insight Reports
Financial Solutions Insight Reports Expanding e-commerce into Nordic neighbours and beyond Payment and other preferences create opportunities and challenges for export-oriented retailers Executive summary E-commerce removes many barriers to international retail expansion, but significant challenges remain. Major differences in regulatory requirements, market conditions, and customer expectations and behaviour can create pitfalls for Nordic companies expanding into neighbouring and other European markets. A proper understanding of each market is vital for success. This report looks specifically at the payment methods used and preferred in select markets, and how the right payment solutions give retailers an advantage as they expand internationally. Introduction Headline findings Nordic e-commerce up 7% year-on-year in Q1 2015 ■ M-commerce tops 30% of online retail across Scandinavia ■ Market preferences and circumstances vary dramatically even in Nordic region ■ Invoice payments essential when entering German market ■ Much of the Nordic region has embraced e-commerce enthusiastically, and some of the most active users of digital retail in the world live here. Affluent, connected and well-educated Nordic consumers are generally comfortable navigating websites in foreign languages, lowering the language barrier for purchases of products and services from abroad. Access to international e-commerce provides significant savings in a region known for relatively high prices, and forward-looking businesses make the most of extensive fixed and mobile broadband infrastructures and modern e-commerce platforms. A presence beyond the physical is a must for successful Nordic retailers today. Customers of both B2C and B2B companies expect their suppliers to be present in digital channels, not just 2 offline. And the boards and owners of companies also expect their customers to be able to do business online as well as offline. Even in their home markets, this imperative to be present online creates a challenge for companies in terms of payment solutions that work seamlessly in both the digital and analogue spheres. Nordic companies, which have historically been driven by small national populations into expanding beyond their national borders, are increasingly setting their sights on new markets, both in their Nordic neighbours and across continental Europe. Cross-Nordic expansion is a natural first step for export-minded businesses: similar societies with the aforementioned predilection for purchasing online present comparatively low barriers. Yet even between the Nordic markets, differing customer behaviours, historical preferences and legislative limitations can create unexpected obstacles. Expansion into European markets outside the Nordic region presents even greater challenges. A seamless, painless customer experience requires local knowledge and an understanding of consumer preferences and market conditions, as well as flexibility in terms of the purchase and payment solutions offered to customers in each market. This report looks primarily at the payment dimension of e-commerce, examining some of the specific payment factors affecting online retailing in the four Nordic markets of Denmark, Finland, Norway and Sweden, as well as in the markets of Germany, the Netherlands and the United Kingdom – three of the first markets into which Nordic companies traditionally expand. ➤ Online, offline and mobile – Nordics mix multiple shopping channels ❝ Nordic consumers spent EUR 3.86 billion online in Q1, 2015 – up 7% on the same period last year ❞ PostNord Getting to know your Nordic neighbours E-commerce continues to grow steadily across the Nordic region. A recent report from PostNord* says Nordic consumers spent EUR 3.86 billion (SEK 36.5 billion) online in the first quarter of 2015, up 7% on the same period last year. “The development of e-commerce in the Nordic region continues to move forward,” said Annemarie Gardshol, Head of E-commerce at PostNord. Online retail dramatically reduces the barriers to companies expanding into their Nordic neighbours. Similar societies with affluent customers and advanced internet and logistics infrastructure, the Nordic countries are a natural first step in any international expansion. Nordic consumers are used to using foreignlanguage websites, so the language barrier is comparatively low. Yet there are significant differences between online retail operations and expectations in the Nordic nations. Payment by invoice, for example, is a standard feature on Swedish e-commerce sites, but is much less common in Denmark and Finland. Some of the differences stem from historical factors: the comparatively recent introduction of card transactions in Finland in the late 1980s/ early 