The Green Sheet: The Autobahnen, Autoroutes and Motorways of European payments
Christoph Tusch, CEO and Founder of ONPEX, at The Green Sheet on: European Payments.
If you were to set off from Luxembourg City and drive north, it would take you five hours to get to Amsterdam in the Netherlands. On the way, you’d pass through Belgium and, if you wanted, you could have a quick detour into Germany.
Leave Houston, TX and drive north and, provided you have stuck to speed limits, five hours later you will still be in the Lone Star State.
Just like our cars, Europe might seem a little more compact than the US, but it is a complicated market for anyone seeking to access it. Yet it is also a lucrative market. Ecommerce is growing faster in the EU than in the US (Retail Research, 2016) and smart US merchants will want to take advantage of it.
In this article, we focus on the three biggest markets in the EU: France, Germany and the United Kingdom. We’ll look at the trends and idiosyncrasies of each of the territories and consider what merchants, and others who want to trade in these markets, need to know to operate successfully and in compliance with local regulations.
The United Kingdom
One of the most straightforward things about cross-border commerce in the EU is that all the member states use the same currency – the Euro. Unfortunately, this is not the case. The EU has 28 members but nine of them don’t use the Euro, and the UK is one of them.
British membership of the Euro (and, indeed, the EU) is a controversial topic in the UK and, for the foreseeable future, it will retain the pound as its currency. So, the first challenge for anyone wanting to do business with the ‘Big Three’ of European commerce is that they will have to deal with both the Pound and the Euro. With 48 million online shoppers in the UK, 48% of whom have made a purchase overseas, it’s a lucrative market where purchasing cross-border is rapidly becoming the norm. If you are purchasing goods from the UK for export, then VAT (sales tax) isn’t an issue and you will be exempt from it. Which is, of course, good news.
However, if you are selling goods to the UK, VAT becomes far more complex. Under UK law, you have to become a designated Importer of Record and will be liable to pay VAT – currently 20% of the sales price although there are exemptions (HM Revenue & Customs, 2014).
The complexity of UK VAT law can be off-putting for merchants in the US who want to trade with the UK. There is the possibility of working with a UK based import agent who can handle some of the red tape for you, but if you are serious about trading with the UK, you need to make sure that your payments platform keeps you compliant with VAT laws.
Trading standards laws (consumer rights) are standardised across the EU and are more weighted towards the consumer than in the US. However, if you are selling from the US to the UK (and other EU countries) you are bound by US consumer legislation and not EU legislation, so that is one less thing to worry about.
One final thing to be aware of in the UK is the popularity of alternative payment methods; 20% of UK consumers regularly use PayPal (Ekos Global, 2015). So merchants looking to trade with the UK market need to be able to accept alternative payment methods, as well as card payments.
Germany ranks third after the US and UK for online commerce and is, again, a lucrative market for the US.
The currency of Germany is the Euro and Germany was one of the key drivers and supporters of the Euro project. Despite recent weaknesses and controversies with the Euro and Eurozone, Germany continues to support the single currency.
The first issue to consider is language. While English is widely spoken in Germany, especially by younger people, if you are serious about doing business with this tech savvy country, make sure you speak their language. Not only is it good business sense to do this, it also demonstrates a commitment and even respect. Competitors who offer German language browsing and check-out options will be stealing a march on you if your company doesn’t offer it. It’s worth remembering that there are around five million native German speakers in the US too…
Germany, as an EU country, is subject to the same VAT regulations as the UK. German VAT is, for most items 19% and, like the UK, there are some exemptions (KMPG, 2011). However, like the UK, it is also a complex system, even for those familiar with it. Failure to comply will result in financial penalties. Managing this is, again, a matter for attorneys and making sure that whatever payments platform or software you use, keeps you compliant.
In terms of payment preferences, German consumers are not as active with debit or credit cards. Far more popular are offline bank transfers like wires on open invoice or direct debits (favoured by 46% of consumers) and online payment services (used by 29% of consumers) such as PayPal and GiroPay (Ekos Global, 2015).
This is a critical piece of intelligence for anyone looking to attract consumers in Germany. If you are offering only credit and debit card options, you are turning away over 90% of your potential customers.
France is the third biggest ecommerce market in Europe and our advice around VAT in France is the same as it is for Germany and the UK (indeed, everywhere in the EU). The general rate of VAT in France is 20% although there are variations (Avalara, 2017) for a number of different goods.
It is worth pointing out that EU VAT is included in the advertised price. So, something costing €10, for example, would be €8 plus €2 VAT. A little less complex than the US, where a $10 book can cost a variety of different prices depending on the state you buy it in.
France, like Germany, is in the Eurozone. And, like Germany, there is a significant proportion of English speakers, but, if you want to sell to people in France then your website should offer a French language option. Otherwise you are offending and turning away business.
When it comes to payment methods, cards are still king in France with 57% of online purchases being made with credit or debit cards (Ekos Global, 2015), especially Carte Bleue and Carte Bancaire are important local brands. But PayPal and other alternative payment methods are growing in popularity so payment platforms have to be able to accept multiple payment options.
Driving Towards Mobile
Mobile commerce is growing at an exponential rate in the EU. It was predicted to grow by 88.7% in 2015, compared to a mere 6% growth in computer based ecommerce (Ecommerce News, 2015). European consumers have embraced mobile technology and mobile commerce.
However, mobile commerce in Europe is still not at the level it is in the US. So US merchants who have mobile optimised websites and payment options could be well placed to snap up these mobile adopting consumers before European rivals do.
The European payments roadmap is complex. While there might be standardisations of currency and sales taxes, there are still local variations in how consumers want to pay.
Payment options suited for the UK consumer might not be suitable for German consumers. And we have only scratched the surface of these variations. For example, in Spain, around one quarter of ecommerce purchases are paid for on delivery. That’s a payment challenge in itself.
Yet, it is a lucrative and sophisticated market. Getting the best from it requires careful partnerships with companies who can act as your sat nav (satellite navigation system) as you attempt to understand how payments in Europe work.
So if you are serious about getting into Europe in 2016, and you should be, step one is to choose a payment partner that has already navigated many of these challenges to help you.
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Notes to Editor
About Christoph Tutsch
Christoph is the founder and CEO of ONPEX. He started the company in 2013 with the goal to provide businesses with an ideal solution for online payments and digital transactions. An accomplished payments expert, he saw the need for a solution to manage all financial processes in one single platform. Christoph oversees the strategic positioning of ONPEX and the development of its solutions.