Direct Selling White Paper

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Table of Contents
1 2 Executive Summary ........................................................................................................................................ 3 Market Overview ............................................................................................................................................ 4 2.1 2.2 2.3 2.4 2.5 3 What is Direct Selling? ............................................................................................................................ 4 Different flavors of Direct Selling ........................................................................................................... 4 A global, highly regulated industry ...................................................................................................... 5 Market Penetration and Sales Revenues ............................................................................................ 6 Product Mix .............................................................................................................................................. 7

Industry Developments and Trends ............................................................................................................. 7 3.1 3.2 3.3 3.4 3.5 3.6 History of the Industry.............................................................................................................................. 7 Making money in Direct Selling............................................................................................................. 7 Demographic of typical direct selling distributor............................................................................... 9 The move from offline to e-Commerce .............................................................................................. 9 The power of auto-ship..................................................................................................................... 11 Fraud Management .............................................................................................................................11

Opportunities and Challenges ................................................................................................................... 12 4.1 4.2 Opportunities ......................................................................................................................................... 12 Challenges ............................................................................................................................................. 12

GlobalCollect value proposition................................................................................................................ 13 5.1 5.2 5.3 5.4 5.5 Distributor retention and increased sales through online ordering ............................................... 14 Streamlining the repeat check-out process ..................................................................................... 15 Increasing variety of payment methods while cutting costs ......................................................... 15 Expanding horizons through centralization....................................................................................... 16 Paying commissions ..............................................................................................................................16

6 7

Conclusions and Summary ......................................................................................................................... 17 About GlobalCollect ................................................................................................................................... 18

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Executive Summary

The dawn of the modern era of direct selling began in 1886 when David McConnell, an unknown 28 year old sales man, founded what would become Avon Products Inc, today the largest direct sales company in the world with revenues in excess of $11B in 2008. In the grand tradition of some of the earliest direct selling companies, McConnell sold books door-to-door, giving out perfume to entice women to buy his books. His perfume became so popular that he eventually dispensed with the books and formed the California Perfume Company in New York City, the forerunner to todays Avon. The rest is history. The objective of this white paper is to provide an overview of the direct selling industry and to discuss some of the challenges and opportunities that direct selling companies face in terms of international expansion and optimization of their online e-commerce payments strategy. In the current global economic climate, direct selling is perhaps positioned better than most other industries to not only withstand the decline in consumer spending brought on by the worldwide recession, but in fact to flourish. In tough economic times, many direct selling companies typically see a surge in the number of new independent business owners coming into the industry, as first-time entrepreneurs look to build a perpetual, secondary income where they can control the number of hours they devote to their business and are not answerable to an employer per se. As we enter a new decade, trends in the industry show that while average distributor/consumer spending on a monthly basis in 2009 was down in comparison to 2008 numbers, recruiting (i.e. new people coming into the business) has increased significantly for many companies. Some distributors, rather than canceling their monthly auto-ship product purchases and abandoning their part time business during a time of economic uncertainty, are working closely with their direct selling companies to put in place new sales and marketing strategies designed to retain distributor numbers and optimize sales. Strategies like every other month auto-ship, the industry term used to describe recurring product shipments to distributors, and additional commission incentives for recruiting are enabling companies to hold their own and in fact increase sales in some markets. While all this is going on, new direct selling companies are launching every month. While direct selling, like many other industries, is going through a period of challenges and some uncertainty, the future looks extremely bright. Even though sales are flat for many direct selling companies in their domestic markets, the same companies are experiencing double digit growth internationally. This document will highlight the state of the industry today, discuss how direct selling as a business model has evolved over time, address the challenges and opportunities facing direct selling companies in the 21st century and present solutions on how GlobalCollect can help direct selling companies to define, implement and execute international payment processing best practice.

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2
2.1

Market Overview
What is Direct Selling?

Direct selling can best be described as the marketing and sale of products and services directly to consumers in a face-to-face manner, generally in a persons home, workplace, or other locations that are not considered to be conventional bricks and mortar retail locations. Direct sales typically occur through explanation or a personal demonstration by an independent direct sales consultant. These product demonstrations, and the broader direct selling business opportunity, are generally carried out in a consultants home or at a company hosted opportunity meeting. These sales people are commonly referred to as direct sellers, distributors, consultants, representatives, or IBOs (independent business owners). Direct sellers are independent sales people who operate their own business. They are not employees and instead enter into a legally binding distributor type contract with the company. Independent business owners have an opportunity to earn profits from the sale of these products and from the sales generated by other distributors that they bring into the business. Typically, the cost for an individual to start an independent direct selling business is low. Usually a moderately priced sales kit is required to get going, with no cash commitments and very little or no inventory requirements. Entry to the industry is not restricted by age, gender, education, monetary situation or previous sales experience and the success of an individuals direct selling business is largely driven by personal commitment, attitude and ones drive to succeed.

