Using Social Impact Bonds to Turbocharge Ecommerce Development
This article first appeared in GE Reports. See our paper presented at Tech4Trade in Bangkok.
By Kati Suominen
Ecommerce has emerged as a powerful driver of economic growth, inclusive trade and job-creation worldwide. Yet while research shows ecommerce dramatically increases the odds for small businesses to stay in business, export and grow, most businesses around the world have yet to use these tools of 21st century trade — especially in developing countries. A new initiative, the Global Fund for Ecommerce, could play a critical role in bringing developing country entrepreneurs into the digital era.
As global trade digitizes, the thorniest challenge remains the scant adoption and use of ecommerce capabilities and online payment tools, particularly in the developing world. Only 9 percent of small companies and 16 percent of midsize companies in low-income countries sell online, according to the World Bank, while adoption is only 35 percent for midsize companies in upper-middle income countries. Even fewer merchants have adopted online payments required for transacting with overseas shoppers, with a recent MasterCard study of four advanced and emerging economies showing that while 90 percent of merchants had a website, only 20 percent were set up to accept payments online.
Of course, some of the low adoption is due to macro factors, such as expensive broadband connectivity. Yet research shows that the main elements obstructing companies from leveraging ecommerce are their lack of e-skills and ecommerce capabilities, such as marketing abroad. The main reason for merchants’ sparse adoption of online payments is not — as usually believed — low consumer adoption, but the perceived cost of online payments and lack of ability to set up online payment systems.
What merchants in developing countries need is greater awareness of why — and how — to adopt ecommerce. Trade capacity-building needs an upgrade for the digital era. In addition to standard trade issues such as meeting foreign product standards, participation in cross-border ecommerce requires merchants to have a range of new capabilities, such as:
Identifying best-fit foreign markets and customers in the cyberspace
Marketing via social media and geotargeted ads
Leveraging plug-ins for tasks such as data analytics on customers
Creating a multichannel shopper strategy
Using online payment systems used by overseas customers
Partnering with foreign ecommerce platforms
Calculating the total cost of delivery
Understand ecommerce fulfillment process
Governments, merchants and ecommerce companies all share an interest in expanding merchants’ use of ecommerce. Yet trade capacity-building as we know it won’t suffice. Public sector support tends to be ad hoc, and export promotion agencies are unlikely to have the best technical knowhow. The best trainers of merchants are either other merchants who have used ecommerce successfully, or ecommerce platforms like eBay or payment platforms like PayPal that have not only the right expertise — but also a keen corporate interest cultivating new ecommerce users. However, they are as yet not organized to systematically train merchants.
The best way boost ecommerce adoption rates around the world would be a Global Fund for Ecommerce, a public-private partnership that could incentivize ecommerce platforms, payment providers and other commerce companies to train merchants in developing countries on ways to apply ecommerce and the associated technologies. The Fund fuels the new Aid for eTrade initiative I’m launching with the United Nations.
Through the initiative, developing country governments and industry associations would systematically identify groups of merchants that want to learn to leverage ecommerce and understand their specific needs. The fund would respond by creating a custom capacity-building program with the right team of trainers.
Providing capacity-building is not new to platforms. An excellent example is the capacity-building project that B2B ecommerce platform TradeKey launched with support from the Deauville Partnership, World Bank and International Trade Center to help merchants in Tunisia, Morocco and Jordan to reach international buyers. eBay’s Seller Center helps guide aspiring eBay sellers, while eBay University offers low-cost personal instructors in U.S. and Canada for companies to learn to sell online — an approach that could work worldwide.
A particularly useful business model for the Global Fund for Ecommerce is a social impact bond, whereby private foundations and social impact investors make the initial investment and get compensated by donor governments and development agencies if certain metrics are hit. This model incentivizes private investors to invest in high-impact projects to support ecommerce development — and upon success, secure both financial and social return.
This model ensures iterative improvement. All parties have an interest in analyzing each project’s impact rigorously, and improving the next time. Everyone wins: merchants get more sales, governments get more exports, investors get a return, donors get impact, and ecommerce platforms get more clients in hard-to-reach markets.
Naysayers may say that ecommerce companies would provide training without outside subsidies to get more clients. This however has not happened even in big markets — some nudge, organization and seed funding are required for ecommerce capacity-building to take off.
Ecommerce and online payments are historic tools of trade and development: they enable entrepreneurs to get into business and access world markets at a lower cost than ever before. Yet for business owners not steeped in technology, these tools can initially be intimidating. Until now, there hasn’t been a coherent vision on ways to take merchants to the ecommerce era. A Global Fund for Ecommerce would be a key way toward that goal.