Globalcollect on winning payment strategies for bric nations

Winning Payment Strategies for

BRIC Nations

How to Boost Conversion Rates in Brazil, Russia, India, and China

Co-authored by

Table of Contents
1 Executive Summary ..................................................................... 3
1.1 Four promising markets, four different best-practice strategies...................3
1.2 Tripwires or trampoline to growth? ...................................................................4

2 The Rising Stars: BRIC Markets..................................................... 5
3 Brazil: Craving for Credit.............................................................. 6
3.1 Many Brazilian credit cards are closed to cross-border transactions .........7
3.2 Establishing a local entity is advisable............................................................8

4 Russia: Cards are the Alternative Form of Payment ................. 9
4.1 Cash is king ......................................................................................................10
4.2 Regulation makes cross-border money transfers difficult ..........................12

5 India: Waiting for the Giant to Awake ..................................... 13
5.1 Online payment methods are not yet established ......................................14
5.2 Regulation limits the use of eWallets .............................................................15
5.3 Localization is key ...........................................................................................16

6 China: Poised to Become Largest eCommerce Market........ 17
6.1 eWallets dominate online payment segment ..............................................18
6.2 Local partners are crucial to enter China .....................................................20

7 Similarities and Differences among BRIC Countries ............... 21
8 How Outsourcing FX Services Helps you Focus on your ........ 22
Core Business .................................................................................. 22
8.1 Three ways to tackle this challenge ..............................................................22
8.2 Determining rationale to outsource or process in-house............................22

9 Case Study: Valve...................................................................... 24
10 Case Study: Despegar ........................................................... 26
11 About GlobalCollect .............................................................. 28

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Winning Payment Strategies for BRIC Nations Page 2 of 29

1 Executive Summary
The "BRIC" countries are some of the world's fastest growing and potentially largest
economies. They all currently rank among the Top-10 countries in terms of both
population and GDP. Together, they make up more than 40% of the world’s population.
The BRIC countries currently fall into the category of low- to middle income countries.
However, if the anticipated high growth is actually realized, it is not hard to imagine that
the sheer size of these countries will propel them to be among the most powerful global
economies.
For years, Brazil, Russia, India, and China have often been regarded as a homogenous
group, despite the differences regarding the extent to which eCommerce has
developed in each of these countries. Overall, the differences outnumber the similarities.
Like other markets, BRIC countries require a localized approach: offering pricing in
domestic currencies, check-out pages in local languages, and culturally preferred
payment methods are key elements of a successful eCommerce strategy which will help
you overcome country-specific challenges.

Source: CIA World Factbook, comScore, eBit Empresa, Fabernovel, IAMAI, CNNIC, Analysys International

1.1 Four promising markets, four different best-practice strategies
Brazil: Craving for credit
In Brazil, online shopping is in its early stage but ahead of other Latin American countries.
Despite the popularity of the Internet (e.g. for communication), online shopping and
payments continue to fall short of expectations. Overall online spending totaled BRL 14.8
billion (USD 8.5 billion) in 2010, a 40% increase over the previous year. Forrester Research
estimates that the Brazilian market will reach USD 22.0 billion in 2016. Electronics,
household appliances, and books are among the most popular items bought online. To
date, many Brazilians still fully rely on cash to make payments. This preference is reflected
in the high popularity of Boleto Bancário, which has a market share of around 15%. Debit


and credit cards are popular payment methods in the brick and mortar world, but not all
are available for cross-border payments.
Russia: Cards are an alternative form of payment
In Russia, total B2C eCommerce sales have been forecast to reach around USD 7.0 billion
by the end of 2011. This number is predicted to grow by 40% each year over the next five
years as the obstacles described later in this paper are gradually overcome. Currently,
Russians predominantly rely on cash for historical reasons as well as due to a still
insufficiently developed interbank network. As a consequence, the online payment
segment is dominated by eWallets, which transform cash into digital payments. The
leading alternative payment processor and eWallet provider of Russian eMoney is QIWI,
with a market share of about 40%, followed by Yandex and Webmoney.
India: Waiting for the giant to awake
With an Internet penetration of less than 9%, India has not yet obtained the critical mass
to propel online shopping beyond the stage of a premature industry. While 80% of
Internet users search for products online, only about 20% actually buy online. Travel-
related products are the largest category purchased online with an 81% market share.
The most popular travel items are train and airline tickets. India still has a large cash-
based economy and not surprisingly, cash is the preferred payment method for the
majority of the population. In order to tap into this clientele, it is critical to accept cash on
delivery (COD). Nevertheless, the online payment industry has witnessed strong growth in
recent years as more consumers are shifting from traditional methods (cash) to
alternative methods. Due to local regulation by the Reserve Bank of India (RBI), eWallets
like PayPal are still very much restricted.

China: Poised to become the largest eCommerce market
China has evolved from a closed and centrally planned economy to potentially
becoming the largest eCommerce market worldwide. Internet use in China has been
lagging behind but is quickly catching up now with a penetration rate of 36%, making it
the world’s largest Internet population. When it comes to online shopping, the Alibaba
company - the Chinese equivalent of eBay - is leading with a 75% market share. The
company operates under the names of Taobao (domestic, P2P) and Alibaba (both
domestic and international, B2C) with around 400 million users. While cash on delivery
(COD) originally accounted for a large share of overall online shopping payments, it
currently only holds a market share of around 5-10%.

1.2 Tripwires or trampoline to growth?
eCommerce merchants who plan to expand their business into one or more of the BRIC
markets have to beware of the diverse challenges they will encounter. Even though there
are similarities, differing cultural habits, government structures, business cultures, and an
ever evolving array of banking and legal requirements present a set of unique hurdles.
Merchants should also keep in mind that the “tripwires of doing business” are both
country- and industry-specific.