2.2

Different flavors of Direct Selling

An important component of the direct selling model is the concept of multi-level marketing (MLM). Other labels include network marketing or relationship marketing. It has proven to be a highly successful and effective method of distributing products and services directly to consumers, while at the same time compensating independent salespeople or distributors. It is important to point out that compensation in a legitimate direct selling company which utilizes a multi-level approach is derived primarily from the sale of goods and services to consumers and not from the mere act of recruiting new people into the business. Distributors sell these products to their personal network at an accepted market price, with a big emphasis on customer service. For many years, the multi-level method of compensation has been given a bad name because of the existence of a number of high profile fraudulent schemes that claimed to offer a legitimate multilevel opportunity. In reality, they were simply recruiting schemes in which people had to make substantial monetary investments in order to participate and where the focus was on recruiting people and not selling a product. These schemes are commonly referred to as pyramids or ponzi schemes and should not be confused with legitimate multi level opportunities. Another business model that has proven to be very successful under the broader umbrella of direct selling is that of party plan, where meetings are hosted in a persons home, products are demonstrated and sales made. Some of the biggest direct selling companies in the world are largely party plan focused.

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2.3

A global, highly regulated industry

Direct Selling as a business model became the subject of much debate a generation ago, the controversy due in no small part to the prevalence of some of the previously mentioned fraudulent schemes. In addition, a lot of disinformation and rumor propagated the idea that all direct selling companies were illegal pyramids. To maintain and protect the integrity of the industry, it began to self-regulate by adopting a standard set of Codes of Conduct. These codes are guidelines for doing business and ethical standards that all direct selling companies agree to adhere to before being officially recognized in the industry. The Code concerns the relations between direct selling companies and direct sellers on the one hand and consumers on the other hand. Codes may slightly differ per country, but at their core the codes are aimed at: ensuring the satisfaction and protection of consumers, the promotion of fair competition in the framework of free enterprise, and the enhancement of the public image of direct selling, which is to sell quality products on fair terms and conditions to consumers.

Almost every country has its own Direct Selling Association (DSA), typically founded by the largest direct selling companies in that particular country. The purpose of the DSA is to represent the interests of legitimate direct selling companies and to ensure that the Codes of Conduct are applied throughout the industry. The DSA of the United States of America celebrates the100th anniversary of its founding in 2010. Most DSAs are affiliated to the World Federation of Direct Selling Associations (WFDSA), an organization formed in 1978 to oversee the application of the standards already mentioned and to provide a structural framework with which individual local country DSA organizations could affiliate. DSE (Direct Selling Europe) was founded in 2007 to represent the interests of European direct selling companies. Asia does not have an international body in which local associations reside. Some of the more influential DSAs in Asia are located in Japan and Singapore.

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2.4

Market Penetration and Sales Revenues:

Direct Selling is a global phenomenon. Fifty seven national/ ountry DSAs, representing more than 62 million independent distributors or sales people, are plugged into a global network, servicing every market in the world. Figure 1: Worldwide Sales The direct selling industry generated US$114 billion in global sales in 2007. In the ten years between 1998 and 2007, global retail direct sales grew by 40%, (Figure 1)

Asia leads with US$37 billion in product sales (30 million salespeople), followed by North America at US$32 billion (16 million salespeople), Europe, Africa and the Middle East at US$27billion (9 million salespeople), Central America, South America and the Caribbean at US$17 billion (7 million salespeople) and Australia and Pacific Rim at US$1.4 billion (0.7 million salespeople)

In terms of location, eight of the top 12 largest direct selling companies in the world (based on annual revenues in 2008) were headquartered in the United States. Avon Products Inc (New York) and Amway Corporation (Michigan) are by far the two largest direct selling companies worldwide with revenues at US$10.7 billion and US$8.2 billion respectively. Vorwerk & Co of Germany, Natura Cosmeticos of Brazil, Oriflame of Luxembourg and Pola of Japan are placed at positions 3, 8, 9 and 12 on the top twelve list. In terms of longevity, the youngest company on the top twelve list is Nu Skin Enterprises (at number 11), which commenced business in 1984. See Figure 2 for company revenues. Figure 2: Top Twelve List Company Name Avon Products Inc Amway Corporation Vorwerk & Co KG Mary Kay Inc Herbalife Primerica Financial Services Tupperware Brands Natura Cosmeticos SA Oriflame Cosmetics Forever Living Products Nu Skin Enterprises Inc Pola
Source: www.directsellingnews.com

