9 June 2015

10 things you need to know about cross-border e-commerce in the European Union

Last March we presented you with a list about cross-border e-commerce in general. What are the do’s and don’ts, how do you prepare your company for cross-border trade, what should you look out for, what are the global trends, etc. This month, we thought that it would be useful to present you with some information on EU cross-border e-commerce. Like we said in our previous list, there is a lot of available information on this subject and it is both interesting and surprising to see how trends and facts shift when you focus on a specific area, like within the European Union in this case.

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1. Trades within the EU are actually not cross-border trades

Even though the countries within in the EU are separate entities and trades between countries would therefor fall under the definition of cross-border trades, online trades that occur between a consumer and a merchant that share a language and a border or that share a currency are not strictly considered cross-border trades. For example, when a German consumer buys a raclette or fondue set from Austria, it is not considered a cross-border trade, because not only do Germany and Austria share a border and a language, they also trade in the same currency; the euro. But when a British consumer was to buy some Greek pottery online, it would be categorised as a cross-border trade, because the Greeks and the Brits don’t share their border, language or currency, even though they are both part of the European Union.

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2. Despite its overall economic state, the online market in Europe continues to grow strongly1

It is no secret that the European economy has been struggling in the last couple of years. You couldn’t tell that from the steadily increasing numbers associated with cross-border e-commerce however; more than a third of global cross-border sales come from the EU. Countries that were hit hard by the recession, like Greece, Spain and Italy, show annually increasing growth rates when it comes to e-commerce.

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3. Card, banking, Internet and mobile penetration is high in the EU

This has created the perfect environment for e-commerce to thrive in. EU citizens prefer shopping from the comfort from their own home via their desktop, tablet or mobile phone instead of braving the craziness of a busy department store on a Saturday.

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4. Preferred payment methods in the EU

Generally speaking, Europeans still prefer paying cash: a whopping 92% of Europeans prefer this payment method to other payment methods. The second most popular – and most relevant for us in the online payment industry – method in the EU is paying with a debit or credit card: 72% of Europeans whip out their card for all kinds of payments, be it to pay for a cup of coffee in a café, ordering clothing online and everything in between. Even though traditional payment methods are still popular in the EU, alternative payment methods are rapidly gaining ground and companies offering these alternative payment methods are popping up like mushrooms. In general, EU consumers prefer PayPal when it comes to alternative payment methods, but on a local level, these preferences shift to iDeal in the Netherlands, Przelewy24 in Poland and teleingreso in Spain, for example.

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5. Marketplaces are important for cross-border e-commerce within the EU

One of the reasons for the increasing popularity of e-commerce in Europe is the continued growth of marketplaces offered by multinationals such as eBay. However, local players like Dutch Bol.com have also sprouted out across Europe and increased their footprint across several countries. And for good reason: with 250 million people looking to shop online in Europe, the continent is ripe for e-commerce success. Thanks to the strong traffic that they attract, marketplaces offer a real opportunity for merchants to boost their conversions. What’s more, the relative ease of setting up on a marketplace lets retailers get visibility in a foreign market without investing too much time or money. And can you blame them? According to a recent study by Forrester Consulting, 82% of the world’s consumers have already shopped for products abroad, but for the most part they prefer to buy on global marketplaces with strong reputations.

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6. E-commerce legislation is partly decentralised in the EU

Even though the EU presents itself as a unity and there are overarching rules when it comes to e-commerce (see #8 and #9), each individual country also has its own specific set of rules pertaining to that country alone. For example, in Germany there’s something called “Abmahnung”, a written warning you could receive when your e-commerce store doesn’t follow the German law2. An example of an overarching law is that, according to the EU Directive on Consumer Rights, ‘Confirm’ or ‘Buy’ buttons on a merchant’s web site must contain a text that makes it clear to the customer that once they have initiated the transaction, there are obligated to finish it, i.e. pay.

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7. The 55+ age group is an untapped source of wealth

In most (Western) European countries, this age group outnumbers other age groups and they have some money to spend. The only problem is that people in this age group are very concerned with credit card fraud and identity theft. Smart marketing campaigns focused solely on this age group and highlighting the convenience, transparency and safety of online shopping and thus whittling down the objections raised to online payments within this age group, can be extremely profitable for an online merchant.

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8. Two-Factor Authentication is mandatory from August 2015

In December 2014, the European Banking Authority (EBA) released guidelines on securing online payments across the EU. One of those security requirements includes the use of ‘strong authentication,’ which the EBA defines as the use of multifactor authentication. With a deadline of 1 August 2015, EU companies must start researching and deploying two-factor authentication solutions.
The EBA defines strong customer authentication as the use of two or more of:

  • something only the user knows (password)
  • something only the user possesses (smartphone or token)
  • something the user is (fingerprint)
According to the EBA, the guidelines are based on the technical recommendations issued in 2013 by the European Forum on the Security of Retail Payments (SecuRe Pay), which is comprised of several central banks and supervisors of payment service providers.

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9. The Online Dispute Resolution (ODR)

This year, the Online Dispute Resolution as a regulation comes into force. This is a pan-European platform, which will be run by the European Commission, through which consumers can post any complaints about cross-border transactions. The complaints are then forwarded to the national Alternative Dispute Resolution Service (ADR), where one exists. The aim is to promote cross-border trade within the European Union. In addition, there is a Directive around ADRs that each country has to implement, ensuring levels of independence, provision of an alternative to using the courts for the settlement of disputes, while at the same time not removing a consumer’s right to recourse through the courts. It may be obligatory for businesses that trade with consumers to be a member of an ADR or to fund complaint handling coming through the ADR. The full details of this are yet to be decided, but it is expected to come into force shortly after the ODR Regulation.

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10. Fraud is a fact of life

This is especially true for cross-border merchants, because cross-border payments have significantly higher fraud rates than domestic payments. There are no specific trends in fraud per EU member state, but globally fraudsters are making a shift toward targeting mobile payments. Your local payment service provider will know all about the trends in their country and have the fraud-scrubbing tools in place to protect you and your customers.

Download eMerchantPay’s Risk & Fraud White Paper to learn more about risk management and fraud prevention.

1.International Developments In E-Commerce Report, p. 3, IMRG, 2013.
2.The ecommerce needs of European customers