2 The Rising Stars: BRIC Markets
In the ever-growing complexity of today’s eCommerce world, organizations are facing a
number of challenges when it comes to realizing their ambitions to grow both their
geographic footprint and potential customer base. A key success factor here is teaming
up with the right business partners. In the case of your ePayment strategy, this would be a
Payment Service Provider: taking on a consultative role as well as helping you plan,
implement, and roll out a winning array of payment products. Online payment strategies
need to be tackled on a country-by-country basis and emerging markets like the BRIC
nations are no different. On the contrary, as this paper shows they present some
additional challenges – well worthwhile though if you look at the potential.
An excellent online shopping experience will turn sour when customers find out at the
check-out point that they cannot pay with their preferred method, pricing is not in the
local currency, or surcharges apply. At the end of the day, the critical difference
between you and your competitors is not always about a better product or service
offering but about customer experience and convenience. So to turn browsers into
buyers, your payment process is key. While this is true for all markets, the BRIC countries
present a special challenge as eCommerce development stages, buying behaviors,
available payment products, and infrastructure status quo differ fundamentally.

Think global, act local to seize opportunities
The so-called BRIC countries all show up to 50% year-on-year growth figures in
eCommerce and online payment adoption so they offer tremendous potential. That said,
each BRIC country has its own intricacies and is rapidly developing a local payment
culture combining best-of-breed and hybrid payment methods – so one strategy will not
“fit all.”
To seize opportunities in these markets and maximize check-out conversion rates,
merchants need to offer local acquiring and alternative payments - the latter alone can
increase conversion rates by up to 40%. Most of these alternative payments require a
local legal entity and local bank account, adding a tremendous workload to your
operations, accounting, and legal departments.

The added value of an experienced Payment Service Provider
An experienced payment service provider (PSP) with local know-how and regional offices
staffed with native speaker industry experts can help merchants to identify and
overcome the various local challenges. Next to consulting on how to set up local entities,
a full service PSP connected to local payment methods as well as financial networks and
offering fraud screening tools can help reconcile and repatriate funds.
Choosing a payment service provider which is right for you from the beginning is crucial –
not only to help you tackle country- and industry-specific challenges but also to grow
with you as your eCommerce strategy evolves and markets mature. As explained in
depth in this paper, going it alone or working with a simple payment processor or
gateway solution will put a tremendous strain on your overhead and there are many
tripwires along the way – in most cases, outsourcing is by far the best solution as it
empowers you to focus on your core business.


3 Brazil: Craving for Credit
Home to large agricultural, mining, manufacturing, and service industries, Brazil is the
leading economy in Latin America. With a GDP of USD 2.2 trillion (PPP) and a population
over 190 million people, Brazil ranks as the 7th largest economy and 5th most populated
country in the world (CIA World Factbook). The GDP per capita is USD 10,800 per year.
Thanks to the strong growth and high interest rates boasted by its robust export sector,
Brazil has become an attractive destination for foreign investors. Due to the considerable
capital inflow and rapid appreciation of the Brazilian Real (BRL), the government has
responded by raising taxes on certain foreign investments in recent years.
In 2010, there were more than 50 million Internet users in Brazil, a figure that is growing by
20% a year. Internet cafés, also known as Lan houses (31%) and home Internet (27%)
constitute the main points of Internet access, while other access points include the work
place or a friend’s house. More and more, cell phones also gain traction to go online
(comScore).
Most Internet users utilize the www for communication purposes (83%) and see it as a
leisure time activity (68%). Online games, instant messaging, and social networks are very
popular. In Brazil, Orkut is used by more than 75% of Internet users, thus surpassing
Facebook. Americanas, Submarino, and Netshoes are the main eCommerce websites,
followed by BuscaPé (comScore). For online peer-to-peer transactions, Latin America also
has its own platform; where the US has eBay, Latin America has MercadoLibre.
Despite Internet popularity, online shopping and ePayments have been lagging behind.
People raise security concerns as one reason or are simply unfamiliar with how to shop
online. The lack of home Internet access has further stalled eCommerce adoption in
Brazil.
According to eBit, there were 23 million Brazilians shopping online making 40 million
unique purchases in 2010. The total online spending amounted to BRL 14.8 billion (USD 8.5
billion) in 2010, an increase of 40% compared to the previous year. For 2011, eBit expects
a growth of 30% to BRL 20 billion (USD 11.6). Forrester Research estimates the market to hit
USD 22.0 billion by 2016. The average spending increased by 11% from BRL 335 (USD 195)
in 2009 to BRL 373 (USD 217) in 2010. Electronics, household appliances, and books are
among the most popular items bought online.

Source: eBit Informação (www.ebitempresa.com.br)


3.1 Many Brazilian credit cards are closed to cross-border
transactions
• Debit and credit cards: with a total of 374 million cards (with a population of 190
million), debit and credit cards are popular payment methods, each having an
approximately 33% offline market share. Visa (43%) and MasterCard (32%) are the
most popular methods to pay online, while the Brazilian credit card Hipercard,
owned by Itaú Unibanco, is only used by 1% of online shoppers. Accepting major
international card brands thus makes it possible to reach a crucial mass of Brazilian
eShoppers.
That said, there are some challenges related to the fact that a large number of
Brazilian credit cards are not enabled for cross-border transactions. As a
consequence, a domestic acquirer is needed in order to accept most Brazilian credit
cards.
About 53% of online card transactions are based on installment credits (“parcelas”).
This allows consumers to finance their purchases in multiple partial payments - a highly
popular practice in Brazil. To be successful in this market “parcelas” are thus a
prerequisite. Again, the only way to offer installment payments by credit card is
through a local acquirer.

Online Payment Preference

Source: comScore, Brazil market share by share of transactions, Q2/10 to Q1/11

• Boleto Bancário: many Brazilians still rely fully on cash. This is also reflected in salary
payments: 55% of all employees receive their salaries in cash, especially those in
low-skilled jobs. This cash preference explains the high popularity of Boleto
Bancário, which has a market share of over 13%. When paying online, a prefilled
Boleto Bancário bank slip shows up which can be paid either via online banking,


ATM, or in person at a local bank. This has the advantage of consumers not
having to share sensitive data online – a fact that helps reluctant ones to agree
on making an online purchase after all.