Year Established 1886 1959 1883 1963 1980 1977 1951 1969 1967 1978 1984 1929

2008 Revenues $USD 10.7B 8.2B 3.4B 2.6B 2.4B 2.2B 2.2B 1.9B 1.9B 1.7B 1.2B 1.1B

Japan has the worlds second largest concentration of direct selling companies. Thirteen of the top 65 in the world, with annual revenues in excess of US$100 million, are headquartered in Japan. While direct selling is a global phenomenon, some of the greatest expansion in the industry in recent years has occurred in Japan and the wider South East Asian region in countries like Taiwan, Philippines, Thailand, Singapore, Korea and Indonesia.
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2.5

Product Mix

In terms of the cross section of product types that are most popular within direct selling, 80% of the entire sales volume can be divided into three main categories, namely: Clothing, Accessories & Personal Care Home & Family Wellness

The wellness industry is a broad term that is used to describe everything from nutritional products, drinks, gels and supplements to vitamins, weight management products and antioxidants.

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3.1

Industry Developments and Trends

History of the Industry

Direct Selling has been with us for thousands of years - a method of doing business that has evolved in time from traditional barter and street market vendors to door-to-door salesmen and home parties. The modern direct selling industry, which for years included just a few mainstays such as books, household and kitchen appliances, and cosmetics, now encompasses an enormous variety of products. The last 30 years has seen the emergence of a new sub category of direct selling companies that concentrate on the health, wellness, nutritional and weight management market segments. Companies like Forever Living Products, NSA Juice Plus and Herbalife have blazed a trail in this sector, paving the way for the emergence of the Juice companies in the past 10-15 years. Marketing the benefits of natural ingredients, the growth of companies like MonaVie, Tahitian Noni, Agel, XanGo, Usana and Melaleuca has exploded in recent years, with many of these companies now in the $500M-$1B revenue range. Other companies like Nu Skin, Neways, LRWorld and Trivani International have successfully built their brand around a combination of nutritional and wellness products and a personal care range. Nu Skin, for example, has over 200 separate products in their portfolio. For most of its history, the direct selling industry relied on a combination of door-to-door sales and inhome party plan get-togethers. Indeed, many of the giants of the industry, including companies like Avon Products Inc, Amway Corporation, Tupperware Brands and Mary Kay built large retail empires based primarily on party plan demonstrations and home sales methods. Today, at the beginning of the 21st century, the customer still benefits from a personal and convenient way of purchasing products. At the same time, the internet has become an important part of the growth strategy of direct selling companies. Direct sellers can build a multinational customer base through a combination of effective marketing, social networking and a state of the art online payment processing engine.

3.2

Making money in Direct Selling

The products sold by direct sellers or distributors covers a broad spectrum of market segments that include cosmetics and skin care products, laundry and personal care items, household specialties, household cleaning products, food, nutrition and wellness drinks and gels, toys, books and educational products, telecommunications and VOIP, clothing, jewelry and fashion accessories, software, FX and currency trading, energy and financial services.

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Within the direct selling industry, distributors can earn income in multiple ways. With the advances in technology and software in the past twenty years, direct selling companies have moved away from the historical direct distributor compensation model and are implementing a variety of increasingly more complicated and diverse compensation plans. Companies assign what is termed in the industry as BV (business volume) to specific products on which commissions are paid. Firstly, distributors can earn a percentage of the profit earned on products that they sell directly to their personal customer base. This may include family members, close friends and co-workers. Additional income can be earned when certain volume thresholds are met. This is often achieved through the power of compounded selling, which leads us to income generator number two. A big factor that can contribute to the rapid growth of an individuals business is the act of recruiting new people. A distributor can recruit or sponsor (and mentor on an ongoing basis) other people into the business. A new person that is sponsored into the business by a distributor will contribute to that distributors overall BV or sales volume. The more volume a distributor and his/her down-line generates, the more income can be earned. Periodic bonuses and other non-monetary rewards like free trips and cars are also used to incentivize distributors to build a strong, deep down-line organization. Recognition within the company is another strong motivating factor in how quickly distributors will build their business.

