What U.S. E-commerce Leaders Can Learn from Developing Countries 

The global e-commerce market is dominated by China, followed by the U.S. Other countries, such as India, are not just catching up quickly, but even building their own payment systems. What are the lessons to learn from the developing world’s rapid growth? 

China is now generating almost 50 percent of the world’s online retail transactions. Valued at 2.29 trillion in 2020, with forecasts to reach 3.56 trillion by next year, the country’s e-commerce market is larger than the U.S., the UK, Japan, Germany, and France combined. India accounts for the largest number of real-time transactions in the world, around 49 billion, almost threefold of the closest challenger China. Here’s how they did it. 

Skipping steps to innovation

While the U.S. has long been building its payment infrastructure and investing in innovation, developing countries have skipped some steps and fast-tracked to the next level. China and India have had the advantage of adopting digital payments later than the Western world. 

Let’s take cell phones for example: the U.S. has gone through several iterations, starting in the late 1980s, from pagers and bulky cell phones to phones with colored LCD screens and flip phones; from the camera and multimedia phones to the ones we have today – large touchscreen smartphones with all features the consumer needs. 

There were also several rounds of upgrades in network technology – GSM, CDMA, EDGE, GPRS, MOBITEX, etc. All this took about 30-35 years with several cycles of innovation and investment in equipment and network building. 

That is the cost of early adoption. Developing countries have the advantage of learning from all this development and implementing the best solutions when the technology has already matured.

Something similar has happened with the payments system. The West has spent the last 40-50 years trying to perfect the credit-based card system. For example, American banks invested plenty of time and money into upgrading magnetic-striped cards with chips. 

India and China, however, leapfrogged the credit-based system to a large extent. They’ve enjoyed the perks of late adoption – lower capital costs and therefore lower inertia to groundbreaking innovation.

New hot digital tools and trends

E-commerce is relying on “card-not-present” payments. Instead of investing in cards with chips, developing countries integrated QR-code payments. The move has helped them both speed up e-commerce payments and make them more secure. 

Currently, American customers have to enter their credit card number, billing address, and security code to make an online purchase. In China and India, consumers don’t have to deal with this process. QR codes don’t require entering card details on a merchant’s website. Instead, they send information — the amount of the purchase and name of the seller — to the customer.

While the U.S. and Europe are just starting to use such technology, in China, where mobile payments account for more than 80% of all transactions, consumers prefer QR codes ahead of contactless payments.

While the full reopening of China’s economy after its strict anti-COVID regime is expected to boost e-commerce, leading banks in China introduced a new digital payment platform. The tool allows small and medium-sized enterprises to receive cross-border payments from overseas customers in a matter of minutes in six different currencies — Australian dollars, Canadian dollars, euros, British pounds, Singapore dollars, and U.S. dollars.

Super apps are another hot trend stimulating the market. They allow users to navigate smoothly, starting with being introduced to a product and then finally to pay for their purchases. That is one of the reasons why the live-streaming e-commerce market is growing rapidly in China. 

According to Coresight Research, nearly three-quarters of Chinese respondents said they had watched and bought items via live-shopping. Americans are not that excited about the new trend. Two-thirds of U.S. consumers said they had never watched a shopping live-stream.

Real-time payment systems

UPI (Unified Payments Interface) is now India’s most popular payment system, processing over 7 billion transactions monthly. Launched by a coalition of Indian retail banks, UPI facilitates interbank, consumer-to-consumer, and consumer-to-merchant payments. Users get a virtual payment address (VPA) linked to their bank account to send money to or from any other user.

UPI eliminated the need to know the other party’s banking details when sending or receiving money. There are no transaction fees, nor any lag time in the transaction. The money is debited and credited simultaneously, unlike the payment systems in the West that have too much friction and time delay in settling transactions. 

Thanks to these real-time payments, Indian businesses, and consumers saved roughly $12 billion, according to a report by ACI Worldwide. The system also introduced tougher security to minimize fraud: UPI users have a VPA, set their own PIN, and each account is associated with a mobile phone through an international mobile equipment identity (IMEI) number.  

Increasingly aware of the advantages of this emerging payment system, American corporations keep pouring investment into it. Walmart, for example, is preparing to spend over $2.5 billion in India. The company has recently invested in PhonePe, a leader in the mobile payments market that accounts for about 40% of all transactions on UPI. 

With more U.S. companies tapping into growing e-commerce markets in developing countries, innovation is likely to travel. So we might soon see how trends shaping e-commerce in China and India will arrive on American shores.

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(Featured image by Preis_King via Pixabay)

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