• MercadoPago: which is owned by the online auction platform MercadoLibre.
MercadoPago’s online payment service enables shoppers to make payments at
the MercadoLibre platform as well as on external websites.

• Others: the rest of the online payment product spectrum is owned by a large
variety of prepaid cards such as Aura, Astropay Card, or the PanAmericano
MasterCard Prepaid Card.

3.2 Establishing a local entity is advisable
To conduct eCommerce business successfully in Brazil, it is strongly recommended that
companies have a local presence, especially since repatriating funds from Brazil often
requires merchants to pay up to 25% withholding tax. To fulfill this requirement, a
registered entity is needed with a business address in Brazil. With this local entity, a local
bank account can be opened; the person who is in charge of the local bank account
must have a CPF (Cadastro de Pessoas Físicas).

A side note: most of this information is written in Portuguese, the local language, making
it even more cumbersome for foreign businesses to understand Brazilian regulations.

Once you have set up a local entity, engaging an experienced payment service
provider with an established financial network, a broad portfolio of local payment
methods, and an offering of value-added services such as international fund
management and foreign exchange services can enable you to enter this market
successfully and help you repatriate funds to your home country.


4 Russia: Cards are the Alternative Form of Payment
Since the era of the Soviet Union, Russia has evolved from a centrally-planned to a more
market-based economy. It is now one of the world’s largest exporters of commodities
such as oil, natural gas, and steel while remaining, for the most part, a domestically-
oriented economy. With a GDP of USD 2.2 trillion (PPP) and a population close to 140
million people, Russia is the 6th largest economy and 9th most populated country in the
world (CIA World Factbook). With a GDP per capita of USD 15,900 per year, Russia is
categorized as one of the middle-income countries.
The Internet has been warmly embraced in Russia: its online population of approximately
60 million people represents a penetration rate of around 40% and thus constitutes one of
the larger eCommerce markets. Over the coming years, this number is expected to grow
by about 50% a year. As a general rule, Russian Internet users are young, well-educated,
with above-average income, and residents of major cities. Other population segments,
however, are quickly catching up.
Russian Internet users are among the heaviest users of social networks, boasting one of
the highest usage rates and spending the longest time periods online. The main Russian
websites are the social network Vkontakte, search engine Yandex, and the webmail
portal Mail.ru. While the Russian Internet was originally rather domestically-oriented,
foreign websites such as Google or Facebook are steadily gaining ground (Alexa global
ranking).
This being said, the extensive Internet penetration is neither reflected in the number of
online transactions nor the revenue involved in them. Around 35 million Internet users
made online purchases during the first quarter of 2010. Urban online shoppers spend an
average of USD 1,400 per year online, while people outside of big cities spend about half
of that amount. Books, cosmetics, and home appliances are the main items purchased
over the Internet (Fabernovel).

Most demanded goods by Russian online shoppers

Source: Fabernovel, 2010


Total annual B2C eCommerce sales were estimated to have been around USD 5 billion at
the end of 2010. This number is predicted to grow by 40% each year over the coming five
years, as major obstacles are progressively overcome. There will be more and better
equipped online stores, but country-specific payment options and logistics will remain an
issue (Fabernovel).

Source: InSales, early 2011

4.1 Cash is king
When it comes to payments – both offline and online – Russians rely heavily on cash.
Historically, Russians are skeptical of banks and, to date, there is no proper working
interbank network. As a result, there is low bank penetration: only 5% of transactions
involve the use of (bank) cards, the other staggering 95% are cash sales. Of all bank
transactions, 91% are simply cash withdrawals, while only 9% involve making an actual
payment. Furthermore, while there are about 130 million credit cards in Russia, only 3-5%
of these can be used online (Russian Federal Bank). It therefore comes as no surprise that
45% of online orders are paid in cash on delivery (Fabernovel).
Reason being that Russian Bank cards were designed for ATM and POS use only. As a
result, most cards display no CVV2/CVC2 code so are not eCommerce enabled. Due to
this small but important fact, online transaction refusal rates are significant. Another
stumbling block is that shoppers are concerned about exposing their credit card data,
be it online or offline. With 133 million cards issued but only an estimated 140,000 POS
terminals across Russia, their usage is rather limited; and not being able to use cards in
daily life hampers consumer acceptance. As a result, confidence in cards is relatively low,
which explains why more than 90% of all credit card transactions in Russia are ATM cash
withdrawals rather than POS payments. Many popular Western payment methods - such
as PayPal - are not accepted in Russia while others - like Moneybookers - are still in their
fledgling stages.

The online payment segment is dominated by eWallets, which transform cash into a
digital payment form. They consist of large networks of cash collecting POS terminals,
agents, and franchises to execute payments and store money for later use. Typically,
eWallets can be charged via a variety of methods such as cash, bank cards, vouchers,
virtual currencies, and more. They can also be used for peer-to-peer payments, online
payments, and cash withdrawals.


Even though this does not seem to be a favorable eCommerce environment, the number
of online stores is continuously growing - on average 34% year-on-year. Because eWallets,
such as QIWI and other alternative payment products offer the ability to pay cash, they
currently account for 75% of Russia’s overall payment flow. According to the Public
Opinion Foundation, 94% of all Russian Internet users make at least one purchase over a
period of six months (spending an average of 550 Euros online), using one of their
preferred local payment options.

The main eWallets are:

• QIWI: see below.

• Yandex Money: a subsidiary of Yandex, the market leader in Russian online search
engines. As of Q1 2011, Yandex Money accounted for more than 8 million
eWallets, a growth of 50% compared to the previous year.

• Webmoney: an electronic money and online payment system used by customers
to exchange domestic currency into digital currency. Originally developed
exclusively for Russian consumers, it is now used around the world in eight different
currencies.

• RBK Money: this web-based payment system, formerly known as Rupay, which is
widespread in Ukraine and Russia, was launched in 2002. RBK Money offers
services to over 250,000 Russian Internet users and 6,000 online shops.
• Moneta.ru: both an eWallet provider and a PSP focusing on servicing smaller
online retailers in Russia as well as providing payment services for the gaming and
travel industry.

