Managing Payment Transaction Costs at Multinational Online Retailers

Abstract

Providing cost- and credit-efficient payment services to customers in e-commerce is a critical success factor for retailer competitiveness. However, country-specific payment provision strategies for internationally operating retailers are difficult to pinpoint, as existing research on the economics of payment instruments mostly focuses on transactions within one country, neglect electronic payment instruments due to data limitations, or base cost estimations on aggregated statistics or survey data. This article copes with these challenges by using a unique transaction-level data set with more than 29.1 million actual sales transactions, and examines how retailer transaction costs of online payment instruments invoice, credit card, PayPal, and prepayment differ across 14 European countries. Therein, this study identifies transaction cost differences due to country-specific pricing of payment services. Moreover, empirical results reveal that culture difference accounts for variation in customer payment timing and hence, affects retailer transaction costs when offering payment services in e-commerce. The presented research results allow retailers to holistically evaluate the efficiency of their current payment portfolio, and in developing country-specific payment provision strategies in order to reduce transaction costs and working capital requirements.