1990s means there is still a relatively high proportion of direct bank transfers for online purchases there. In Denmark, the historical dominance of the local Dankort debit card has kept transaction prices for all cards down, although new EU legislation is expected to change this situation. Different legislation can also play an important role. Apart from the Dankort phenomenon, Denmark is also much more restrictive than the other Nordic countries in terms of access to personal data, leading to less use of open-invoice payments than in Sweden and Finland: it is harder to give a credit score and validate a customer in Denmark than in the other markets. That situation leads many retailers moving into Denmark to outsource their credit risk. Here, and in the other Nordic markets discussed in this report, merchants who outsource their payment systems can receive payment as early as day one after the transaction. Fraud rates are seen as very low across Nordic markets in global terms. This can be largely attributed to widespread access to 3-D Secure, an additional security layer for online card transactions, and easy access to personal data. But, as noted above, data access and other regulatory frameworks can vary between markets, providing different levels of protection for merchants. This is why merchants moving into new markets often decide to focus on their core business and use a partner for managing payments, credit risk and debt collection. Opportunity knocks: which sectors are growing in Nordic e-commerce? Travel, shoes and clothing, books and home electronics have dominated online shopping in the Nordic markets for several years, and still do. Travel is showing a slight increase, at least in the Swedish and Norwegian markets; this is partly due to a rise in traditional travel-agency services, but is also partly driven by mobile ticketing solutions for local transport such as bus and train tickets. Home improvement sales seem to be increasing across the Nordic markets. There is also an increase in both Norway and Sweden in subscription solutions for everything from groceries to online pharmacies as well as streaming services for news, books, music and other types of media. For German merchants, particularly in segments such as children’s accessories or home improvement, the Nordic markets can be more attractive from a pricing perspective because they do not suffer from the same fierce competition as many other markets in Central Europe. ➤ * http: //www.postnord.com/en/media/press-releases/postnord/2015/e-commerce-in-the-nordic-region-increasing-steadily-delivery-an-important-factor/ 3 The line between offline and online shopping is becoming increasingly blurred: in all the Nordic countries, customers mix the two, researching offline and purchasing online, or vice versa. As a result, being available in the customer’s channel of choice, with a seamless experience, is crucial for any player wanting to grow. M-commerce, using mobile phones or tablets, is also growing rapidly. Figures from arvato partner DIBS show that, between 2012 and 2014, the proportion of consumers making purchases using their mobiles or tablets increased from 18% to 32% in Norway, from 19% to 33% in Denmark, and from 15% to 37% in Sweden. Total m-commerce sales for these three countries grew 53% year-on-year in 2014. In our own experience, Finland is the one Nordic market where mobile has yet to take off, pending adaptation of sites to mobile devices and mobile wallets. This report looks at developments in the mobile channel for the Netherlands and Germany on Page 8. m-commerce for the three Scandinavian ❝Total countries grew 53% year-on-year in 2014 ❞ Delivery demands Nordic consumers have come to expect short delivery times, and set high standards for reliability. There are however, as seen in other areas, some differences between the countries, shown in the PostNord e-commerce report. The general standard is a delivery time of three to five working days, accepted by 60% of Danish consumers, 64% of Finnish consumers, 65% of Norwegian consumers and 68% of Swedish consumers. Danish consumers have the highest expectations, and are prepared to wait on average only 3.3 business days between placing an online order and delivery. One explanation for this could be the relatively short distances compared with the other Nordic markets. Finnish consumers have the lowest expectations, with an average of 4.9 working days. Sweden comes in with an average expectation of 4.3 working days, although 40% expect delivery within three. Norway is similar, with an average expectation of 4.4 working days. One third of consumers expect delivery within three days, while 18% accept that delivery can take longer than six days, possibly on account of the geography. 