QIWI eWallet at a glance: has its own 180,000 QIWI branded cash collection
points with an annual turnover of USD 13 billion. QIWI Wallet charges 0% top-up
commission for cash via QIWI terminals and currently has 45 million monthly users.

• Availability: WEB, QIWI kiosks, mobile and social networks application,
mobile commerce, SMS/USSD.

• Core Services: direct top-up, eInvoicing, cash payment collection, alternative
channels of payment.

• Internal fraud protection systems include: limits, blacklists, timing,
notification/confirmation by SMS/voice and CVV/CVC, 3-D Secure.

• Geographic footprint: leading in Russia, Ukraine, Georgia, Belarus, Moldova,
Kazakhstan. Also available in China, Vietnam, Malaysia, Bulgaria, Romania, Serbia,
Tajikistan, Argentina, Colombia, Panama, South Africa, India, Latvia.


Some of the more innovative Russian banks have also started to offer ePayment services
at their ATMs as well as mobile/online banking solutions. But as long as there is no unified
system for online banking or easy interbank payments, the eCommerce market in Russia
will remain fragmented. As a result of this, coupled with a fear of credit card fraud, many
customers will still prefer offline payment methods in the foreseeable future.

Source: Rumetrika, July 2010

4.2 Regulation makes cross-border money transfers difficult
Russian legislation on online payments is completely different from the Western model.
Payment service providers are confronted with regular changes in legislation and what
may be common practice today may be forbidden tomorrow, making it a challenge to
do business in Russia.
Complexity in regulation is also prevalent in the online world. For example, foreign entities
can make cross-border transactions out of the country, provided customs regulations are
followed. Such transactions need to be accompanied by a “tax passport”, specifying the
transaction details as only funds for imported products may be remitted. These foreign
transactions can only be performed by banks which have a license for currency
conversion and cross-border money transfers. Problems arise, however, when transactions
are executed online, where it is harder to match payments with imported products.
This means, in order to do business in Russia merchants need to have a local bank
account. As non-resident bank accounts are not very common, this often implies the
need to establish a local entity. On top of this, a merchant needs to have a “tax
passport”.
As outlined above, setting up a business account in Russia can be quite a challenge, but
merchants will have to offer local payment methods if they want their eCommerce
operations to succeed in this country. A payment service provider with a partner network
of local acquirers, banks, and alternative payment products already in place can help
meet the above requirements and give you access to the right mix of payment methods
required to increase conversion rates.


5 India: Waiting for the Giant to Awake
India was originally a predominantly agrarian economy with widespread poverty, limited
infrastructure and restricted access to basic education. However, since the 1990s, India
has been developing into an open-market economy with economic liberalization,
deregulation, privatization of state-owned businesses, and fewer controls on foreign trade
and investment. Since these reforms, the economy has grown on average 7% per year. At
the moment, India’s GDP of USD 4.1 trillion is the 4th largest in the world, while its
population of 1.2 billion ranks 2nd in the world. The GDP per capita is USD 3,500 a year (CIA
World Factbook).
The Internet has not yet been widely adopted. With around 100 million Internet users and
60 million active users, the country has an Internet penetration of less than 9%
(Internetworldstats). Still, it represents one of the world’s largest Internet markets and is
expected to grow by 30% a year. Work places (40 million people), Internet cafés (30
million people), and private homes (11 million households) are the most important points
of Internet access in India (Internet and Mobile Association of India, IAMAI). Also, mobile
Internet use is quickly expanding, with more than 40 million mobile Internet users currently
expected to grow to over 300 million by 2015 (Google India).
The vast majority of Internet users are young men and students from the main cities. In
recent years, the Internet has also been gaining ground in remote areas outside the
cities. The core online activities are sending and receiving e-mails, searching for general
information, and educational purposes; this is closely followed by visiting online music and
video sites, instant messaging, and social networks (IAMAI).
Online retail is still an underdeveloped market in India. While 80% of Internet users search
for products online, only about 20% (17 million Internet users) actually buy online (Juxt
Consult). The total eCommerce market is predicted to reach INR 46,520 crore (USD 9.5
bln) by the end of 2011. Being only INR 8,146 crore (USD 1.7 bln) in 2007, the market has
witnessed strong growth with a CAGR of 55% over the last four years. In the coming years,
the market is expected to grow by 32% per annum (IAMAI).

* Financial Services were not calculated in the years prior to 2008. ** Estimated Figures.
Source: IAMAI, report March 2011 (Figures in INR crore/Percentages indicate share of the overall market size)


Travel-related products are the largest category purchased online, enjoying an 81%
market share. Most popular travel items are train tickets (83%) and airline tickets (58%).
The main travel websites are Indian Railways (34% market share), MakeMyTrip (16%), and
YatraOnline (14%) (Comscore, June 2011). eTailing only makes up about 6% of online
spending. Most popular eTail items are cell phones (56%), computer hardware and
consumer electronics (35%), and movie tickets (30%). Flipkart is the most popular online
shopping website for retail products (Juxt Consult).

Source: eBay/eBay India Census 2011 – India under a lens

5.1 Online payment methods are not yet established
Online payments do not yet constitute an established business practice in India. In a
recent survey by the IAMAI, consumers were asked about their online spending habits
and reasons not to buy online. About 50% of the respondents who did not buy online
gave reasons related to lacking trust and limited availability of online payment methods;
concerns ranged from privacy issues (25%) and lack of trust (15%) to unavailability of
payment cards (10%).
Nevertheless, the online payment industry has witnessed strong growth over recent years,
as more consumers are shifting from traditional (cash) to alternative payment methods.
While credit cards are the most preferred option, debit cards and net banking are also
commonly used, each with an approximate 30% market share (Koncept Analytics).
Another source indicates net banking as the most popular online payment product,
preferred by over 40% of consumers.


