2016 Focus on Europe: Processing Trends

Stephen Yagielowicz

When it comes to turning an online offer into cold, hard cash, banks and billing companies, and the payment processing services they provide, are all necessary ingredients — with these professional firms delivering the dollars regardless of who the consumer is, or the currency they are using.

This global approach to financial fluidity is especially important in regions such as Europe, where there is no parity with the ease of serving the credit card dominated U.S. market. In Europe, adult-friendly billing companies offer online merchants a wide range of diverse payment options that can cover more than 60 currencies across 40 payment types and counting — with new local payment options continually coming to market — especially in areas where traditional payment options such as credit cards are uncommon.

The key to selling better is to use the data we have on visitors to customize the sales experience. -Debora Xavier, Vendo Services

These localized payment types continue to grow in popularity throughout Europe today, where they often target regional users via specific languages or via other demographic data — with that data being a major driving force in the rollout of new merchant services and better business practices.

It is all part of a trend in payment diversification driven by merchants’ desire to grow their business by accepting the payment types that their customers wish to use, and a concern rarely faced by traditional brick-and-mortar businesses, but an increasingly complicated set of choices for ecommerce operators.

According to Debora Xavier of Vendo Services, as it is in the U.S., billing in Europe is a commodity.

“Processors and acquirers are competing on fees and risk appetite,” Xavier told XBIZ. “These companies, as providers, are considered cost centers by their clients [and] it is rare to find a billing company that has a competitive advantage or provides unique value.”

Citing recent stats, Xavier points to a five percent year-over-year growth in non-cash payments across Europe, with credit and debit card payments representing more than 70 percent of non-cash payments, and only showing slight growth year-over-year.

Xavier says that while the European market is adapting to recent Visa regulation changes following the acquisition of Visa EU by Visa USA, overall, credit card penetration is increasing in Europe — but there are still big differences between usage rates across European countries.

“Credit cards are most frequently used in countries such as Finland, Estonia, Luxembourg and the Netherlands,” Xavier told XBIZ. “In Greece, Italy, Slovakia and Germany, card payments are least popular and show usage growth rates well below the E.U. average.”

As for the differences between the way European consumers and businesses are served compared to those in other markets, Xavier says that there are many more payment options in the E.U. than in the U.S., and points to the Single European Payments Area (SEPA) as a uniquely European option that is reducing friction in the online payment system.

“Imagine if each state in the U.S. had a different checking system, so that a check from Kansas couldn’t be used in Missouri. That is how it was before SEPA — 27 countries with their own independent systems that didn’t talk to each other,” Xavier explains. “Now that is changing with unification around SEPA.”

Now in the final phase of its implementation, SEPA, which is the equivalent of ACH online checking in the U.S., accounts for approximately 30 percent of online payments in Germany, where it is known as Lastschrift, and can be a significant source of sales in other countries, too.

In much of the E.U., direct debit has long been the most popular method of payment for consumers and with the advent of SEPA easing the process of instant transactions, European merchants are now able to increase their revenue opportunities. It’s just another piece of the puzzle.

Another piece of the puzzle involves change on the payments front centered on carrier billing, which was once a very profitable option for companies selling to European customers and leaving the payment processing to the customer’s mobile provider — and sometimes not playing fair about how they did it.

“It was abused by companies that engaged in really aggressive practices (i.e. lack of disclosure of terms), and this practice has recently come to an end,” Xavier says. “Carriers aren’t allowing it anymore.”

Looking at what tomorrow holds for billing in Europe, Xavier notes that because European customers are very different from one another, the billing companies that will lead in the future will be those that use data to sell better, by optimizing the payment experience.

“It’s not just language, but also wealth, payment methods and many other factors, [such as] browser, time of day, whether they are new or returning, etc.,” Xavier explains. “The key to selling better is to use the data we have on visitors to customize the sales experience, with dynamic pricing being one example of how data plays a key role in selling to a market of 450 million different, unique customers.”

Xavier believes that billing’s future will also see a number of internet payment security improvements.

“As the system grows in importance, there will be more attacks on the payments infrastructure,” Xavier predicts. “The response will be systemic improvements to current Payment Card Industry Data Security Standards (PCI-DSS) and other approaches to security.”

Xavier also predicts that there will be a continued diversification of payment options, featuring ongoing growth in mobile wallets from companies such as Apple and Samsung, as well as other forms of mobile payment systems, which because they are very easy to use, will encourage adoption rates to increase.

“SEPA and SEPA cards will also grow,” Xavier concludes, “[and] virtual currencies such as Bitcoin will go from fringe to mainstream payment options.”

From in-app payments to contactless payments, cryptocurrencies to electronic wallets and beyond, the European market is driving the development of alternative billing methods and payment practices that serve as examples of the rapid technological innovation coming to Europe’s billing arena, and one of the biggest factors impacting all aspects of the billing process today.

With continued growth in e-commerce usage by European consumers and the increasing ease of cross border transactions, Europeans are spending more online today than ever before — and merchants are benefitting by being able to effortlessly accept customer payments— making the world a smaller, more profitable place.