Capitalising on cross-border ecommerce with online bank payments

This editorial was first published in our Payment Methods Report 2018 – Innovations in the Way We Pay. The Payment Methods Report 2018 presents the key trends and developments in global and regional payment methods by highlighting the innovation, challenges, and developments in the use of the most important payment methods across geographies and verticals.

Ecommerce in Europe is thriving, and as consumers hunt for cheaper options, specific brands and more unique items, they are increasingly turning abroad. In fact, of the 260 million Europeans who shop online, 186 million do so from foreign websites, according to E-Commerce in Europe 2017, a report produced by European postal service PostNord. This is good news for online retailers, but also poses a major challenge. A retailer might be able to get away with an online checkout that only offers card payments if their shoppers are only from the UK, where cards are the dominant payment method. However, retailers must offer alternative payment methods if they want to cater to shoppers from other European markets, where cards aren’t always the preferred payment method. Below are graphs showing how consumers in different European markets prefer to pay online, according to data from PostNord. You can see that while some markets have a high preference for debit and credit cards, others prefer alternative payment methods like e-wallets, invoice, and online bank payments.

Of course, these payment preferences aren’t static. According to Worldpay’s Global Payments Report 2017, more than half of all online transactions will be made using alternative payment methods by 2021. The report even goes as far as to say that over the next five years, the popularity of online bank payments will exceed that of credit and debit cards globally. Because of the high cross-border ecommerce from markets like the Nordics, Germany, and Poland, which show a great preference for online bank payments, retailers that don’t offer localised payment methods could lose out on cross-border sales. So what’s driving the adoption of alternative payment methods, and specifically online bank payments? Below are four main factors:

Security

At Trustly, we conducted a survey on The State of Online Banking with research firm NEPA that revealed consumer attitudes towards banks and bank transfers. It revealed that many Europeans (68% of Spaniards, 66% of Italians, 61% of French, 55% of Germans, 55% of Dutch, 51% of Swedes) agree that they’d be more likely to shop from international websites if they didn’t have to give out credit or debit card numbers to unknown foreign merchants. They go on to agree that they’d be more likely to shop on foreign sites if online banking was offered more often as a payment method (59% of Spaniards, 59% of Italians, 55% of Dutch, 47% of French, 44% of Germans, 35% of Swedes).With online bank payments, strong two-factor authentication is required, so the risk of fraud is virtually zero. When this payment method is offered, consumers feel safe shopping abroad because they don’t risk compromising their card details.

Convenience

The convenience of alternative payments is increasing, and not surprisingly, this is driven by innovation and technology. In Sweden, for example, Mobile BankID is a secure app that lets consumers authenticate themselves with just a few taps and is widely used by banks and government organisations alike. Similarly, in the UK, Barclays is making it easy for its users to verify themselves via PINsentry. As digital authentication methods become more mainstream in other markets, it seems natural that online bank payments will grow in popularity due to the increased convenience. On top of that, when paying with cards, consumers need to enter a long string of numbers; with online bank payments, they only need their log-in credentials to their online bank, which most know by heart.  In contrast to e-wallets like PayPal, online bank payments don’t require registering a separate account, just access to one’s online bank. 

Simplified returns

Returns are a substantial resource drain for online retailers. Customers often order several sizes of one item to try on at home before deciding which to keep, resulting in a high return rate. This creates logistical and payment complexities, which ultimately eat into margins and frustrate customers. However, a great returns experience can also enhance their brand and build customer loyalty, thus optimising this trade-off is vital for a customer-first, fast-growing online retailer. An online bank payment provider like Trustly can help retailers simplify the administrative hassle and reduce the cost of processing refunds with instant refunds. Customers also love instant refunds because they receive funds directly into their bank account, allowing them to purchase more goods straightaway instead of waiting days or even weeks to receive their money. One large Nordic online retailer that implemented Trustly’s instant refunds saw that its customers had 55% larger basket sizes and made 84% more purchases in the past 12 months. Overall, this equaled 185% more spend on goods when using Trustly.

Regulation

Online bank payments align closely with PSD2, the legislation now being adopted across the EU that aims to drive innovation, foster competition, increase security and reduce costs for consumers.Banks are encouraged to create APIs that let third-party payment providers access consumer bank accounts on their behalf and initiate bank payments. As PSD2 now requires all online payments to carry two-factor authentication, it is adding friction to the card experience, while simultaneously simplifying the online bank payment experience for consumers. These factors combined are likely to further drive adoption of online bank payments. So as consumer payment preferences shift away from cards and toward alternative payment methods, online retailers that offer these innovative methods can streamline the ecommerce experience and boost conversion in the checkout.

About Luke Flomo

Luke is a payments expert, bringing a wealth of knowledge with his 12 years of experience in the industry. He has worked for the likes of Barclaycard, WorldPay and, more recently, Klarna, where he headed up the Sales and Partner channel.

About Trustly

Trustly is a Swedish fintech company that makes online bank payments fast, simple and secure. Today, it covers 29 European countries and its payment solutions attract global merchants in ecommerce, travel, financial services and more. As of November 2017, the company had processed more than EUR 10 billion worth of payments since its inception in 2008.