Overview of the main payment methods:

• Cash on delivery: India has a large cash-based economy, so not surprisingly cash
payments are the preferred method for the majority of people. As a
consequence, it is important to accept cash on delivery (COD) in order to reach
Indian consumers. Some sources indicate that around 50% of online orders are
paid by COD. Multiple solution logistics companies, such as Bluedart or Aramext,
support this method.

• Payment cards: India has low financial inclusion: over 40% of Indians in urban
areas do not have a bank account, while this number rises to over 60% in rural
areas. About 15% of the population own debit cards (180 million cards issued),
and less than 2% have credit cards (18 million cards issued, a number that has
been decreasing over the past years). Major international credit cards such as
Visa, MasterCard, Diners Club, American Express, and JCB are commonly
accepted online. However, dependent on the issuing bank, not all debit cards
can be used online (Reserve Bank of India, RBI). Only debit cards issued by the
larger banks, such as Axis, HDFC Bank, and ICICI, can be used online to pay.

• Net banking: via net banking, or Internet bank payments, consumers may use
their online banking interface to pay. The large majority of banks offer this service,
making online payments possible for those without credit cards. In addition,
consumers trust this method because it is linked to their personal bank.

• Prepaid cards: this is a solution when other methods are not available or not
trusted by consumers. However, these cards do not have a large distribution
network.

• Mobile payments: as mobile banking gains ground in India, it is also increasingly
used for making online payments, typically for lower value items.

5.2 Regulation limits the use of eWallets
Due to local regulation by the Reserve Bank of India (RBI), eWallets like PayPal are very
much restricted. New requirements were installed in November 2010, when the RBI found
that online payment gateways not only facilitated online transactions, but also enabled
Indian exporters to transfer funds abroad without repatriating them. Online payment
gateways thus allowed Indians to receive income and transfer it abroad without paying
income tax (RBI).
To prevent this, the RBI imposed a number of new requirements. For example, under the
new regulation banks can only offer repatriation of exports through payment gateways
after carrying out extensive due diligence and opening a “nostro” account – an account
in the name of the payment gateway with the sole purpose of collecting payments.
Banks are also asked to report all account transactions to the RBI. Indian exporters are
allowed to open online payment accounts, but the funds cannot be retained in such
accounts for longer than seven days, after which they have to be transferred to the
nostro account. Meanwhile, the outstanding balance in any online payment account
(eWallet) cannot exceed USD 3,000. In any case, it remains the full responsibility of the
online payment gateway to ensure that Indian exporters comply with the regulations.
PayPal, among others, altered its policies to comply with the new regulation. To receive
payments, users now need to link their PAN card (Indian tax account) to their PayPal
account. In addition, they must indicate an Indian bank account to which the received
funds can be automatically transferred. Making payments still requires a credit card
(linked to the eWallet).


5.3 Localization is key
There are several barriers to selling online and accepting ePayments in India. First of all,
eCommerce is not yet an established business activity in India, as Internet penetration is
still low. Accordingly, people are not used to shopping online and do not trust this sales
channel. Also, financial inclusion as well as credit- and debit card use is rather low - many
Indians still strongly rely on cash.
To overcome these challenges and satisfy local legislation, it is absolutely necessary to
have a local presence. In addition, a website must offer a good online shopping
experience suitable for the Indian market, meaning in the local language and featuring a
product range customized to meet consumers’ needs. To overcome the lack of trust,
merchants must also accommodate local payment methods, such as net banking or
local debit cards. Furthermore, to reach consumers who do not trust online payments or
do not even have a bank account, it is crucial to accept payment by cash on delivery.
An experienced payment service provider with an established financial partner network
and portfolio of alternative payment products already in place can help meet the above
requirements and also provide consultation on local legislation.


6 China: Poised to Become Largest eCommerce Market
Since the late 1970s, the People’s Republic of China has evolved from a closed and
centrally-planned economy to a more market-oriented one with a global focus. The
restructuring has led to high growth with a more than tenfold increase in GDP since 1978.
China is currently the most populated country in the world with a population of over 1.3
billion and the 2nd largest economy with a GDP of USD 10.1 trillion. The GDP per capita is
USD 7,600 a year (CIA World Factbook).
In terms of Internet use, China has been lagging behind but is quickly catching up. In
2010, the total number of Internet users amounted to 485 million, equaling a penetration
rate of 36.3%, thereby making it the world’s largest Internet population (CNNIC). Around
190 million Internet users also shop online. Online shoppers are typically young and well-
educated, live in urban areas, and have above average incomes.
The Chinese strongly rely on local websites, making it difficult for companies like Google
or Yahoo to gain ground in this country. In terms of use, Web portal QQ (Tencent), which
reaches 65% of Internet users, and search engine Baidu, which reaches 60%, are the most
popular websites. For online shopping, most Chinese turn to the Alibaba company - the
local equivalent of eBay - which has an impressive eCommerce market share of 75%. The
company operates under the names of Taobao (domestic, P2P) and Alibaba (both
domestic and international, B2C), which together attract around 400 million users. Its main
competitor is Tencent’s Paipai platform for P2P online shopping.
As people have become more familiar with surfing the Internet and gained increased
trust in online shopping in recent years, eCommerce is showing strong growth rates. While
total eCommerce revenue (both B2C and C2C) amounted to USD 39 billion in 2009, this
number is expected to grow to USD 95 billion by the end of 2011. Over subsequent years,
eCommerce is expected to grow to USD 421 billion by 2015. An interesting trend
concerns the fact that Chinese consumers are increasingly looking overseas to buy luxury
goods or cosmetics online. Revenue from this channel is expected to double from USD 3.8
billion in 2011 to USD 7.6 billion by 2012.

Transaction Value of China Online Retail 2008 H1-2011 H1

Note: 1 CNY = 0.1568 USD as of October 7, 2011
Source: Enfodesk © Analysys International www.eguan.cn www.enfodesk.com


6.1 eWallets dominate online payment segment
The Chinese payment market has been very complex, with a large number of banks
lacking interconnection and collaboration. However, considerable progress has been
made in recent years, including for example allowing someone with a Beijing bank card
to use an ATM in another city.
In the eCommerce arena, online payment systems have also improved, allowing clients
from most banks to send and receive money to and from another bank. The vast majority
of online payment transactions involve eWallets. Alipay (linked to the Alibaba platform)
and Tenpay (linked to Tencent) have been the dominant market players in recent years.

