This page provides considerations and materials for better understanding cross-border ecommerce sales channel payment methods and the issue of transaction fraud.
Last Published: 10/30/2018

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Are you looking for an ecommerce payment service provider? Check out our eCommerce Business Service Provider Directory Online Payments section to see who can help you with gateways, shopping carts, VAT tax, and even foreign exchange rates.

Credit cards are still the primary method of payment online by default - both domestically and internationally. However recent improvements in cybersecurity technology has seen wider use abroad of ewallets and consumer accounts in overseas markets due to the perception of increased risk of transaction fraud with online card payments through payment gateways. Preferences for payment method vary by country and geography-- such as in China where there are more people with mobile phones than active bank accounts-- so make sure to understand how and where purchases are being made in your target markets.

A payment gateway is a software application set up as a part of your website (ecommerce software platform) to enable customers and other businesses to complete transactions from your website, and is responsible for authorizing payments, processing payments, and securely delivering payments to accounts.  Payment gateways require merchant accounts, whereby the gateway authorizes the payment to the merchant account.

eCommerce Payment Gateway Versus Merchant Account

Merchant accounts and payment gateways are different services, but both are essential for ecommerce and are often bundled together. A merchant account is simply a bank account that allows you to accept payments from credit and debit cards. Merchant accounts temporarily hold the funds of the transaction within the merchant account (normally for a few days) until they are permanently transferred to your business’s bank account. A merchant account serves the same function in a brick-and-mortar store as it does online. Payment gateways are what allow credit and debit card payments to take place securely and rapidly over the Internet. Both a merchant account and a payment gateway are needed to make online payments

What about online international payment fraud-prevention?

Selling through cross-border ecommerce inherently raises your fraud risk. All payment gateways have data encryption, however some countries like Singapore require a second layer of data encryption software (ie: CVV2, 3D Secure) for all online transitions in order to prevent fraud.  It is important to go with a well-known payment gateway with a strong reputation for security, as overseas consumers need to feel their payments and transactions are secure.  

What e-payment types are there commonly acceptable in your target market?

Do your research and ask local partners or in-country consultants what payment methods are preferred so you can make sure your payment processing software accommodates your target market.  Before you enter into an agreement with any payment processor, it is important to understand how they handle payment disputes and fraudulent transactions in the target market.  

Are you ready to receive payment in the currency of the foreign buyer?

If you do decide to take payment in the local currency, keep in mind the potential for wild fluctuations in exchange rates, depending upon the market.  Also, some markets (eg: Asia Pacific) have high cross-border ecommerce transaction fee rates, so you need to make sure that your payment gateway is able to process these sort of transactions as well.  

Is a local legal entity required in your target market region for payment processing?

Some overseas markets have established that in order to complete financial transactions, or conduct business altogether, you must establish your company in-market.  This can be for multiple jurisdictional reasons, such as local tax revenue generation for example.  Avoid a rigid one-size-fits-all approach towards entering overseas markets, and be adaptable to rule changes in the future, as with local legal entities.  

If using an online marketplace, where do responsibilities begin and end with regards to tax payments on revenue generated in the overseas market?

An online marketplace is an attractive market-entry option, especially if you want to get visibility in a country without investing much time or money.  If using an online marketplace, make sure you either figure in the individual product VAT into the product sales price featured on the marketplace, or find out if the marketplace will take on the responsibility of collecting and remitting VAT.  Paying attention to details such as duties and taxes can and will have a serious effect on your brand if the consumer is inconvenienced while attempting to purchase from you.  


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