From fashion to travel, many U.S. online retailers are starting to see between 10 to 20 percent of their traffic coming from European-issued payment card products. Because setting up physical branches in local EU countries is rather expensive, online retailers tend to opt for keeping their businesses virtual.
Most online retailers say that when it comes to conducting e-commerce in the EU, they regularly encounter problems when it comes to the following: language, culture, local regulations and shipment/fulfillment. Yet one obstacle that tends to not make this “Top 5 List” is foreign card payment processing from European and UK consumers.
Reduce Fraud and Costs
As news of data breaches become more common, “fraud” has once again become a major issue in the e-commerce arena. Now more than ever, U.S. players across the e-commerce payments chain — especially retailers and card issuers — are extremely wary to accept online card payments originating from foreign countries. Since a cure-all hasn’t yet been created to completely nullify the global online fraud epidemic, Europe (and the rest of the world) isn’t immune to fraudulent activity.
As such, most U.S. online retailers and card-issuing banks have put into place preventative measures to try to reduce the amount of European-based fraudulent activity that affects their online customers. In fact, many banks will automatically decline card authorizations from certain countries.
The upside? These measures help reduce online card payment fraud. The downside? By not allowing any online payments to originate from European cardholders, everyone across the online payments chain loses out on expanding their brand/product to an extremely profitable consumer buying market.
In addition, U.S. online retailers are hesitant to accept European online card payments because of the high international exchange fees associated with processing foreign cards.
European vs. Domestic: Partner Smartly
Should U.S. retailers stay away from accepting European online payments because of the fear of fraud and high international fees? Absolutely not, as the benefits of this untapped market are certainly there. For example, in the UK alone, $950 million worth of goods is exported annually from U.S. retailers. However, retailers need to be smart and figure out solutions to overcome fraud and high fees. One of the most effective solutions is to partner with a European acquiring bank which has both the legal and regulatory rights to process online payments within the EU.
In the majority of cases, U.S. online merchants’ acquiring banks will typically be one of the many national banks across the country. However, in order to legally conduct e-commerce business within Europe and the UK, an acquiring bank must have a European license from the Payment Services Directive (PSD) created by the European Commission. Most domestic acquiring banks don’t have this license. A recent study shows that over 44 percent of surveyed merchants don’t know whether the independent sales organization who handles their payments is affiliated with their acquiring bank in the foreign countries they service. This is especially true for U.S. merchants.
A European bank acquirer that has the jurisdiction to process within the EU will automatically be able to treat that particular transaction as domestic (within a country) or regional (between EU countries) rather than international (between Europe and the U.S.). The benefit for the merchant is that the card processing fees for both domestic and regional are significantly lower than international fees. In addition, with a European bank acquirer, the merchant won’t have to pay dynamic currency conversion costs that are required when conducting business within the U.S.
With a European bank acquirer, these payments are treated as local payments and therefore legitimate payments are automatically approved and not stopped because of their European-based IP addresses. This, in turn, leads to merchants being able to accept a higher amount of card payments from European-issued card payment products/consumers.
In addition, by selecting the right partners, retailers will not only increase card approval rates, but even more importantly, the right bank acquirer in a particular EU country will also ensure that proper risk management measurements are put into place to significantly reduce the amount of fraud activity coming from that particular country.
In the UK alone, IMRG is predicting window that over £100 billion will have been spent by consumers online in 2014. Imagine that record-breaking number coupled with predictions for other top European buying countries such as Germany and France — the market potential is clearly extraordinary for U.S. online retailers.
To shy away from such an opportunity would be a shame. U.S. merchants need to be smart and find the right payment partners in Europe that will help them overcome barriers to entry. When it comes to accepting European credit cards online, merchants need to partner with the right EU bank acquirers.