4 Of course, these expectations vary depending on the type of product being sold, where, and to whom. As new types of retail expand online, in areas such as groceries and pharmacy products, for example, consumer demands regarding deliveries, handling of returns, payments and overall omni-channel experiences will evolve even further. For merchants, the ability to offer differentiated delivery times depending on consumer location could be a way to differentiate themselves from competitors. Cross-border shopping in search for bargains Norwegians and Danes shop frequently from international stores – not least from Swedish online shops – mainly because price levels are lower, but also thanks to a larger selection and products that are not available in domestic stores. The latter factor also applies to Finnish consumers turning to Swedish web stores to find a broader supply, although Finns also look to Germany, the UK and the US for their international shopping. In general, when Nordic consumers shop abroad, they increasingly turn to stores based in the UK and Germany, but also the US or even China. Shopping within the EU is generally a smoother, more transparent experience as consumers are becoming more used to taxation rules, and delivery and return policies as applied across Europe. Although there is growth in purchases from outside the EU, these incur additional costs and charges: the purchaser becomes responsible for compliance with import regulations, taxes and declarations, making it harder to estimate the total cost of purchase. From this perspective, European merchants will remain the more attractive option to US or Chinese competitors selling the same or equivalent goods. White-label or branded payment solution? A branded payment option appears less important when Nordic merchants expand into other European markets: while Nordic consumers are used to strong brands, German consumers and merchants, for example, do not value the benefits as highly. This means that white-label payment options should be considered when entering Germany, Austria or the UK, for example. ➤ danmark PAYMENT METHOD RELEVANCE: TOP PAYMENT METHODS finland danmark Definition of relevance: Market share and usage of payment methods Source: arvato metastudy 2014 danmark Credit & norway germany cards debit germany danmark norway sweden norway finland germany finland finland uk sweden Open invoice danmark nederländerna Finland Norway danmark Credit & debit cards Online bank transfer Credit & debit cards Open invoice finland nederlän- derna uk Online bank transfer germany nederländerna sweden germany PayPal norway uk Online bank transfer COD sweden PayPal norway nederländerna PayPal COD sweden COD uk Micropayments Degree of complexity PAYMENT MATRIX Cost /complexity “evaluate trade-off” IC+: 0.2-0.9% Total: 0-6%: invoice is in most cases directly financed by third-party provider, fee & revenues depending on various variables: instalments, industry, volume etc. “keep a close eye on” PayPal COD Online bank transfer finland norway Open invoice uk sweden germany sweden: PAYMENT COMPLEXITIES & COST uk Online bank transfer fee: around 2%, automated and smooth process, less risky “nice to have” Open invoice “must haves & easy to handle” PayPal fee: 3-4% Credit & debit cards Almost no fraud, but greater manual handling and reconciliation efforts, esp. in case of refunds nederländerna Relevance nederländerna finland finland: PAYMENT COMPLEXITIES & COST Degree of complexity danmark PAYMENT MATRIX Cost /complexity “evaluate trade-off” “keep a close eye on” danmark finland norway Credit & finland debit cards germany norway IC+: 0.2-0.9% COD sweden germany uk nederländanmark derna Online finland bank transfer germany Sweden norway danmark uk Total: 0-6%: invoice is in most cases directly financed by third-party provider, fee & revenues depending on various variables: instalments, industry, volume etc. Credit & debit cards “nice to have” “must haves & easy to handle” Open invoice nederlänPayPal derna finland PayPal fee: 3-4% uk danmark Online bank transfer Online bank transfer sweden germany nederländerna finland PayPal uk norway Open invoice germany COD COD PayPal Online bank transfer sweden norway Open invoice Credit & debit cards Open sweden invoice germany Credit & debit cards Denmark Online bank transfer fee: around 2%, automated and smooth process, less risky norway finland sweden PayPal danmark sweden denmark norway uk 5 sweden nederländerna uk nederländerna COD Almost no fraud, but greater manual handling and reconciliation efforts, esp. in case of refunds Relevance danmark finland danmark danmark germany norway: PAYMENT COMPLEXITIES & COST Degree of complexity PAYMENT MATRIX Cost /complexity “keep a close eye on” “evaluate trade-off” finland finland