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3.3

Demographic of typical direct selling distributor

Perhaps surprisingly, over 80% of all direct sellers are women. Direct selling is a female friendly industry that creates unique opportunities for women to gain greater economic independence. The advent of the home party plan in the 1950s and 60s, a phenomenon driven by companies like Avon, Tupperware, Oriflame and Mary Kay added a new dimension to direct selling, one which is a natural fit for stay at home mothers or part time entrepreneurs. Almost 60% of all direct selling professionals fall in to the 35-54 age category, with over 70% of all sales being done in the home. Many direct selling companies have embraced 21st century media tools like social networking and viral marketing to introduce the direct selling business to brand new market segments that have heretofore been largely ignored. Demographic groups like the under 25s, people of color and minorities are a largely untapped reservoir of potential new customers. Many leading direct selling companies use social networks like Facebook, MySpace and Twitter to disseminate information like corporate announcements and photographs. This kind of media is also a very inexpensive way to publish recorded webinars and conference calls to both existing and potential distributors. Distributors can leverage the power of the internet to grow their business by using resources like DirectSellingLive.com and other content driven websites.

3.4

The move from offline to e-Commerce

With the success of e-commerce, many direct selling companies have embraced the internet to bring their products to a larger group of people. Revenue generated through online sales can typically be categorized in three different ways, distinguished by an increased level of access: ordering products online for distributors, ordering products online for the general public through a distributor, ordering products online for the general public.

Outlined below are a few examples of companies offering different favors within the online environment. It should be noted that policies for a certain brand may differ per region or country.

3.4.1

Ordering products online for distributors

The growth of the direct selling industry has been built on personal interaction between the distributor and his or her prospects or customers. Distributors hold meetings in their homes and businesses, communicating and demonstrating the benefits of a particular product or service to a group of potential consumers. In times gone by, consumers would then complete an order form and present it to the distributor. (In many companies, especially ones that have been in business for many years and who operate a party plan sales model, this continues to be very popular - generating some unique challenges for these companies as they move the offline business online). Historically, these orders were mailed to a customer service center where the order information was manually keyed into back office order management systems. The product was shipped to the consumer, who then paid by COD or check. With the advent of the internet and the concept of a safe, secure and efficient online shopping cart and payment process, direct selling companies (especially the older, well established corporations) have had to adjust their payment collection strategy rapidly to make the product ordering experience for the distributor as straightforward and streamlined as possible. Each distributor is supplied with a unique User Name and Password. The distributors access a designated section of the companys corporate web site and - after logging in with their user name and password - have full access to an extensive suite of office applications and sales tools to help them manage
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and administer their business. Once distributors have logged on to the corporate back office, they have the ability to enter order information on behalf of their customers. This information is routed to a central order management system from where the transactions are ultimately sent to an online payment service provider such as GlobalCollect.

3.4.2

Ordering products online for the general public through a distributor

As Direct Selling companies look for new strategies to expand their distributor base and to increase their sales, many have turned to the web. There is a continuing struggle however between the different channels of distribution. Companies traditionally depend on distributors to promote and sell their products - it was therefore important to find ways to sell directly to consumers without compromising the network. Companies such as PartyLite, Mary Kay and Jafra have found the solution by combining the best of both worlds. Entering the websites of these companies is only possible by providing a consultants credentials. After doing so, the shopping environment becomes available and the commission for items bought is credited to the relevant consultant. If an IBO is unknown to the consumer, a referral can be chosen by searching for a distributor contact in the consumers geographical area. Selling online to the public in this way still doesnt necessarily mean that payment is also accepted online. In some cases the consumer fills out the order form or puts items in a shopping basket. After confirmation of the order, they will be contacted by the consultant by telephone or email to complete the order offline. Thecompletion of these orders is based on the traditional procedures that have been in place for decades at many companies. In nearly all cases, distributors will be able to recruit new members electronically and generate commissions through online sales offered on the site or via links. The advantages of such a set-up are clear: it allows the company to create web sites that purvey products more efficiently, it helps distributors generate commissions and it helps to recruit new consumers that may otherwise not be reached.

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3.4.3

Ordering products online for the general public

In an effort to maximize online profit fully, some direct selling companies have chosen to launch a fully enabled e-commerce shop, open to the general public. However, this is more the exception than the rule in the industry. Even though the entry of a consultants credentials is encouraged throughout the shopping process, it is possible to order products without doing so. In some cases, the company will charge consumers a premium if they buy its products online without being referred by a distributor. This is seen as a good way to boost distributor commissions, however, it may limit the potential of internet sales and companies should consider the drawbacks that inevitably arise due to channel conflict.

