Cross-border e-commerce, which allows businesses to grow their operations from within Japan to customers living overseas, has attracted the attention of many Japanese companies. To develop sales channels through international online retail, it is imperative to have payment methods that meet the audience’s needs in the country where you are expanding.

In this article, we will focus on the payment aspect of cross-border e-commerce. We’ll also explain the key points to consider when developing this venture and points to be cautious about with transactions in international online retail.

What’s in this article?

• What is cross-border e-commerce?
  
• Payment methods used in cross-border e-commerce
  
• Main payment methods used in China and the United States
  
• Payment methods used in other parts of Asia
  
• Choosing a payment method or service for cross-border e-commerce
  
• Points to consider when making cross-border payments
  
• Keys to successful cross-border e-commerce
  

What is cross-border e-commerce?

Cross-border e-commerce refers to any online operation that sells products and services overseas. With recent improvements in communication technology and the spread of the internet and social networks, more and more people are interested in goods outside their own region, and the global sector is growing year by year.

When Japanese e-commerce businesses enter the market, they must not overlook the presence of customers in China and the United States. This is because the scale of cross-border e-commerce in these two countries is much larger than that of others. Furthermore, regarding China and the US, many shoppers in these regions purchase products from Japan through international online retail, which significantly impacts Japanese businesses’ worldwide efforts. Hence, these two areas are particularly significant.

Therefore, to attract Chinese and American customers to buy products through cross-border e-commerce, it is very important to provide flexible payment methods that allow locals to pay with confidence.

Payment methods used in cross-border ecommerce

First, let’s look at the different payment methods employed in cross-border e-commerce.

Credit card

Credit cards are relatively straightforward for shoppers to use and quite familiar. They are generally used in a variety of situations, including international online retail. Still, some providers might charge a processing fee if one pays with a credit card.

In addition, since there can be data protection concerns, businesses need to implement robust safeguards to ensure that customers can confidently make payments.

Debit card

When someone pays with a debit card, funds are deducted from the linked bank account at the time of purchase. Unlike credit cards, spending is limited to the account’s available balance, so customers won’t unknowingly overborrow. While not very common in Japan, debit is popular in other parts of the world, particularly in the US.

Third-party payment service providers

Through approaches using a third-party payment service provider (PSP), shoppers can select a preferred way to pay from various options without registering a credit card or bank account information on the retailer’s platform. In other words, customers can make payments without directly sharing personal data, fostering a high level of trust and strong protection.

Moreover, since payment agency services usually support many transaction types together with credit cards, a seller can rely on a PSP to enhance convenience and simplify the checkout process.

Electronic money

Electronic or digitised money is a widely adopted payment method in cross-border ecommerce. There are two forms: prepaid (where a customer loads funds onto a card in advance) and postpaid (where an account is linked to a financial institution or credit card and payment is made later).

In Japan, IC card tickets such as PASMO and ICOCA sometimes function as electronic money. They are also available at affiliated convenience stores, vending machines, and restaurants, making them highly convenient for everyday use.

Online banking

Bank transfers are commonly implemented for cross-border ecommerce transactions in Japan – mainly for high-value items. Transfers can be made through ATMs, banks, or apps and used for global retail. However, international processes can be time-consuming, errors can occur between banks, and handling fees can be expensive, making this approach less frequent.

Cash on delivery

Cash on delivery involves the buyer paying the seller directly upon delivering the goods. There’s no need to enter card information online, and payment is made face-to-face, perfect for those who, for various reasons, do not have or prefer not to use a credit card.

As discussed later, some countries prefer cash on delivery for cross-border e-commerce. Depending on where you are expanding into, it might be necessary to consider this payment method.

Main payment methods used in China and the United States

Both China and the US present opportunities for cross-border e-commerce businesses. Let’s explore the typical transaction options in these two regions.

China

In China, where global retail is thriving, Alipay and WeChat Pay are widely adopted third-party services. Additionally, the UnionPay card – a debit-based option supported by China’s leading brand – is prevalent as well.

As per the Japan External Trade Organization’s regional analysis report “China’s Cross-Border E-Commerce,” the usage rate of third-party payment services such as Alipay and WeChat Pay is 82.9%, while credit- and debit-based plastic from UnionPay accounts for 65.3%.

United States

Credit cards are a particularly prominent payment method for cross-border e-commerce in the US. Debit cards and third-party payment services such as PayPal are also popular. If you are considering entering the US cross-border e-commerce market, it might be wise to include credit card and PayPal as part of your checkout.