With the evolution of and improvement in China's online
infrastructure, China’s eCommerce industry has developed
rapidly over the last few years. China has shown strong growth in
consumer power, and average online spending has kept pace
by increasing significantly. This is where Alipay enters the picture:

Alipay is China's leading third-party online payment solution, providing an easy, safe, and
secure way for millions of individuals and businesses to make and receive Internet
payments. As such, Alipay also offers a cross-border online payment solution for overseas
partner merchants.

At a glance: as of September 30, 2011, Alipay has a market share of over 48% (iResearch)
and 600 million registered accounts with over 11 million transactions a day. Alipay provides
payment solutions in China for more than 460,000 external merchants and is furthermore
connected to more than 100 financial institutions, including 19 national banks, 45 regional
banks, as well as Visa and MasterCard.

The most important competitor of eWallets is China UnionPay (CUP). This national
bankcard association is responsible for operating the unified inter-bank clearing and
settlement system, as well as for developing the international acceptance network for
the China UnionPay card. In total, there were over 1.9 billion cards issued in 2010, a
growth of 12% over the previous year. The vast majority of them are debit cards (91%), but
credit cards are catching up (Datamonitor). One important restriction is the normal limit
placed on debit card spending of about CNY 3,000 (USD 500). To make a larger
payment, for an airline ticket for example, consumers need to contact their bank.
While cash on delivery originally accounted for a large share of online shopping
payments, it currently only holds a market share of about 5-10%.

Overview of the main payment methods:

• Alipay: see above.

• Tenpay: a subsidiary of Tencent, the largest competitor of Alipay, with over 70
million users and a market share of over 21%. Tencent owns QQ, China’s largest
Internet portal with more than 300 million users, and PaiPai, China’s second largest
online trading platform. Tenpay is the default payment method on QQ and
PaiPai, together accounting for almost 60% of Tenpay’s payment volume. More
than 200,000 webstores accept Tenpay. Overall, Tenpay has a strong position in


the online gaming and travel industry, being the business partner for many airlines
and online gaming platforms.

• China UnionPay (CUP): this national bankcard association, the most important
competitor to eWallets in China, is responsible for operating the Chinese unified
inter-bank clearing and settlement system, as well as for developing the
international acceptance network for the China UnionPay card. CUP has a market
share of 11% in the online payment market. International cards like Visa,
MasterCard, and JCB are also used online but only account for less than 5% of
card payments combined (as opposed to the 95% share of CUP).

• Others: there are various other smaller players, together constituting a market
share of around 15% regarding online payments, see below graph.

Market Share of 3rd Party Online Payments in 2011/Q2

Source: Enfodesk © Analysys International www.eguan.cn www.enfodesk.com

Special items such as foreign brand high-end apparel, accessories, and cosmetics
continue to enjoy a steady demand in China. Clothing, shoes, hats, and handbags
account for the largest proportion (22.8%) of all Chinese online retail transactions,
followed by digital, communication and IT products, which account for 10% (iResearch).
In addition to the above, cosmetics, home appliances, books, and audiovisual products
are also very popular eTail goods. Forecasts predict that traditional offline businesses will
continue to enter the online retail arena in order to meet consumer demand for a one-
stop shopping model and simultaneously allow them to expand their footprint and sales
channels beyond China.


6.2 Local partners are crucial to enter China
It is vital for a foreign merchant trying to enter the Chinese market to offer a localized
product presentation. Thus, a webstore should feature local pricing and offer culturally
preferred payment methods. Product- and check-out pages have to be in the local
language. The latter is especially challenging due to multiple versions of the Chinese
language.
Setting up a local entity and complying with Chinese eCommerce regulations can be a
complex and expensive process. Cross-border payments need to be linked to orders and
repatriation of funds is limited to certain amounts – all of this puts a heavy burden on the
back office workload. The main local payment methods have solved these issues for their
international clients, and a PSP can further consult on opportunities of settling offshore.
Alternatively, merchants can select an experienced payment service provider who has
already established a financial network of acquirers, banks, and payment products; the
beauty of this solution lies in the fact that all of the above is covered under one single
contractual agreement as well as a single reporting system and financial flow.


7 Similarities and Differences among BRIC Countries
The strong economic growth of the BRIC countries since 2001 has increased incomes, and
thus created a substantial middle class. These positive developments have, in turn, led to
the emergence of a powerful consumer market in each BRIC country. Due to lower labor
and production costs, many companies also consider the BRIC nations an attractive
target for their foreign expansion strategy. Although the BRIC countries are still emerging
eCommerce markets – albeit to varying degrees - they have the potential to become
leading global economies over the coming years. And while many of them – again to
varying degrees - still rely heavily on cash, local online payment systems are also on the
rise.
This being said, eCommerce merchants planning to expand their business into one or
more of the BRIC markets have to be aware of the diverse challenges they will
encounter. Despite the similarities, there are differing cultural habits, government
structures, business cultures, and an ever evolving array of banking and legal
requirements that present a set of unique hurdles. Merchants should also keep in mind
that the “tripwires of doing business” are both country- and industry-specific.

Expert assistance on online strategies for BRIC is strongly advised
Merchants are well advised to solicit expert legal and tax services when developing their
online selling strategies for BRIC. Country legislation and regulations keep changing,
resulting in the need to have a different approach for each country, as well as native-
speaker support, so a “one size fits all” approach will not work under these circumstances.
Involving a partner with both local experience and representation is a must. The same
applies to foreign exchange and repatriation services required to comply with BRIC
government monetary policies. As a rule, repatriation in all BRIC currencies is difficult and
may have tax implications.
What all BRIC countries have in common is the similarity of being unique. They all need
customized local payment strategies; a merchant’s webstore or portal has to be fully
localized in terms of language, check-out processes and preferred payment methods.
Additionally, eCommerce merchants need to understand that just offering international
credit cards does not enable them to tap into the vast potential of BRIC markets. While
credit card penetration is steadily growing, many cards are not enabled for online or
cross-border purchases, or not trusted by end consumers. Thus, local payment methods
and alternative products such as eWallets that enjoy high acceptance rates are key
elements of a successful eCommerce payment strategy.
With legal barriers and tax burdens up to 25%, every merchant needs to carefully
consider if the timing of entering one or more of the BRIC markets is right. Industry-specific
assessments regarding the state of development and consumer take-up rates are also
mandatory – what applies to Travel-related services might be a completely different story
for Online Gaming.