3.5

The power of auto-ship

Many direct selling companies operate a recurring billing model, often referred to in the industry as auto-ship. When the company signs up a new distributor, he/she will be asked to commit to a minimum monthly product purchase in many cases. This concept of auto-ship ensures a strong recurring revenue model for the direct selling company while at the same time ensuring that the distributor is not being forced to invest a lot of money in inventory. In our experience at GlobalCollect, the average transaction value for a typical auto-ship transaction ranges between US$100-US$200. At some companies, it is not uncommon for auto-ship related revenue to account for 70%-80% of all monthly sales.

3.6

Fraud Management

In an industry where one might think that fraud would be an issue, in fact the opposite is very often the case. Direct selling is one of the most tightly regulated industries in the world. Specifically because some direct selling companies were historically viewed by many as get rich quickly schemes, the industry began to self regulate in conjunction with national and international legislation that has become the law in dozens of countries. When distributors sign up, they enter into a legally binding contractual agreement with the direct selling company. Direct selling companies place a big emphasis on developing as much of a personal relationship as possible with each distributor. This is done through a combination of corporate support and ongoing coaching that is provided by the leaders in the down-line organization. The leaders attempt to create and sustain a family style environment with a strong team spirit. Doing so ensures to a large degree the ongoing loyalty of the distributor to the business, which is reflected in him/her being a regular auto-ship recipient and ambassador for the company. This loyalty also ensures that - unless the company does a very poor job at customer service - the distributor is extremely unlikely to initiate a charge back on a transaction.

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4
4.1

Opportunities and Challenges

Opportunities

At a time when many industries are struggling, the direct selling business continues to hold its own and in fact is expanding in many markets, especially in Asia and Latin America. The GlobalCollect value proposition brings tremendous benefits to direct selling companies in a number of key areas: Low Technical Complexity: The larger direct selling companies, especially ones that have grown rapidly in the past five to 10 years; have tended to adopt a country by country approach to implementing payment processing solutions. This has placed a significant technical and administrative burden on companies to manage and maintain multiple relationships in multiple countries. GlobalCollect opens the door to international payment processing through one technical and administrative interface to its payment platform. Merchant integration with individual banks and alternative payment providers is not required everything is taken care of by GlobalCollect. One Stop Shop: GlobalCollect is a full service provider. What this means is that we are a one stop shop for credit card acquiring, gateway processing, alternative (non card based) payment methods, integrated fraud prevention, matching and reconciliation, online and offline reporting and funds remittance, all under one roof. Bank Independent: GlobalCollect is bank independent. We have relationships with more than a dozen of the largest credit card acquiring banks in the world. This is very important to merchants in terms of redundancy, diversification of risk and achieving the best possible buy rates by country or region. Support for Non Card Based Payment Methods: Direct selling is very popular in countries where credit card adoption is a lot lower than in say, North America. The reasons for this are both cultural and economic. In Mexico and some of the South East Asian countries for example, many distributors do not have access to a credit card and are very comfortable using cash based payment methods, whether that be COD, Western Union or bank transfer. In northern and central Europe, alternative payment methods like direct debits (ACH) and online real time bank transfers are extremely popular. GlobalCollects portfolio of alternative payment methods across the world gives direct selling companies a competitive edge in the marketplace. By offering distributors the three or four most popular payment methods in each county, a company is communicating to its distributor base that it understands their unique payment culture and has incorporated payment preferences into its e-commerce payments strategy. This helps greatly with distributor satisfaction and retention. Proven Track Record: GlobalCollect has been in business for more than 15 years, since the dawn of e-commerce. We understand the payments landscape on a global basis. GlobalCollect processes for well known local and Fortune 500 companies alike in the world, supporting its international customer base from four strategically located offices: headquartered in the Netherlands to serve the EMEA region, GlobalCollect also has offices in North and Latin America, and the Asia Pacific region.