Credit & norway debit cards germany IC+: 0.7-1.6% germany danmark sweden sweden uk norway finland nederländerna danmark Open invoice uk sweden germany nederländerna finland norway PayPal COD norway uk Online bank transfer germany Total: 0-6%: invoice is in most cases directly financed by third-party provider, fee & revenues depending on various variables: instalments, industry, volume etc. Online bank transfer fee: around 2%, automated and smooth process, less risky Online bank transfer “nice to have” Open invoice Credit & debit cards “must haves & easy to handle” nederländerna sweden PayPal norway PayPal fee: 3-4% uk COD sweden nederländerna uk Almost no fraud, but greater manual handling and reconciliation efforts, esp. in case of refunds Relevance nederländerna DENMARK: PAYMENT COMPLEXITIES & COST Degree of complexity danmark PAYMENT MATRIX Cost /complexity “evaluate trade-off” “keep a close eye on” finland Credit & danmark debit cards germany norway sweden uk IC+: 0.3-0.75% COD finland Online bank transfer danmark germany nederländerna finland danmark Open norway invoice germany sweden finland PayPal Online bank transfer fee: around 2%, automated and smooth process, less risky Total: 0-6%: invoice is in most cases directly financed by third-party provider, fee & revenues depending on various variables: instalments, industry, volume etc. Open invoice “nice to have” Online bank transfer “must haves & easy to handle” Credit & debit cards norway uk germany danmark COD sweden nederländerna norway finland Almost no fraud, but greater manual handling and reconciliation efforts, esp. in case of refunds uk sweden germany PayPal PayPal fee: 3-4% nederländerna uk Relevance norway nederländerna sweden uk 6 Free returns have historically been required ❝ by law, and consumers are used to being able to return goods free of charge ❞ Heading south Companies that have successfully established themselves in their Nordic neighbours soon start to eye the even richer markets in continental Europe. The first markets often include the Netherlands, which have a similar shopping profile to the Nordics, and Germany, the richest in Europe. The United Kingdom is also an attractive market to enter, but it brings numerous challenges that can introduce additional risk for new players. Germany Mobile Mobile commerce is also growing rapidly in markets outside the Nordic region. A report by the Centre for Retail Research in January 2015, cited by RetailMeNot and Ecommerce News, put m-commerce in Germany at 16.7% of online purchases in 2014, with the figure forecast to rise to 27.5% in 2015. The Netherlands figure was 8.4%, set to rise to 12.3% in 2015, while the United Kingdom, already at 18.7% in 2014, looks set to reach 28.5% mobile during 2015. Germany is the largest online retail market on the continent, and the second-largest in Europe after the United Kingdom. Just under half of Germany’s 61.4 million online shoppers buy from foreign sites, creating tremendous potential for companies entering the German market. Famously risk-averse, Germans have a strong preference for open-invoice solutions, bank transfers and PayPal at the expense of card payments. Just over a quarter of the population has credit cards, and while many more people have debit cards, these cannot be used for e-commerce. Average annual online spend is EUR 1,160. PayPal is the most popular form of payment, despite relatively high transaction costs. Open invoice comes in a close second place, especially in product categories with high return rates and purchase prices, such as electronics and fashion. Merchants work with both white-label and branded invoicing and factoring partners. There is no public address register, and fraud attempts are consequently an everyday hazard for all German merchants. The high return rates, the highest in Europe, are a major reason for the popularity of invoice payments. Free returns have historically been required by law and the German consumer is used to being able to return goods free of charge. Despite new EU legislation, few if any merchants dare to challenge the status quo and charge for returns. Any Nordic merchants entering the German market should therefore be prepared for the additional cost and logistics connected with handling returns. The popularity of invoice payments – and the fraud risk stemming from the lack of a public 7 address register – makes it important to have suitable credit and risk management solutions in place. An estimated 95% of customers in Germany have bank accounts, so they have easy access to bank transfers. As a result, bank transfers are an essential payment method for the German market. Netherlands The Netherlands have a developed e-commerce market with high levels of internet penetration. Dutch online