Ecommerce may have a greater impact on economic growth than physical goods in the post-industrial world, according to a new report published in December 2016 by McKinsey Global Institute. Digital globalization: The new era of global flows found developing countries are using ecommerce platforms to participate in the international business community.
"Tens of millions of small and midsize enterprises worldwide have turned themselves into exporters by joining e-commerce marketplaces such as Alibaba, Amazon, eBay, Flipkart, and Rakuten," MGI researchers wrote. "Approximately 12 percent of the global goods trade is conducted via international e-commerce."
MGI analysts expect digital information flows to grow an additional nine times over the next five years in response to increasing movement of goods, services, finance and people. The global economy has a digital component for every type of cross-border transaction, they stated.
MGI research additionally found private individuals use connected devices to manage personal and professional networks. "Some 900 million people have international connections on social media, and 360 million take part in cross-border e-commerce," the authors wrote. "Digital platforms for both traditional employment and freelance assignments are beginning to create a more global labor market."
Hyper-connected global citizens represent an important new demographic segment in financial services, noted Mike Massaro, Chief Executive Officer at Flywire, a cross-border payment service provider.
"This fast-growing segment does not consider borders in terms of lifestyle, access or travel and is spending more than ever on goods and services outside of their home countries – on education for their children, medical care for themselves and their family members, real estate, luxury items and other offerings that bring diversity and culture to their life experience," he said. "We'll see this demographic continue to grow in 2017 and beyond and flex their spending power in new ways."
MGI's analysis attributes a 10.1 percent increase in global gross domestic product to cross-border data flows that expose economies to ideas, research and talent, a value worth $7.8 trillion in 2014, researchers stated. The MGI Connectedness Index indicated it ranked 139 countries on their use of digital channels to manage "inflows and outflows of goods, services, finance, people, and data." Singapore received the highest ranking, followed by the Netherlands, the United States and Germany.
The rise of cross-border payments has broadened the international marketplace and made it easier for consumers to pay in local currencies, using familiar options such as bank transfers, online banking, credit and debit cards, payments analysts stated. This has placed additional pressure on international payment service providers to adopt digital payment schemes.
"Payment speed and convenience aren't the only drivers for global citizens," Massaro said. "Their top priority is ensuring the payment gets to the institution on the other end. The certainty of funds is also critical to the receiving institution – assurance that the amount owed is the amount received, along with the data that goes with it to reconcile their own ledgers."
Cross-border transactions are typically complex and challenging for merchants, and consumers and businesses must take steps to reduce friction while making payments safe, convenient and cost-effective, Massaro stated. Increased levels of fraud reported in 2016 prompted many institutions to protect their customers by restricting access to trusted service providers and educating customers to conduct transactions solely through these channels.
"Both payors and payees are looking for protection against fraud and assurances of compliance with any international regulations," Massaro added. "And with governments' increased focus on cutting off financing sources to potential terrorists, any entity processing large, cross-border payments will need to have secure systems in place to verify sources and recipients, ensure strict compliance with anti-money-laundering laws and provide detailed transaction reporting."
The increase in high-ticket transactions across disparate cultures, languages and time zones will place additional pressure on business owners to provide continuous support to their international clientele, Massaro predicted.
"Schools, hospitals, tax agencies and others are not necessarily equipped to be in that business," he said. "Any entity accepting large, cross-border payments in any volume will need to be able to provide ancillary support services related to those payments – in-house or via qualified third parties – and 24/7 customer support will become a minimum requirement."
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