The Rise of Cross-border E-commerce and the FinTech Industry
There is no doubt that consumers are shifting their attention from local brick-and-mortar stores toward making online purchases. Apart from the convenience it offers them, it is also an easy way to obtain products that are not readily available within their local markets. For businesses, it allows them to sell products to customers that are spread across the globe. Thus, a global link is established between businesses/sellers and customers/buyers.
A 2018 report by Statista revealed that 27% of US shoppers admitted to shopping domestically and cross-border. The rate was estimated to be 71% for Austrian shoppers. In 2022, Statista predicts that cross-border business will account for 22% of e-commerce shipments of physical products. Not only that, it will also amount to $3.53 trillion by the end of the year under review.
Similarly, McKinsey & Company reveals in its 2020 report that global cross-border payments in 2019 totaled $130 trillion with payments revenues of up to $224 billion. This could be attributed to the localization of customers’ buying experiences by merchants, especially in the aspect of providing multiple payment options across all countries.
What could be driving this sudden upturn?
In the past few years, the globe has witnessed a series of world-altering technologies and events. One of such technologies was the establishment of Amazon in 1994. Amazon laid the foundation for the current disruption to the way people buy and sell online. In subsequent years, e-commerce got transformed at different pivotal points. This could also be seen with the establishment of other firms such as PayPal, Alibaba, Facebook, Instagram, Twitter, etc.
Prior to the pandemic, people had the option to either make purchases from their local stores or place orders on online marketplaces. However, as COVID-19 afflicted the globe, which occasioned the government to put in place measures such as lockdowns, social distancing, contactless shopping, people had to find an alternative way to meet their needs. This gave way to the digital push toward e-commerce.
This growth was further sustained by the increasing number of internet users who were forced to move major aspects of their existence – work, school, entertainment, etc. – online. Though the e-commerce market thrived for a while, it was impacted negatively at different stages of the pandemic. This was at the point when the measures became stricter, which affected supply chains and other operational aspects.
However, as soon as countries across the globe started to reopen their economies, foreign sales bounced back. US-based Amazon and China’s Alibaba constitute the two online giants that drive globalization in e-commerce. Despite having their respective local presence, they have also imprinted their impact on the global market.
A further look at the cross-border e-commerce industry will reveal how it has helped retailers selling on international markets to spread their sales and risks across markets, thereby taking advantage of opportunities that lie outside their local markets. Therefore, business owners and merchants that seek to sell their products on the international market need to equip themselves with technologies that will continue to help them meet cross-border e-commerce demands.
For online shoppers, there is no much difference between buying from a local store and making an online purchase, both within their local markets and from across the globe. It is just a matter of making a little switch as one would do with a button. The implication of this is that cross-border e-commerce requires a secure and reliable payment gateway to enable seamless transactions.
The reason is simple. If local transactions can come with some payment frictions, then it is expected that such frictions will amplify in multiple folds in the case of taking similar transactions internationally. There are a host of complexities in cross-border transactions. They border on data security, fraud, differences in currencies, and costs of conversion.
However, as cross-border purchases increase, new digital payment offerings continue to spring up. Beyond the widespread payment by cash, several cashless alternatives have been provided. From cryptocurrencies to the use of QR codes, the frictions of cross-border transactions are being removed, paving the way for faster, more secure, and more transparent digital payment options.
The future of cross-border e-commerce
As the continuous decline in local shopping – or a seeming shift in consumers’ buying behavior – serves as a huge opportunity for online retailers to continue to serve as a major determiner in the cross-border e-commerce industry, the question that needs to be asked borders on if financial firms are willing to make cross-border transactions and payments become more seamless.
In a report by PwC, 89% and 42% of financial firms predict the continuous rise in e-commerce purchases and cross-border payments, respectively. This makes payment security and costs a great source of concern for both sellers and buyers. Even with that, only a few banks provide services with truly global coverage. This will give rise to multiple bank partners and managing them can be complex and costly.
As a way of saving on costs, many marketplaces in the cross-border space are considering the innovation provided by fintech firms. The firms challenge the dominance of the traditional banks by providing innovative cross-border solutions to consumers, thereby eliminating pain points such as high transaction costs, long settlement periods, and limited accessibility. Some of the marketplaces that lack the required expertise tend to outsource both funds-in and funds-out payments to specialized fintech players.
While cross-border e-commerce is still at the evolutionary stage, it is believed that its growth will outpace domestic e-commerce in many years to come. Therefore, marketplaces that want to compete on the global space will have to develop a solid cross-border e-commerce strategy. At the same time, this strategy needs to comply with local tax laws and import/export regulations that border on data protection and other protection regulations.
Ultimately, consumers do not merely require a means to make payments. More than that, they expect end-customer experience in the forms of getting adequate support and avoiding negative consequences when they transact. Interestingly, key players and new entrants in the fintech industry aim to change the dynamics of the cross-border payments market.
References
https://www.statista.com/statistics/348108/cross-border-e-commerce-usage-worldwide/
https://www.pwc.com/gx/en/industries/financial-services-in-2025/payments-in-2025.html