By Or Paran, VP of Sales & Business Development at Shift4
The value of cross-border e-commerce transactions is projected to grow by 107% globally by 2028 and comprise a third of all e-commerce spending, more than doubling its current value to over $3.3 trillion. EU businesses would be well-advised to maintain a strong presence in global markets. But all it takes is a broken link in the value chain to impede such growth.
One such link? Cross-border payments.
Cross-border payment systems need to be seamless, clear, and compliant. Anything less hinders merchants, frustrates customers, and prompts cart abandonment, undercutting all the work EU businesses have done to cultivate their vast, borderless pool of online shoppers and impeding new businesses from following suit.
Fast, reliable, and uniform cross-border payment systems are a must for global companies aspiring to take full advantage of international demand. Yet, current methods for immediate payments are unnecessarily complicated and lack consistency.
Solving the longstanding issues with cross-border payments will not only enhance the interoperability and transparency of payment processes but will help future-proof Europe’s financial landscape and cement the EU as an innovative global leader within the payments industry.
The Status Quo
Despite improvements in transaction technology, insufficient interoperability and underregulated currency exchange rates still pose issues.
Hidden fees – exaggerated currency conversion charges, intermediary fees, and other undisclosed markups incurred during cross-border transactions and transfers – have plagued the EU’s digital payments system for years. Consumers and businesses lost an estimated total of €22 billion in 2019, a figure that swelled to €30 billion just last year.
A transparent, unified market could change the present dynamic, but varying regulatory standards and compliance requirements across EU states have distanced that goal. Brexit, for example, disrupted pre-established trade relationships and regulatory frameworks and necessitated complex changes to cross-border payment requirements and procedures between the UK and the EU.
Such inefficiencies have burdened businesses and e-commerce merchants with greater risk. After all, businesses must comply with local laws and payment regulations in all the regions in which they operate to avoid incurring debilitating penalties.
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Addressing the Issues
Credit where credit is due: the EU has already introduced several important regulatory initiatives to realign its payment industry.
This includes the recent introduction of the Single Euro Payments Area (SEPA) to enable EU citizens and those in other affiliated regions to conduct electronic euro transactions with the same ease as domestic transactions. Other new regulations have been introduced as well to of enable near-instant, round-the-clock digital payments across EU member states.
However, to maximize the impact of these regulations, banks, regulators, and payment service providers must develop a fintech ecosystem to cater to new cross-border needs.
Establishing partnerships with all relevant stakeholders can smooth this transition and help payments providers navigate the web of strategic, technical, and regulatory challenges. In the past, financial organizations have forged strategic partnerships with local service providers to simplify and expedite the processing of cross-border payments in any given locality, reducing costs and upping convenience for all parties. Merchants that engage in strategic local partnerships will also be able to save on expenses and operating costs when processing B2B payments. By reducing the time needed to settle payments and complete reconciliation processes, cross-border retailers stand to boost their efficiency and, ultimately, cash flow.
Collaborating with local payment service providers helps streamline payment processes and keep expenses down for merchants across the EU. Through partnerships with local financial institutions, cross-border payment service providers can route customer payments through banks in consumers’ own regions. This allows businesses to accept payments in their local currencies without overpaying for currency conversion and enables heightened transparency for both merchants and customers.
On top of the cost-saving benefits, routing payments through local acquirers improves the authorization rates of transactions. This is because payment requests are kept within the country of origin, thereby avoiding cross-border complexities.
The Payoff
Concerted collaboration efforts between all industry stakeholders is paramount to strengthening and streamlining Europe’s cross-border payment capabilities. Banks, regulators, policymakers, and solution providers must collaborate strategically to simplify the web of regulatory and compliance hurdles and build practical, interoperable solutions. This will enable providers to collaborate on vital infrastructure, facilitate seamless cross-border transactions, foster economic integration, and empower EU businesses to leverage global market opportunities more effectively.
Though the road ahead won’t be instant or seamless, strong EU payments infrastructure would not only streamline commerce within the region, but provide the foundation for more seamless transactions across continents. What better payoff is there?
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