E-commerce Payments Operations: European Overview
European e-commerce insights
With e-commerce enjoying growth in Europe, we analyse the primary factors behind this expansion. We explain which markets on the Continent offer the best opportunities to international merchants, and look at the factors behind the rise of mobile commerce — the main driver of this growth. And we examine payment trends, including the dominance of cards and the rise of digital wallets.
To help our clients locate, attract and keep their customers, we have tracked and assessed e-commerce developments in 34 mature and emerging markets around the globe.
Europe’s high-growth markets present e-commerce opportunities
E-commerce growth as a whole across the European region remains strong. It is slowing slightly in more mature markets such as the United Kingdom, France and Germany. However, a number of smaller markets present compelling opportunities. Of the 18 European countries we examined, 10 are projected to enjoy double-digit e-commerce market expansion between now and 2021, with the Czech Republic (16 percent),1 Italy (14 percent)2 and Spain (13.5 percent)3 ranking highest for predicted growth.
Mobile-commerce is the main driver of growth, far outstripping the overall e-commerce market. In the UK and the Czech Republic, mobile devices are now the primary way to spend online. Similarly, Ireland,4 Norway5 and Sweden6 also stand out as key adopters of smartphone-based payments.
Cards still a priority, as other payment methods gain ground
When it comes to online purchases, cards continue to represent the primary payment method across the majority of the European markets we surveyed: in 11 out of the 18 countries we assessed, cards are the number one payment method. Card use is particularly strong in wealthy, digitally advanced countries with high bank penetration. At present, card payments are highest in Denmark (63.4 percent of e-commerce payments),20 Ireland (60 percent)21 and the UK (53 percent).22
Given the strong brand recognition of major card payment brands like Visa® and Mastercard®, and advances in online anti-fraud technology such as 3D Secure, we expect cards to remain an essential part of the payments landscape in the near future. In almost all markets, consumers will have at least one card in their pocket and so merchants can benefit by optimizing their card payment processes.
Although bank transfers are not used widely across the continent, interestingly, they are actually the primary payment method in certain countries, like Finland, Switzerland and the Netherlands.23, 24 Open invoicing, where purchases are paid for once they have been received, is still prevalent in some countries. In Germany, open invoicing and direct debit payments account for 40 percent of online sales — a drop of just one percent on the previous year.25
Looking ahead, the Europe-wide rise of subscription services could also drive direct debit payments. Merchants that take recurring payments should also consider direct debit payments, as well as cards, which can also be used. The likes of bank transfers and open invoices, however, would not be suitable for such merchants.
Digital wallets on the rise
Digital wallets have emerged as a key payment option for e-commerce transactions and can help address consumer fears about sharing card details directly with merchants. Advanced e-commerce economies such as the UK and Germany have been fast to adopt digital wallets,26, 27 but smaller e-commerce markets are also embracing this payment method. In Italy, for example, just under one in three online purchases are carried out using digital wallets28 — in the UK, this figure is one in four.29
When considering which payment trends to watch, it is important to understand the underlying payments culture in each of the assessed countries, as well as the operational and business impact that introducing new payment methods might have.
The investment in developing and maintaining a payment solution for a specific country has to be compared against the benefits it can offer. For example, the country in our review with the highest predicted compound ann
ual growth rate, the Czech Republic, may also have some of the biggest hurdles to modernizing its payments landscape.
The Czech market stands out for its high levels of cash usage. Settling payment on delivery with cash is the most popular way to pay in the Czech Republic, representing 45 percent of transactions.30 However, this causes problems for merchants who face delayed payment, as it is received on delivery, and also the additional costs associated with collection.
Rising smartphone use provides huge opportunity
Another overarching theme is the vital importance of mastering smartphone-based payments. As time spent on smartphones increases and app-based payment systems rapidly expand, paying via a mobile device has become commonplace across European markets. This is especially evident in the UK, where mobile devices have become the primary device with which to spend online.31
Denmark is another market that presents particular mobile e-commerce potential, as it has the highest smartphone penetration of all the European countries included in our report series.32
Regulations continue to shape the e-commerce market
In the coming years, there could be more competition from additional payment methods as the impact of the revised European Payment Services Directive regulation makes itself known.
In the UK, the Open Banking initiative — a UK-only extension of the EU rules — will require major banks to share their current account data in a standardized, secure format with other authorized online organizations.33
Online companies and start-ups will also be able to access the spending data and habits revealed by this initiative, allowing them to create innovative and tailored banking services. As part of the directive, third-party companies will also be able to initiate payments on behalf of customers. By creating a new way for consumers to pay for products, the revised Payment Services Directive will generate a new payments landscape.
This is an exciting development but will take a number of years to come about, due to the very different banking players and processes in each country. An EU-wide payment system is therefore unlikely in the short-term, although there could be some localized or regional schemes.
The introduction of Strong Customer Authentication is also required under the EU directive, making two-factor authentication obligatory for electronic payments. As biometric security options increase on smartphones, mobile commerce could benefit by offering faster and simpler Strong Customer Authentication methods than desktop-based transactions.34
Price-conscious consumers are firmly embracing online discounting
Another key e-commerce trend that must be considered is the prevalence of price discounting. As online shopping becomes a part of everyday life, consumers have become savvier; high use of consumer price-comparison sites before choosing which site to shop with is a feature of many of the countries we have analyzed.
Shoppers are also fully embracing one-off discount events. A growing public familiarity with sales events such as Black Friday and Cyber Monday is translating into one-day and seasonal spikes in spending.
To keep pace, the payments industry must be aware of, and able to cater to, specific country-by-country cultural differences and discounting events. As an example, France stands out as a nation of discerning spenders: 80 percent of shoppers compare prices before buying non-grocery items.35French e-commerce merchants introduced a discounting event called ‘French Days’ in 2018, a version of Black Friday, adding to an occasion and promotions-led online shopping culture there.36
Payment Orchestration in Europe:
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