The shift to digital commerce has opened up new markets for companies across all verticals and sizes.
But reaching a broader range of consumers, accommodating their payment preferences, and satisfying regulatory and tax issues in unfamiliar territory introduces a host of new operational challenges for these companies.
“COVID has put pressure on brands to find solutions for their direct-to-consumer [D2C] strategy,” he said. “With so many retail stores closing, they need to be able to provide a way to sell D2C wherever those consumers are online.”
That shift has meant merchants must pivot from traditional retail partnerships that have relied on leveraging others’ expertise to build brick-and-mortar infrastructure-focused operations that would include back-end activities such as payments and fraud prevention.
As more brands embrace eCommerce, he added, joining online platforms solves only some of the challenges of international, cross-border efforts — namely, setting up digital storefronts and reaching consumers.
“But it’s still on you as a brand to figure out what payment methods you need, how to sell locally, how [General Data Protection Regulation (GDPR)] may apply, and how to manage taxes,” he said.
The complexities of striking up a local market presence — market by market, bank by bank — can quickly mount, maintained Schott, and result in missed sales, chargebacks, fines and penalties — and eventually, loss of reputation.
Shortening The Time To Commerce
Enlisting a merchant of record (MoR), he said, can be a form of “risk proxying” that ultimately reduces the “time to commerce.”
That’s especially urgent, he said, given the increased eCommerce Scalefast is seeing in corridors connecting firms and customers in North America and Europe, in Latin America and the Asia-Pacific (APAC) region. And everyone, he said, wants to crack the Chinese market.
He noted to PYMNTS that in drilling down into the MoR model across borders, the services rendered are actually spread through the MoR and the seller of record.
The MoR is the entity that is held financially liable by the financial institution, and as Schott explained, is ultimately liable for the transaction or any return on that transaction — and is also responsible (via the Mastercard and Visa card schemes) for acceptance and fraud rates. By way of further distinction, the seller of record is the entity that sells the product to the end consumer.
“That’s the entity that will bear the responsibility of anything that is tied to the relationship with the consumer — sales collection, filing and remedying taxes, the compliance with the local regulations, specifically commerce laws, and product return policies,” he said.
Retailers are entering new markets at a time when regulations are becoming more complex and costly, not less. The actual movement of goods across borders is gaining ever more scrutiny as any number of countries want to claim more tax payments to help fill coffers and offset the continued impact of the pandemic on their local economies.
With a nod toward the Scalefast model — via platform, and where the firm serves as the MoR for its brands and enterprise customers — “the way to do cross-border eCommerce is actually to look local and to have local operation where it makes sense, with local bank accounts. When you have local bank accounts, you can have local acquire, which will increase your acceptance rate,” Schott said.
In discussing the mechanics of the brand/Scalefast relationship, “It’s your data, it’s your customer,” he said of the merchant clients, “but it’s as simple as one single invoice every month to tell [the merchant] everything we sold. As the seller of record, we manage the filing, the collection and the remittance of taxes in every jurisdiction.”
He noted that Scalefast must ensure GDPR and Payment Card Industry Data Security Standard (PCI DSS) compliance (the firm has a dedicated team in place to handle attacks or chargebacks), without any action needed from the D2C firm itself. The cloud-native design of the platform, he added, allows rules governing transactions and acceptance parameters (or stepped-up authentication) to be changed in real time.
“The ultimate goal,” he told PYMNTS, “is the highest acceptance rate with the lowest fraud possible.”