4.2

Challenges

International expansion brings with it a unique set of new challenges, many of which direct selling companies may be encountering for the very first time. It can be quite tempting to adopt a well figure it out ourselves approach to handling these challenges, however, this strategy can prove to be time consuming, frustrating and very expensive. Our recommendation is: do not try to reinvent the wheel. Work with experts who understand the international e-commerce landscape and local payment preferences. In terms of payment processing best practice, the most common challenges
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facing direct selling companies include the following: Local Entity Requirements: International credit card scheme rules dictate that a company must have established a local corporate entity in either the country or region that they wish to carry on business. For example, a company must have a European entity in place in order to be able to process Visa and MasterCard transactions in Europe. Similar rules apply in other regions of the world. Credit card acquiring banks will request proof of this entity when underwriting a merchants application. The definition of entity varies slightly from bank to bank. For smaller direct selling companies that are looking to expand internationally for the first time, local entity rules can be confusing. GlobalCollect understands these rules on an individual bank by bank basis. No MLM Policy: Some acquiring banks have taken the position that they will not process for direct selling companies. The reasons offered by these banks are a combination of a perceived reputational risk in working with a direct selling company and/or their uneasiness with the business model. GlobalCollect is bank independent. This enables us to provide direct selling companies with a far wider selection of potential banking partners than any other processor. Understanding Local Payment Cultures: The international payments landscape is diverse and complicated. There is a demonstrated correlation between the number of localized payment methods offered and increased conversion and retention rates. Some direct selling companies have made the mistake of not properly researching preferred local payment cultures. This has often resulted in a significant loss in potential revenue and - perhaps more importantly - communicates a message to distributors that your company isnt serious about the market. Listen to your distributors about what payment options are most popular and perhaps even unique to their country or region. GlobalCollect has gained extensive knowledge of localized payment methods over the years and can advise your company on best practice.

Decentralization and Outsourcing: Some direct selling organizations have expanded by establishing local entities, which work completely independent from the parent organization. In some cases, the brand name and products are outsourced to companies which are not connected to the parent organization. This business model was sometimes necessary for the purpose of logistics and education of local distributors. With the rise of the internet and the ability to perform local trade from a centralized location, direct selling companies are struggling to combine these local entities under one common platform. GlobalCollect can help in this regard.

GlobalCollect Value Proposition

The success of any direct selling organization is, inevitably, related to the results of its distributors. A well established strategy built around recruiting and retaining distributors and customers is key to the success of any company in this industry. Making distributors feel part of a flourishing business, increasing brand awareness, creating new opportunities through product innovation, and distributor training are all crucial aspects. As part of this strategy, it is imperative to make it easy for distributors to do business with a direct selling company. Buying products and receiving commissions are the core activities that link the company to the sales ambassadors on a day-to-day basis. More than in any other industry, an efficient flow of funds is vital to keep the business going. The more the internet sales channel increases in importance and products become available to a wider public, the more a well established payment strategy will help these companies retain
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distributors and customers, increase revenues, and cut costs. A direct selling company can turn its payments cost center into a revenue-generating department with the help of an experienced payment service provider, i.e. GlobalCollect.

5.1

Distributor retention and increased sales through online ordering

Many direct selling companies have embraced the internet to help distributors manage their business. An online shop offers efficiency in finding and buying products and enables a much faster turn-around time to deliver the goods, thus increasing sales. With this new-commerce ability, a vast array of opportunities has arisen for direct selling companies. The introduction of online ordering also gives access to an entire new range of payment options. Accordingly, a direct selling company can increase its international market share significantly by providing their distributors and customers with the ability to pay in their preferred local currency and payment method. The ease of payment is what will make your distributor return to the online portal, moving away from the often cumbersome and inefficient mail or telephone order processes that are traditionally in place. There is a vast choice of payment options: apart from standard international credit cards (Visa, MasterCard, AMEX, Diners Club International, JCB), you will find domestic (national) cards (like Maestro UK, CartaSi Italy, Discover US), direct debits (like ELV in Germany), wire transfers, real-time wire transfers (like iDEAL in the Netherlands, Giropay in Germany, Secure Vault in the US), cash equivalents (like Western Union), eWallets (like PayPal, WebMoney), prepaid cards, cheques, and other alternative payment methods. So how to choose the strategy that works best for you? Establishing a supporting payment strategy to increase your business revenues depends on four different factors: 1. What are the most important payment methods in your target countries or regions? GlobalCollects own experience, in addition to studies from independent research companies like Forrester, shows that offering the three or four most popular local payment methods in each country is more important than many direct selling companies realize. According to GlobalCollect, US, British and French companies tend to cater to credit card use, but in other countries the credit card is not necessarily king. In Germany for example (the third largest economy in the world), approximately 50% of all online transactions are paid for using a method other than a credit card. Payment cultures vary widely with credit cards popular in the US, bank transfers throughout Europe and cash payments in Latin America making the online payment landscape very complex.