shoppers buy goods and services from more than 22,000 web shops, spending an average of EUR 1,000 per year online. The use of mobile phones and tablets for shopping is growing rapidly, as in the Nordic countries. Dutch shoppers demand free delivery and returns. iDEAL, a native real-time local payment system run by Dutch banks, is by far the most popular payment method, accounting for around 70% of transactions. Open invoice, direct debit and PayPal are the top secondary choices. Open invoice is growing in popularity among Dutch shoppers, allowing them to pay after delivery. As in many markets, special local circumstances make it important to have an informed local partner for cross-border commerce. Attempts to conquer the Netherlands with just card payments, for example, would be unlikely to succeed. Any payment partner would need to support both iDEAL and open invoice. United Kingdom The UK is a challenge for online retailers. The largest e-commerce market in Europe is an attractive destination for Nordic companies looking to expand. The British have been early to adopt mobile e-commerce (m-commerce), and are enthusiastic cross-border shoppers. They are the most active online shoppers in Europe: 52.7 million of them spent an average of EUR 2,412 online in 2014. Even food shopping is shifting online, with 27% of consumers buying food online last year. The tricky thing is fraud, which at 1.2% is double the global average and a massive 12 times the level in Finland and Denmark. One major factor here is the stricter protection of consumer credit information. There is insufficient information on which to base an accurate credit score and validate a consumer’s credit history. As a result, it is difficult for companies to offer open invoice. Without open invoice, and with low levels of direct debit and online banking, the UK is heavily reliant on card transactions: 76% of online purchases in 2014 were card-based, and there is an average of 2.4 cards per capita. Card security is as tough as it can be: there is strong issuer support for 3-D Secure, and the UK is the only European country where Address Verification Service (AVS) is supported by Visa and MasterCard issuers. But card security can only do so much, especially in card-not-present (CNP) transactions, where the merchant cannot physically examine the shopper’s card. CNP fraud represents 67% of total fraud, and is a major risk. Payment-after-delivery options will most likely grow in attractiveness in the UK market, as they are in many other European markets, although changing historical payment habits may still take some time. ➤ PAYMENT METHOD RELEVANCE: TOP PAYMENT METHODS danmark Definition of relevance: Market share and usage of payment methods Source: arvato metastudy 2014 danmark finland germany: PAYMENT COMPLEXITIES & COST Degree of complexity PAYMENT MATRIX Cost /complexity “keep a close eye on” “evaluate trade-off” finland danmark PayPal germany germany norway finland sweden sweden nederländerna finland PayPal Direct debit sweden germany nederländerna danmark Direct debit norway Credit uk germany Credit card finland danmark germany finland Prepayment Online bank transfer uk sweden COD nederländerna norway danmark germany COD uk sweden finland nederländerna norway Prepayment finland sweden nederländerna norway sweden danmark norway germany danmark Netherlands finland iDEAL sweden uk germany Almost no fraud, smooth and automated process, but high manual efforts in case of refunds Relevance Cheap payment method, but high order cancellation risk netherlands: PAYMENT COMPLEXITIES & COST danmark derna uk sweden sweden uk Credit & debit nederländerna cards norway uk sweden nederländerna germany finland iDEAL nederlän- norway finland germany Open invoice norway uk PayPal sweden norway nederländerna Direct debit uk sweden nederländerna uk nederländerna 8 iDEAL fee: ca. EUR 0.2-0.4, highly automated and smooth process, almost no fraud PAYMENT MATRIX Cost /complexity PayPal COD “keep a close eye on” “evaluate trade-off” PayPal COD Visa/MasterCard: IC+ 0.65-1.2%, average processing and risk management efforts nederländerna (Klarna, Afterpay), Direct debit Degree of complexity sweden germany norway danmark germany COD Online bank transfer Sofortüberweisung and Giropay fee: approx. 