8 How Outsourcing FX Services Helps you Focus on your
Core Business
The rapid spread of the Internet and take-up rates of online retail services in emerging
markets have created significant new business opportunities but also many challenges.
One of the greatest is to offer your online shoppers the convenience of paying with a
locally preferred payment method and in the respective domestic currency. To optimize
customers’ web experience and convert browsers into buyers, you need to price goods
and services in local currencies - the positive effect is a significantly higher conversion
rate. On the other hand, dealing in foreign currencies leads to increased administrative
overhead and FX management costs, as well as high exposure to currency exchange
risks.

8.1 Three ways to tackle this challenge
The first way to tackle this is to open a multi-currency account. The majority of corporate
banks offer multi-currency bank accounts to allow for receipt of foreign currency flows. A
multi-currency account is a bank account structure with a single account number which
enables you to hold balances in different currencies and perform foreign exchange
trades to hedge foreign currency flows back to a base currency. However, this banking
product is virtually unknown in North America and the UK.
The second possibility is to hold foreign currency bank accounts in local markets with
local financial institutions. That said, this scenario should be limited to key currencies as
every additional local bank account will require you to deal with local legislation,
including the possible requirement of establishing a local entity or branch based on the
domestic “Know Your Customer” (KYC) legislation. Operating local accounts will result in
additional cash management fees and you will also potentially (for example in all BRIC
markets) face the challenge of retrieving funds from an economically promising - yet
difficult to operate in - country due to restricted domestic currency outflow, specific
acquirer requirements, or governmental policies. In some cases, it may take up to a
month to retrieve funds out of a country, resulting in high exposure to foreign currency
exchange fluctuations.
The third - and for most merchants best practice - is to outsource foreign exchange
activities to a full service provider such as GlobalCollect. By determining the right mix of
outsourced conversion services and remittance currencies, this solution offers you many
benefits: among them competitive exchange rates and reduced FX management and
administration costs due to simplified treasury management for businesses operating
internationally. This ensures liquidity and provides operational efficiency while capturing
FX margins and minimizing risks. Plus, should the requirement for additional settlement
currencies arise - for example to fund local operations or pay suppliers in additional local
currencies – a PSP like GlobalCollect can provide a customized FX solution to meet those
future needs and offers funding in all major currencies.

8.2 Determining rationale to outsource or process in-house
Outsourcing currency conversion services, combined with a remittance currency set-up
tailored to your needs, allows you as a merchant to focus on your core business activities
and realize organizational savings. The benefits at a glance:


9 Case Study: Valve
When you give smart talented people the freedom to create without fear of failure,
amazing things happen. Valve has followed this philosophy since 1996, which led to
producing award-winning games, leading-edge technologies, and the groundbreaking
social entertainment platform Steam®. Valve’s success story began with Half-Life®, the
first-person, sci-fi shooter game that won more than 50 “Game of the Year” and a few
"Best Game Ever" awards.
Being the world's largest online
gaming platform, Valve works with
business partners to help them
realize their global growth
ambitions. For this reason, Valve
also chose GlobalCollect: an
international payment service
provider offering among other
things consultancy, a broad
portfolio of payment methods,
currency conversion, and
localization of payment pages to
ensure maximum conversion.
Over the past four years, Valve
has benefited from
GlobalCollect’s extensive
experience of worldwide payment processing as well as in-depth knowledge of
alternative payment methods, cultural payment preferences, and the video gaming
industry. So it was a logical choice to go with GlobalCollect as a PSP to help Valve tap
into the huge potential of BRIC gaming markets.

ePayments in BRIC: One size does not fit all
When rolling out in Russia, online fraud was a real concern. By deciding to localize their
approach by offering domestic alternative payment methods - which inherently have a
lower fraud risk - and stepping up fraud prevention tools, Valve together with
GlobalCollect successfully tackled the issue. Introducing pricing in Russian Rubles further
boosted sales and thus revenues. GlobalCollect also advised on cultural payment
preferences; historically, consumer confidence in Russian banks and financial institutions is
low, so offering alternative products like eWallets is the best approach.

When entering any of the BRIC countries, you will find out quickly that offering local
payment methods and pricing in domestic currency is by far the best strategy because it
simultaneously results in boosting sales and reducing fraud. A strategy GlobalCollect also
advises Valve on in Brazil and China.
Valve found GlobalCollect to be both a dedicated and knowledgeable partner, offering
among other things:
• A very stable infrastructure with great uptime thanks to its fully redundant platform
• Outstanding customer service and response times
• Unsurpassed and continually expanding portfolio of local payment methods


• Profound knowledge of local markets and culturally preferred payment methods
• Guidance on constantly evolving legal requirements and banking regulations

Since Valve feels that this partnership is built on trust and the confidence that
GlobalCollect can accommodate their future growth ambitions, they have recently
renewed their service contract.


10 Case Study: Despegar
Founded in 1999, Despegar has grown into the leading one-stop-shop online travel
agency (OTA) in Latin America for leisure and corporate travel, offering access to more
than 500 airlines, 70 car rental agencies, thousands of leisure packages, as well as up to
100,000 hotels worldwide via Hotels Despegar.com. Despegar currently operates 12
offices across Latin America to serve customers locally.