Direct Debit Real Time Banking Bank Transfer International cards Domestic Cards
US da na Ca a ali str Au en ed s Sw nd rla the Ne ly in Ita rita tB ea Gr e nc Fra d lan Fin ain Sp ark nm De y an rm d Ge an erl itz Sw um lgi Be
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ce ee Gr d lan Ire ia str Au

Figure 4 Sample Breakdown of Localized Payment Method by Country

2. What payment methods in your target country or region are being used by your local distributors and customers? In other words: Who is your distributor? What is his/her demographic profile? Based on demographics, a company can establish which payment options are most popular with its target group. 3. Is the business model prone to fraud? Especially when opening an online shop to an audience beyond your local distributors, protection against fraud becomes important. The characteristics of a payment method can help a company to reduce fraud if necessary. A credit card transaction or direct debit can be reversed by the consumer; with high-end fraud screening such charge backs can be kept under control. Or, if you have doubts about a person purchasing online, offering a bank based payment such as wire transfers or real time bank transfers are always safe, because they cannot be reversed. 4. What is your average transaction value? By choosing the correct payment options, a company will actually achieve cost savings. We will look at how to do this in a later section of this white paper, when we talk about the variety of payments.

There is a demonstrated correlation between the number of localized payment methods offered and increased customer conversion rates. Thinking global and acting local is easily said and can be a real challenge in such a diverse and complex industry.

5.2

Streamlining the repeat check-out process

Many direct selling companies operate a recurring billing model, often referred to in the industry as autoship. Payment methods like credit cards and direct debits in particular are very well suited for the recurring billing model. In the online shopping environment, recurring billing offers an additional advantage to create a smooth check-out process. Distributors can create a profile on your website which stores their credit card or bank information - this way the distributor can log in at any time, from anywhere and place orders. Subsequently, the credit card or bank account on file is used to charge the order.

5.3

Increasing variety of payment methods while cutting costs

GlobalCollects advice is to listen to your distributors on what payment options are most popular and perhaps unique in their country or region. GlobalCollect can consult to best practice in this regard. Adopting this strategy of diversification may seem expensive, but companies will soon find out that it can actually be very cost effective. Broadly speaking, transaction fees are calculated two ways. Credit and debit card charges are calculated as a percentage of the transaction amount. As a general rule, alternative payment methods are charged as a set fee, regardless of the transaction value. (Exceptions to this model include e-Wallets (PayPal, MoneyBookers, WebMoney) and other localized solutions like Konbini in Japan). So, in countries where alternative payment methods are very popular, a company can realize significant cost savings by offering a number of non card based payment methods to its distributors and customers. For example: Lets say your average fully loaded credit card charge for
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an online purchase is 3%. On a 200/$200 order, that equates to 6/$6. An alternative payment method like a real time bank transfer or direct debit has a fixed charge of less than 1/$1, regardless of the transaction amount. If you think about this scenario in relation to your companys expansion plans, you can easily see how cost savings can be realized.

5.4

Expanding horizons through centralization

Entering a new market will present a company with a number of new challenges like handling foreign currencies, local legislation, a new banking landscape and distributors with a different culture. Rather than finding your own way through those tricky waters, consider centralizing your collections and payouts with the help of a global payment service provider. While many providers limit their service to a technical link with payment acquirers, a full service provider like GlobalCollect offers its clients a portfolio of additional services a one stop shop for payment processing, reporting, reconciliation, fraud management and advice on local best practice.

5.5

Paying commissions

Distributors rely on direct selling companies for their monthly income. So the process of making commission payments to distributors and associates has to be efficient, on time and accurate. GlobalCollect's Payout Service enables companies to automate this process fully and transfer money electronically to distributors or associates in a dozen countries. Plus, payouts can be pre-funded in one or multiple currencies. All that is required is the bank account data of the recipient so GlobalCollect can validate the bank account information and transfer funds. In addition, payouts come at a fraction of the cost of a traditional wire transfer.

