The digital industry has been burgeoning at an extraordinary rate despite the COVID-19 pandemic. However, there is one region that has been outpacing every other region in terms of growth — Southeast Asia.
Whether is it in technology, online retail or payments, Southeast Asia's innovations and digital diversity is gaining at an unprecedented momentum. It is even projected that Southeast Asia’s Internet economy will exceed US$300 billion in Gross Merchandise Volume by 2025. With this opportunity in sight, retailers of all sizes are trying to sell cross-border and expand into the Asian market.
However, given all the technological and payment intricacies of the region, what are some of the challenges and how can online SME retailers be prepared when reaching out to consumers in Asia?
How to tackle challenges in cross-border commerce and payments in Asia?
1. Fraud attacks
The continuous development and innovation of technology is directly proportional to the rise of cybercrimes. According to Sift, cyberthieves are savvy with fraudulent tricks to obtain and steal online information through phishing, data-breaches, account takeover and more.
Moreover, with sales volume increasing since the pandemic, fraudulent transactions have also increased. The value of the average fraudulent transaction was up 70 percent in Q4 of 2020. With fraud comes loss in consumer confidence and loss in revenue for the merchant. But that’s not all, high chargeback rates arising from fraud may also result in the merchant being categorized as high risk. Therefore, it is concerning and undeniable that fraud attacks can cause mass damage to online business any time.
How online merchants can reduce and prevent fraud
👉 Authenticate your users
There are potential problems and damage to both buyers and sellers without effective authentication layers as it is complex to determine whether the customer is genuine and providing the correct information. Consider implementing other authentication methods such as 3D Secure, which requests additional authentication data (such as One Time Password) to verify that a legitimate user is making a purchase
👉 Review high risks online transactions for fraud
Reviewing of suspicious transactions can be done manually such as by reviewing the user’s location and email, but the process can be long and tedious.
This can be easily automated by using fraud detection systems which are broadly classified as rules-based or machine learning systems. Faropay partners with Sift to provide online merchants with fraud protection that uses machine learning, cutting down time needed to review potentially fraudulent transactions and eliminating false positives, for a smoother and more secure customer experience.
High chargeback arising from fraud may result in the merchant being considered as high risk
2. Localising and alternative payment methods
Localising your business and catering to your consumers purchasing habits can help to reduce friction in the purchasing process. For example, in Asia, where smartphone penetration is high, consumer spending frequently takes place on mobile.
Furthermore, it may be common for shoppers in other parts of the world to use credit cards, but not in Asia, where alternative payment methods (APMs) are frequently used. For example, Momo, Zalo Pay, and VNPay are widely accepted in Vietnam; Wechat Pay and AliPay in China; and in Singapore, Grab Pay, PayNow, and PayLah! are commonly used. The diversity in local payment methods can make it complex for foreign businesses to adapt and integrate with in the target market.
How to localise payment methods and choose the most appropriate ones
Research on your target market to understand their purchasing and spending habits. Integrating familiar payment processes and improving the user experience of your online store can help to reduce friction in the shopper’s path to purchase and increase the rate of conversions.
3. Providing Local Currency Payment Options and Managing Foreign Exchange
When operating a business, it is likely that you will have to accept or conduct payment transactions in a currency other than your own domestic currency. It could happen when paying suppliers or accepting payments from customers. Converting these funds to your own local currency could incur a conversion fee on your end, and you may even be exposed to foreign exchange risk arising from currency fluctuations, which in turn impacts your profit margins.
How to efficiently manage foreign exchange and currency options
Be sure to account for conversion fees when thinking about your pricing strategy and profits. There are also foreign exchange providers that can help to lower these costs, Faropay also provides settlement solution and works with various providers to enable merchants to convert their funds with the lowest fees and maximise their revenue.
4. Know your competition
Being a fast-growing region, plenty of foreign firms are seeking for opportunities to enter the Asian market. Though it could be challenging to compete against local players, doing business in Asia can prove to be huge opportunity, allowing you to reach out to a bigger market. Whichever region you decide to focus on , be sure to do your research on your target market and leverage on the best resources to grasp all potential opportunities.
How to gain competitive advantage in the Asian market:
👉 Partnership and build relationships with local firms.
By building local partnerships with domestic expertise such as logistics, warehouse services, affiliates, and payment service providers, foreign firms can enter and expand their business to the target market at ease and deliver their products services easily.
👉 Invest in marketing and consider product bundling. Get creative!
Plotting the right marketing plan can help your business to grow further. Adapt your promotion strategy according to the local market, considering customs and culture. If your product is unique, all the better! Shoppers in Asia are always open to purchasing from a non-local seller especially if it isn’t already available or if it is difficult to find a legitimate source.
Don’t forget to research on commonly used channels in your target market and take advantage of online channels to promote your brand and gain brand awareness, especially in a region where internet and mobile penetration is high.
5. Tariff & Taxes
Taxes may be one of the most confusing things (befuddling even one of the greatest mathematicians, Albert Einstein. Check out what other famous people have to say about taxes), but understanding it is essential to managing a cross-border online business.
Each country has unique regulations around online goods and imports. For example, in Singapore, imported goods are non-dutiable if the value does not exceed S$400, whereas in Vietnam, imported goods are subject to tax if the value exceeds VND 1,000,000 or the duty payable exceeds VND 100,000.
Stay informed of changes in tax regulations
The taxation regulations are continually developing in the region as the internet economy continues to grow, and it is important for online cross-border retailers to stay updated regarding these changes.
Besides tax regulations, retailers should also stay up to date of agreements and collaborations between countries. For example, with the recent establishment of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), a trade agreement between Canada and 10 other Asia-Pacific countries, SMEs are able to conduct international trading in a tariff-free manner as CPTPP reduces or eliminates most tariff and non-tariff factors, covers all spectrum of trading.
Start selling to Asia
With Southeast Asia’s internet economy sprinting ahead without any sign of stopping, online retailers are keen to jump on bandwagon as it offers a wealth of opportunities as well as exposure to a large target group. Although it may be challenging for new players to enter the Asian market it isn’t impossible with research and strategy being keys to a successful expansion plan. If you would like to understand more about payments in Asia and how you can accept and process cross-border payments on your online store, get in touch with us here.
About Faropay
Asia’s online payments environment can be complicated with the inherent fraud risks and ever-growing number of payment methods. Simplify your cross-border payments with Faropay, Asia’s payment service innovator. Learn more about Faropay and our services here.