-use and widespread support.
This search is ongoing and has already resulted in the advancement of central security systems such as SSL/TLS, as well as the abandonment of less successful protocols such as the ill-fated Secure Electronic Transaction (SET) standard from the 1990s. The recent development of digital currencies is yet another stop on this same road.
Understanding the causes of low trust in cross-border e-commerce
What do sellers have to show for this decades-long investment in safer, more streamlined Internet-based payments? It’s undeniable that despite numerous technical constraints and inefficiencies, e-commerce volume has grown enormously over the past few decades and has been instrumental in credit/debit transactions surpassing cash in overall transaction volume. However, many buyers around the world are still showing decreased interest in e-commerce overall.
A 2017 Ipsos-CIGI survey found that lack of trust remained the number one reason for steering clear of online shopping. This reluctance is especially apparent in cross-border e-commerce payments. Major hurdles in payment considerations include:
Low approval rates: International orders are rejected up to three times as often as domestic ones. A case study analyzing a major brand and card issuer found that almost one-fifth of rejected orders were false positives and could have otherwise boosted the merchant’s revenue by 0.6 percent.
High cart abandonment: The majority of all e-commerce carts are ultimately abandoned. Adobe Digital Insights also discovered that abandonment is even more prevalent on mobile devices, where only 19 percent of carts convert to orders, compared to 30 percent on desktop.
Steep transaction fees: Cross-border transactions are saddled with heavy fees due to dichotomous regulatory climates, international card usage surcharges, currency conversions and so on. Even if a transaction is approved, its resulting cost can dampen the transacting parties’ interest in doing business again.
Broader obstacles include unfamiliarity with foreign sellers, which may discourage shoppers from purchasing from them. As a result, only well-known merchants have the potential to flourish in a low-trust environment, while many others will struggle to gain traction.
Why existing payments systems and digital currencies cannot solve such problems
The continuing development of e-commerce payment infrastructures has not eliminated these issues and others for that matter. Even Bitcoin, with its innovative use of cryptographic proof in place of third-party intermediaries, does not yield a sustainable alternative to existing payments systems.
Accordingly, e-commerce is hindered along the entire spectrum, from legacy solutions to digital currencies:
Established credit bureaus are frequently inadequate custodians of data and poor evaluators of creditworthiness, a point driven home by incidents such as the massive Equifax breach in the U.S. in 2017.
Meanwhile, Bitcoin and other digital currencies are not natively equipped with the protections and services that have come to be expected by merchants and consumers. Scalability is also an issue, as fewer transactions can be handled per second compared to major card networks.
An ideal payments system would incorporate the best features of traditional and modern platforms. In other words, it would combine the stability, scalability, instantaneity and fraud-resistance of traditional payments systems with the transparency and decentralization of pioneering digital currencies.
Blazing a new trail in cross-border e-commerce
Appropriate solutions for modern payment networks will be predicated on satisfying the technical, operational and regulatory requirements necessary for amplifying adoption among consumers and merchants.