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Industry affiliations

GlobalCollect is proud to partner with the leading organizations and associations within the direct selling industry. In addition, we are profoundly involved in the payments industry and the ongoing evolution of card scheme rules and how they impact our clients. Direct Selling Association: The Direct Selling Association celebrates 100 years in existence in 2010. GlobalCollect is a Supplier Member of the DSA. Multi Level Marketing International Association: The Multi Level Marketing International Association celebrates 25 years in existence in 2010. GlobalCollect is a Supplier Member of the MLMIA. Direct Response Forum: GlobalCollect is a member of the DRF (Direct Response Forum). The DRF provides an exclusive venue for payment industry peers to meet, learn about and address the unique challenges facing Customer Not Present (CNP) merchants. Merchant Risk Council: GlobalCollect is a member of the MRC or Merchant Risk Council. The Merchant Risk Council is a merchant led trade association focused on electronic commerce, risk and payments on a global scale. The goal of the MRC is to make e-commerce more efficient, safe and profitable. The MRC is a leader in industry networking, education, and advocacy programs. The Chief Commercial Officer of 16 / 18 GlobalCollect, Floris de Kort, serves on the board of the MRC as an advisor.

Conclusions and Summary

The World Federation of Direct Selling Associations calls direct selling a dynamic, vibrant and rapidly expanding channel of distribution for the marketing of products and services directly to consumers. At GlobalCollect, we couldnt agree more. GlobalCollect has opened global online payment processing for many leading direct selling companies. We understand how direct selling works and that companies need to be ready for rapid international expansion at short notice. In summary, some of the key benefits to a direct selling company in partnering with GlobalCollect are: We understand the direct selling business model and continue to educate our internal and external partners. We fully support the auto-ship recurring billing process. GlobalCollect is a one stop shop for credit card acquiring, gateway processing, integrated fraud prevention, matching and reconciliation, reporting (online and offline) and funds remittance. So, we are essentially a full service provider. GlobalCollect supports the largest portfolio of local and alternative (non card based) payment methods in the world. These payment methods are very popular in countries where direct selling companies have significant business. Integration requires just one single technical and administrative interface. Behind the scenes we open the door for our merchants to our global banking network. Individual connections to banks are not required. GlobalCollect supports MOTO (Mail Order/Telephone Order) as well as e-commerce processing. This is important for some of the largest direct selling companies who are in the process of migrating their offline business to a pure online e-commerce model. GlobalCollect supports commission payments through our Payouts product.

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About GlobalCollect

GlobalCollect is the world's premier Payment Service Provider of local e-payment solutions for international Customer Not-Present (CNP) channels. A pioneer of global payment processing with more than 15 years of experience as a full service provider, GlobalCollect has a proven track record to help merchants realize their global ambitions and expand their e-commerce activities across the world. GlobalCollects knowledge of the international payment landscape and local payment preferences uniquely qualifies it to advise your direct selling companies on how to increase online conversion rates, expand distribution channels, and streamline back office matching and reconciliation processes. GlobalCollects single-interface online payment platform offers you access to an unrivalled portfolio of payment methods in over 200 countries and for 170 currencies. The latest platform upgrade empowers you as a merchant to process payment transactions in 28 languages, including all major European languages, simplified Chinese, Japanese, Hindi, Arabic, Farsi, Russian, Hebrew, and many more. Plus, GlobalCollect is bank independent and has the largest network of acquirers, banks, and alternative payment providers worldwide. Since GlobalCollect is bank independent, it can offer you the flexibility to work with a combination of many banks. We have partnered with leading international financial institutions like Barclays, First Data, AIB, BNP, HSBC, Wells Fargo, RBS, EUROLINE, AMEX, JCB and others. These relationships, coupled with our status as a market leader, enable us to offer the best possible rates for card and alternative payment processing - economies of scale that we pass on to you as a merchant. Our scalable Fraud Screening Service features a range of integrated fraud reduction tools from renowned partners to maximize transaction safety prior to payment authorization. These include customized business rules, online account validation, neural networks to detect suspicious patterns, IP geolocation data to determine the real-world location of a web visitor, pre-check for fraudulent use of credit cards and more. Companies that choose GlobalCollect get much more than a payment processor. Because of our 15+-year history as a full service provider in the international e-commerce marketplace, we are able to offer you a global consultancy complete with information about local regulations, area customs, and cultural payment preferences. We can help your company to increase its international market share significantly by enabling you to provide your customers and distributors with the ability to pay with their preferred method and in their local currency by: International and local credit and debit cards Direct debits (ACH) Online real-time bank transfers Traditional bank transfers Cash and bill payments eWallets (e.g. PayPal) Prepaid methods Virtual bank accounts Checks

GlobalCollect has been trusted by leading merchants in many verticals, including Travel, Retail, Gaming, Software, Music, Publishing, Streaming Media, Social Networking, Ticketing, Direct Selling, Telecommunications and Online Portals. Contact us today to see how GlobalCollect can help your company to enter foreign markets and grow your business. www.globalcollect.com

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