When in Brazil, do as the Brazilians do
Brazil, being one of the largest markets
in Latin America with strong economic
growth and a very eCommerce-
oriented consumer base, is one of the
key countries for Despegar’s continued
success. As in other countries across
the world, it is crucial to offer local
payment methods in Brazil in order to
boost conversion rates. For
eCommerce merchants, offering
access to alternative payment
methods is of growing importance.
However, different acquirers have
different capabilities so it is important
to have contractual relations with all of
them.

Challenges of entering the Brazilian market and how to
overcome them
While Brazil is the most mature eCommerce market in Latin America, it is also highly
regulated, creating an additional layer of complexity in an already fragmented payment
landscape. The need to offer localized payment methods, accommodate installment
payments, and have efficient information systems for the reconciliation process in place
add to the challenges. Due to the nature of its business, Despegar also has to be able to
confirm transactions immediately since flights, hotels, rental cars, etc. are being booked
in real time. Finally, due to the high transaction volume, they need an automated
reporting and reconciliation tool.

As a rule, eCommerce markets in the US or Europe are easier to enter as there already is
an established infrastructure to support international businesses. In Latin America,
eCommerce is growing but still at a much earlier stage. As a consequence, credit card
rejections are much higher than in more mature markets and fraud charge backs a real
issue.
Despegar partnered with GlobalCollect in August 2010 to help standardize its ePayments
process and streamline operations across the different countries in which Despegar
operates. Since then, GlobalCollect’s involvement has gone from counseling on local
payment preferences to building relationships with local partners to helping implement
customized solutions.


Martin Rastellino, COO of Despegar, says: “GlobalCollect combines a world-class
payment technology with a strongly committed and knowledgeable team. We use
them as our main payment service provider and they have been key in helping
Despegar to improve the customer payment experience as well as to streamline the
fulfillment process. In summary, partnering with GlobalCollect has been highly
beneficial for Despegar and being able to outsource a number of steps – for example
meeting local regulations - empowers us to focus on our core business. We highly
recommend GlobalCollect and look forward to expanding our partnership to broaden
our range of payment methods and to tap into further markets.”


11 About GlobalCollect
GlobalCollect is the world's premier Payment Service Provider of local e-payment
solutions for international Customer Not-Present (CNP) channels. A pioneer of global
payment processing with more than 15 years of experience as a full service provider, we
have a proven track record in helping our merchants realize their global ambitions and
expand their eCommerce activities across the world. GlobalCollect’s knowledge of the
international payment landscape and local payment preferences uniquely qualifies it to
advise your company on how to increase online conversion rates, expand distribution
channels, and streamline back office matching and reconciliation processes.

GlobalCollect’s single-interface online payment platform offers you access to an
unrivalled portfolio of payment methods in almost 200 countries and 170 currencies. The
latest platform upgrade empowers you as a merchant to process payment transactions
in 30 languages, including all major European languages, simplified Chinese, Japanese,
Hindi, Arabic, Farsi, Russian, Hebrew, and many more. Plus, GlobalCollect is bank
independent and has the largest network of acquirers, banks, and alternative payment
providers worldwide.

Since GlobalCollect is bank independent, it can offer you the flexibility of working with a
combination of many banks. We have partnered with leading international financial
institutions like First Data, AIB, BNP, HSBC, Wells Fargo, WorldPay, Barclays, Elavon, Euroline,
and others. These relationships, coupled with our status as a market leader, enable us to
offer the best possible rates for card and alternative payment processing - economies of
scale that we pass on to you as a merchant.

Our scalable Fraud Screening Service features a range of integrated fraud reduction
tools from renowned partners to maximize transaction safety prior to payment
authorization. These include customized business rules, online account validation, neural
networks to detect suspicious patterns, IP geolocation data to determine the real-world
location of a web visitor, pre-check for fraudulent use of credit cards, and more.

Companies that choose GlobalCollect get much more than a payment processor.
Because of our 15+-year history as a full service provider in the international eCommerce
marketplace, we are able to offer you global consultancy – complete with information
about local regulations, area customs, and cultural payment preferences. Merchant
funding is currently available in up to 14 currencies.

We can help your company to increase its international market share significantly by
enabling you to provide your customers and distributors with the ability to pay with their
preferred method and in their local currency by:

• International and local credit and • Cash and bill payments
debit cards • eWallets
• Direct debits • Prepaid methods
• Real-time bank transfers • Virtual bank accounts
• Bank transfers • Checks

GlobalCollect has been trusted by leading merchants in many verticals, including Travel,
Retail, Gaming, Software, Financial Services, Publishing, Streaming Media, Social
Networking, Ticketing, Direct Selling, Telecommunications, and Online Portals.


What is more, GlobalCollect has profound BRIC experience - including extensive
knowledge of local market requirements, customer payment preferences, and
repatriation issues - as well as the legal entities in place to help you tap into these
markets.
Headquartered in the Netherlands to serve the EMEA region, GlobalCollect also has
offices in North and Latin America, and the Asia Pacific region to consult clients interested
in targeting BRIC markets locally.

GlobalCollect EMEA GlobalCollect North America

Planetenweg 43-59 Three Embarcadero Center, Suite #2900
2132 HM Hoofddorp San Francisco, CA 94111
The Netherlands United States
tel: +31 (0) 23 567 1500 tel: +1 (415) 975 0969

info@globalcollect.com info@globalcollectusa.com

GlobalCollect APAC GlobalCollect Latin America
Avenida Alicia Moreau de Justo 846,
8 Temasek Boulevard 2nd Floor, Office 11
#21-04 Suntec Tower Three, 1107AAR Buenos Aires
038988, Singapore Argentina
tel: + (65) 6408 8222 tel: +54 (11) 5272 1189

info@globalcollectapac.com info@globalcollectlatam.com

Note: This document does not purport to be a complete statement of the approaches or steps, which may vary
according to individual factors and circumstances, necessary for a business to accomplish any particular business
goal. This document is provided for informational purposes only; its means are solely to provide helpful information to
the user. This document is not a recommendation of any particular approach and should not be relied upon to
address or solve any particular matter. Any data not explicitly sourced is based upon Innopay's analysis.


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