1%, highly automated and smooth process norway danmark finland Netherlands Visa/MasterCard: 1-2%, high risk mngt. costs due to low acceptance of 3DS “must haves & easy to handle” germany finland Open invoice “nice to have” finland nederländerna nederländerna (Klarna, Afterpay) 0.5-3% in total: high credit/risk management & collection costs due to chargeback risk danmark uk uk Credit & debit cards Direct debit Open invoice Pre-payment danmark uk germany COD nederländerna sweden norway Online bank transfer 0.5-3% in total: almost no processing fee, but higher credit/risk management efforts as well as reconciliation and collection efforts uk finland Germany PayPal norway danmark Open invoice Credit card norway Open invoice germany danmark uk Germany PayPal fee: ca. 2%, high risk mngt. efforts and process costs 0-3.5% in total: invoice is in most cases directly financed by third-party providers such as AfterPay and Klarna Direct debit “nice to have” Open invoice Credit & debit cards “must haves & easy to handle” 0.5-3% in total: high credit/risk management costs & collection costs due to chargeback risk, smooth reconciliation iDEAL PayPal fee: 3-4% Almost no fraud, smooth and automated process, but high manual efforts in case of refunds Relevance PAYMENT METHOD RELEVANCE: TOP PAYMENT METHODS Conclusion: Market understanding, right payment methods essential Definition Relevance: Market share and usage of payment methods Source: arvato metastudy 2014 Online and mobile shopping are revolutionising the retail sector, providing an avenue into new national markets for retailers looking to expand internationally. But varying consumer expectations and behaviour, regulatory frameworks and market conditions make it essential that retailers understand and adapt to their export markets. ■ United Kingdom Credit & debit cards PayPal Other Wallets (Amazon, Skrill) Smart companies are looking for ways to understand their target markets and provide the e-commerce sites and payment solutions their potential new customers want. ■ The right payment solutions, alongside market and business intelligence, can give merchants the edge as they expand into international markets. ■ COD Direct debit United Kingdom Paysafecard Pauline Hermansson has been a member of the Nordic Management Team since January 2015, in her role as Head of Strategy and Innovation in the Nordics. Born in 1975, Pauline holds a degree of Master of Science in Business and Economics from Halmstad University, specializing in Strategic Development & Change. Since joining the group in 2005, Pauline has held different positions within the areas of Product and Business Development in the Swedish market organization and Nordic cross-border collaboration projects. danmark finland germany danmark norway united kingdom: PAYMENT COMPLEXITIES & COST finland danmark danmark sweden Degree of complexity germany danmark Credit & uk debit cards norway norway germany sweden nederländerna finland sweden uk norway nederländanmark derna germany uk PayPal sweden finland nederländerna norway danmark uk germany Other wallets (Amazon, Skrill), sweden finland nederländerna norway uk sweden nederländerna “evaluate trade-off” “keep a close eye on” Credit & debit cards Paysafecard finland germany finland PAYMENT MATRIX Cost /complexity IC+: around 0.9-1.7%, high risk mngt. efforts despite of high acceptance of 3DS, highest fraud rates within Europe, efforts for manual handling (order review, disputes etc.) PayPal fee: 3-4%, higher risk mngt costs and fraud rates Fees: 1.5-4%: high risk mngt costs and fraud rates COD Almost no fraud, but higher manual handlings and reconciliation efforts, esp. in case of refunds Direct debit High credit/risk mngt. costs & collection costs due to chargeback risk, smooth reconciliation Paysafecard Paysafecard fees: 8-20% safe germany Other wallets PayPal Direct debit COD “nice to have” “must haves & easy to handle” norway uk sweden nederländerna uk nederländerna Relevance Sources: arvato metastudy 2014 • E-commerce Europe 2014 • About Payments 2015 • Nordic e-commerce 2014, DIBS • E-commerce in the Nordics 2015, PostNord • E-commerce News 9 arvato Financial Solutions arvato Financial Solutions is a global financial service provider and a division of Bertelsmann SE & Co. KGaA as a subsidiary of arvato AG. The company has around 7,000 employees in 22 countries, including a strong presence in Europe, America and Asia. arvato Financial Solutions is synonymous with professional outsourcing services (Finance BPO) centering on cash flow in all phases of the customer lifecycle – from risk management and invoicing to debtor management, the sale of receivables and debt collection. We manage around 10,000 customers making us Europe’s third largest integrated financial service provider. Your one stop shop for financial services. Sitrus Agency: Sitrus Agency is redefining content, creating and maintaining sustainable content ecosystems that go beyond the old limitations of owned, earned and paid channels. With more than 200 professionals in five countries creating value for businesses and organisations across the Nordic region, we are part of Nordic Morning, the largest communications group in northern Europe. 10
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