By Igal Rotem, CEO, Credorax
Nearly four in 10 European online shoppers buy items cross-border, according to the European Ecommerce Report. What’s behind the rise of cross-border retail? Globalisation and supply chain specialisation have a great deal to do with it – but there’s no understanding the evolution of online retail without taking into account the decisive role of digital payments innovation.
But while advances in digital payments have brought much-needed convenience and user-friendliness to ecommerce, they’ve left merchants struggling to navigate how to incorporate them in the midst of unpredictable political events and new regulatory changes, while ensuring the seamless digital experience consumers crave.
Most prominently, Brexit and the introduction of the European Union’s Strong Customer Authentication (SCA) requirements are set to impact the retail sector on both the consumer and merchant sides. Here’s what retailers need to know, and how they can adapt to the changing payments climate.
Brexit: A Cliff’s Edge for the Payments Industry?
With a no-deal Brexit still very much a possibility – even if Prime Minister Boris Johnson secures passage of his withdrawal agreement – the payments industry is staring down a potentially calamitous event.
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Should the UK leave the EU without a deal, the country would be removed from its existing trade and customs agreements with the continent, with no alternative agreement in place. Cross-border payments would no longer be subject to a surcharging ban, and card payment costs between the UK and the EU would spike, according to a government analysis.
Earlier this year, the Royal Bank of Scotland warned that in the event of a no-deal Brexit, the bank may well not be able to clear over €50 billion per day in cross-border payments.
For many customers, the lapse of the surcharging ban would deliver an especially difficult blow. Given the diverse range of payment methods employed across Europe, giving retailers free reign to charge customers additional fees for different payment types could send costs soaring for many shoppers.
Enter the SCA Regulations
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If the kaleidoscope of uncertainties posed by a no-deal Brexit doesn’t trigger enough of a headache for merchants, there’s also the growing problem of online fraud. The Financial Conduct Authority (FCA) estimates that businesses lost £671 million to fraud on UK payment cards last year – a 19 percent increase since 2017.
What’s more, many retailers are worried that one of the most important remedies for the problem – the EU’s SCA requirements – will actually entail an additional hit to the bottom line.
These fears aren’t entirely baseless: According to one study, European ecommerce businesses stand to lose €57 billion in the first year of SCA implementation. SCA – part of the EU’s Second Payment Services Directive (PSD2) – requires authentication based on at least two of the following: something the user knows (a password, for instance); something the user owns (e.g., their mobile phone); and something pegged to the user’s identity (e.g., their fingerprint).
While SCA implementation was set to begin on 14 September, merchants breathed a sigh of relief when the FCA announced this summer that it would instead delay the rollout until March 2021. That gives stakeholders precious time to transition their payment processes to full compliance with the new standards – but the reprieve doesn’t mean payments providers, card issuers, and online merchants should sit back.
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If merchants don’t take advantage of the 18-month grace period, they risk bigger growing pains and more exposure to fraud come early 2021.
By taking advantage of the pre-implementation period, retailers can integrate a host of technologies and best practices that will ensure the security of payment processes and, in the long run, help save millions that would otherwise have been lost to fraud.
Uncertainties aside, one thing is abundantly clear: The sooner merchants achieve robust protection from online fraud, the closer they’ll be to achieving the most seamless transaction experiences possible.
Merchants should talk with payments services providers to gauge their options. Investments in simplifying payment processes and streamlining operations can make a world of difference, allowing businesses to more easily adapt should a no-deal Brexit – or any other turmoil – come to pass.
Access to rich, insightful data will also be crucial, as the world of cross-border payments has many different moving parts. By investing in data analytics, merchants can benefit from the intelligence necessary to optimize processes, receive funds efficiently, and effectively reach customers.
There’s no getting around the often head-spinning complexity of today’s business climate – but with proper preparation and smart investments in people, processes, and technology, merchants can position themselves for durable success.