The online e-commerce market in Europe has undergone a period of immense growth in the past few decades. Of the nearly 820 million people who live in Europe, over 40 percent are e-shoppers. There are over an estimated 715,000 online businesses and nearly 2.5 million jobs which directly or indirectly operate via e-commerce. These impressive figures are only expected to rise in the years to come. As the pace of innovation and adaption of technology continues to rise, there will be ever increasing pressure on businesses, banks, payment service providers () and regulators to keep up with the demands of consumers, who are becoming ever more accustomed to being able to make purchases instantly, anywhere, and at any time.
The potential for both consumers and businesses in the world of e-commerce is great, but to fully realise this value, it is vital to bring about an efficient and functional payment landscape which creates a cross-border level playing field.
Realising the ‘payments dream’
It is our belief that realising the ‘payments dream’ of an integrated, rapid and well-functioning e-payment landscape across Europe, which provides value to both customers and merchants, is possible. It requires the creation of a seamless shopping experience for consumers, allowing them to complete online purchases whenever and wherever they want – ideally using the simplest possible ‘one-click’ purchasing option. There remain significant regulatory, regional and technological hurdles to overcome, so this can only happen in an environment which makes technological innovation worthwhile for all parties operating in e-payments.
The merchant perspective on online payments
While consumers are ready to accept an instant (or seemingly instant) payments world, realising this creates challenges for merchants. The e-commerce industry has proven to be keen on innovating, with the awareness that successful and interoperable e-payments must pay attention to three fundamental principles: reach, conversion and fair cost.
Following a period of rapid expansion and innovation, the European market is currently host to a vast range of payment options. For any payment method to become accepted, it needs to have achieved a wide reach among consumers. A multi-payment option environment is likely to continue, so merchants will need to be able to seamlessly offer a wide mix of payment options.
Merchants will adopt new payments means when they believe having that option available can help convert a potential buyer into a real buyer. In addition to availability of payment options, this is also influenced by the usability of the payment method. The familiarity of the user experience and the technical reliability of the payment method both take time to develop, but are essential for widespread adoption.
3) Fair cost
The cost of payments, including the cost incurred from coping with fraudulent payments and exception handling, is a prominent concern for merchants. However, once reach and conversion have been satisfied, merchants are likely to adopt it. To help support uptake of new payment methods, the costs of payments need to be kept low and fair.
Expanding maximum reach and conversion at a fair cost for merchants and consumers are all important components to creating a ‘one-click’ purchasing landscape. However, this can only occur if cross-border payment processes, online identification and delivery preferences are improved, and existing national solutions are made interoperable.
A change of perspective – disrupting the payments market
As demand for and familiarity with instant payments continue to rise, innovative developers of new payment solutions will continue to introduce products and attempt to disrupt the market. For these to be successful, they must be aligned to the preferences of consumers, but, if they are taken up widely, merchants will adapt. This willingness to challenge long held perspectives will be necessary to truly distinguish from standard cash and card payments. Innovation policy and financing schemes should not fear this disruption but recognise the major opportunities for growth and jobs that lie in new payment innovations. Support should also be sought from governments and regulators, while ensuring the consumer remains protected.
Creating a regulation environment where instant payments can thrive
With the arrival of the Single Euro Payments Area () and a unified payments landscape across Europe, the payments area has become more integrated. Caps on Multilateral Interchange Fees (MIFs) will reduce costs for merchants and by extension, consumers. Furthermore, the revision of the Payment Services Directive () can help assure the reliability and security of third party payment service providers (), as well as providing access to the payment account which can boost innovation. These are welcome developments.
However, the market must not be unduly held back by regulation. The future of the European payments landscape will also come with a massive increase in cross-border sales, which still today encounter a huge diversity in rules and regulation. All market parties must be stimulated to invest in innovative solutions in order to foster competition in the market and to ensure they can sustain their businesses. Facilitating interoperability should be a priority for governments and regulators, in particular, the creation of a uniform e-identification system that can facilitate easier transfer of information.
There are several other factors which are crucial for the further growth of ‘one-click-buy’ through mobile payment solutions, e-ID solutions, and wallets, the institutional framework for realising this should be guaranteed by governments. The e-ID security framework should foster a safe and innovative cross-border payments infrastructure so merchants can move towards offering ‘one-click-buy’ options.
Getting payment confirmation in real-time
From the merchant’s point of view, real-time payments can largely be satisfied by rapid confirmation of payment, rather than the actual real-time transfer of funds. If confirmation can be received and guaranteed, even for transactions made at night, at weekends and during public holidays, merchants will see a reduction in the internal administrative burden of the reconciliation process. Instant crediting of payment should be the ultimate goal, as it would provide merchants with the same instant flexibility and seamless shopping experience that their customers currently enjoy.
For the dream to become reality
The ideal pan-European ‘one-click’ payment solution will be one which: handles online identification securely and instantly, accommodates all cross-border payment methods preferred by consumers, and satisfies variable delivery preferences. Regulators must ensure their efforts keep pace with the evolving payment landscape, and with changing consumer expectations. Consumers want to transact in ways which suit them best and as reach and familiarity expand, merchants are willing to adapt. EU governments and regulators have to facilitate the infrastructure and framework to ensure that the dream of a seamless ‘one-click’ shopping experience can be truly extended across Europe.
Paul Alfing is the Chair of the e-Payments Committee of Ecommerce Europe
Related articles in this issue:
Euro Retail Payments Board Meets for a Third Time
Highlights of EPC Report to the Euro Retail Payments Board on Instant Payments
Instant Payments at Point of Sale – Overcoming Customer and Merchant Barriers
A Corporate View of Instant Payments
Progress towards a Single Digital Market in the EU
The Year Ahead in Payments Standardisation
Related articles in previous issues:
Instant Payments – a Winning Bet? ( Newsletter, Issue 26, April 2015)
The European Court of Justice Has Ruled that Interchange Fees Are Permitted if They Provide Benefits to Merchants. What are the Implications of the MasterCard Judgment for Interchange Fees in Europe? ( Newsletter, Issue 24, October 2014)
Card Interchange Fees Regulation: What is the Right Question? ( Newsletter, Issue 21, January 2014)
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