According to the Ministry of Economy, Trade and Industry’s “Market Survey on Electronic Commerce,” credit cards (55%), debit cards (25%), and PayPal (10%) are the top transaction options in the US.

Payment methods used in other parts of Asia

Below is a breakdown by location of commonly used payment methods in Asia beyond China:

• Malaysia: Visa/Mastercard, Touch ’n Go eWallet, Boost, FPX

• Philippines: GCash, Maya, cash on delivery, bank transfer

• Singapore: Visa/Mastercard, PayPal, GrabPay, AliPay

• South Korea: Visa/Mastercard, Kakao Pay, Naver Pay, Samsung Pay

• Taiwan: Visa/Mastercard, LINE Pay, JKOPay

• Thailand: Visa/Mastercard, PromptPay, TrueMoney, Rabbit LINE Pay, cash on delivery, bank transfer

Across these regions, digital transactions, including mobile payment, are becoming more widespread, and cash is becoming less common. These trends are driven by governments’ promotion and support of cashless options worldwide and efforts by banks and financial technology businesses to accelerate the digitisation of payments.

Still, certain places – like the Philippines and Thailand – see ongoing usage of physical currency (cash on delivery).

Choosing a payment method or service for cross-border e-commerce

Payment customs in the country or region you are expanding into

Cultural backgrounds and customs vary considerably across the globe. The same is true for payment methods, which can differ from country to country and, more broadly, from region to region. For example, Alipay and WeChat Pay are the most prominent in China, whereas credit cards and PayPal are overwhelmingly popular in the US, so it is key to understand local practices. By offering the right forms of payment where you plan to operate, you boost convenience and customer satisfaction, ultimately driving higher revenue.

Appropriate operational costs for your business

There are various costs associated with cross-border e-commerce, including, for instance, handling fees incurred for each transaction as determined by credit card issuers and PSPs. As businesses must pay handling fees and other charges, it is just as important to provide customers with a robust checkout system as choosing a PSP that allows the operation to run efficiently. In turn, merchants offering goods abroad need to consider the cost-saving yet effective solutions to remain profitable.

Thorough security measures

Security measures are also a fundamental issue in cross-border e-commerce that must not be forgotten. If information is leaked due to inadequate protection, it will cause great damage to both the buyer and seller, who will lose the public’s trust. Accordingly, businesses need to handle payment-related personal data carefully and protect their customers’ privacy. That said, don’t overlook the need to adopt 3D Secure 2 to prevent malicious credit card misuse, such as identity theft.

Points to consider when making cross-border payments

Several issues to be aware of in cross-border e-commerce differ from those when developing an online retail operation within Japan alone.

Diverse currencies and exchange rate fluctuations

The ability of overseas shoppers to purchase items with peace of mind is directly linked to increased shopper purchase motivation and confidence in the service. Thus, it is important for international online retail to support multiple currencies that vary from country to country so that customers can easily make payments from their own region.

Furthermore, shoppers need to be aware that when using cross-border e-commerce, there might be a currency conversion fee, and the price of products in local currency could increase due to exchange rate fluctuations.

Customs duties

Cross-border e-commerce might incur customs duties on imported and exported goods. Generally, the buyer is responsible for paying the duties. Because of this, businesses must fully grasp the tariffs that arise from cross-border e-commerce for their products and state information such as tariff rates and estimated tariff amounts so that customers can understand them when purchasing. In addition, it is necessary to set prices because tariffs and the exchange rate fluctuations mentioned above will be charged.

Consumption tax

Consumption tax is levied on items consumed in Japan, so there is no domestic levy for cross-border e-commerce. This is because these transactions are considered to be sales of products for use outside Japan and are, as a result, exempt from the tax. Consequently, it is paramount for online shops selling goods from Japan via international online retail to gain insight into the consumption tax in cross-border e-commerce, since they can reduce what they pay by following the appropriate procedures.

Keys to successful cross-border e-commerce

Cross-border e-commerce, which allows businesses to promote their products and services to the world, has excellent potential to increase overseas sales beyond Japan’s limited scope. For international online retail to be successful, a great deal of preparation is required. This includes not only market research and analysis of local needs but also being able to handle the transactions of each region you are selling to.

For this reason, along with offering major payment methods in countries with active cross-border e-commerce markets, such as Alipay and PayPal, creating a checkout environment that enables customers to shop confidently is key.

Stripe offers many tools and features that support transaction processing efficiencies, including multiple payment methods, data processing, and revenue management. For example, if you’re a business considering entering the cross-border e-commerce market, you can introduce Stripe Payments, which provides flexible support for online payments, to set up a suitable checkout environment without developing your system.