Although statistics point to the U.S. economy being in recovery, many retailers continue to struggle for revenue. One obvious solution is to expand the potential customer base into Europe and the U.K. through cross-border ecommerce.
Unfortunately, as countless businesses have learned, the challenges faced by retailers as they attempt to expand overseas are more complex now than ever before.
These obstacles include:
Need for Multiple Bank Relationships:In order to process payments in any country, a retailer must have a relationship (either directly or through an ISO or PSP) with a merchant acquiring bank that has jurisdiction to conduct business in that country. Since most acquiring banks only operate in the country where they are based, merchants must typically sign up with 6-8 different banks in order to provide anything like ‘global’ service.
Fraud, Fees and Low Approval Rates: Because a number of fraud scandals have stemmed from international credit card processing, many banks automatically decline card authorizations from certain countries. Others apply high international exchange fees when processing foreign cards.
Complicated Regulations: Unlike the U.S., each European Union country has different regulations, especially regarding financial and banking legislation. It can be extremely expensive and complex to navigate through this legal morass.
Multilingual, Multicultural: Trying to enforce the American language and culture onto a continent as diverse as Europe is a recipe for disaster.
Supply Chain Challenges: Warehousing, distribution and returns management are just a few of the supply chain issues that must be addressed.
Although these obstacles may seem insurmountable, there is a simple way to get around them – by partnering with a merchant acquiring bank that possesses a European license from the Payment Services Directive (PSD) created by the European Commission. A PSD license is only granted to financial institutions that comply with an extensive set of rules and obligations designed to ensure the quality and stability of the European payment sector. However, the license holder is granted the legal and regulatory rights to process online payments throughout the entire E.U., rather than being limited to a single country.
Most U.S. acquiring banks obviously do not have this license. However, a PSD-licensed European bank is a godsend for a U.S.-based merchant, because it is able to treat each customer transaction as domestic or regional, rather than international. In other words, it can process each online European credit card payment locally within the country where the payment was made, rather than sending it through to be processed in the U.S. This results in much lower card processing and currency conversion fees for the merchant, as well as a much higher card acceptance rate.
There are other advantages to partnering with a PSD-licensed bank as well. The bank is guaranteed to have expertise regarding the local customs, languages and regulations of each E.U. country. It will also have appropriate risk management measurements in place for each region in which you do business, thus reducing the likelihood of fraud.
Finally, one of the less obvious benefits of working with a European Merchant Acquiring Bank is that it may have partners on the continent that can assist you with other aspects of the complicated cross-border process. For example, the bank may have a supply chain management partner that can provide tax and compliance reporting, accounting services, fiscal representation, and sophisticated supply chain and logistics services that reduce your administrative burdens and compliance cost.
Considering that the European ecommerce industry is expected to grow 19% this year, compared to 14% for the U.S., U.S. merchants who do not find a way to compete are missing out on a golden opportunity. The most important thing to remember is that you need not face the (not insignificant) entry barriers alone; all you need is a good partner.
Rod Katzfey is VP of Business Development, North America, at Credorax.