Germans hate credit cards, the Dutch hate PayPal, Italians like cash and other insights into international ecommerce payments

Many UK ecommerce companies and online retailers have been expanding their business internationally in the last couple of years.

I have led the process of transforming Baker Ross from a domestic to an international internet retailer. One of the things I picked up on very quickly was the importance of offering customers local payment methods they liked and trusted. If consumers don’t find you offer the payment methods they prefer they will abandon the purchase. All that money spent on Google paid search and other marketing will then have been wasted.

Baker Ross is an online retailer of our own brand of children’s craft products. Prior to 2013 it was purely a domestic business. I took the decision to test demand for our products overseas in 2013. This was done initially via marketplaces and then built on by rolling out our own international websites.

Baker Ross now operates 8 of its own websites (1 UK and 7 international) plus it sells on 12 different marketplaces (3 UK and 9 international).

Our own overseas websites include Germany, France, Italy, Netherlands, Sweden, Australia and Ireland.

Given that six of our international websites are in the European Union one might have thought ecommerce payment methods might have been quite similar. Not a chance! They vary significantly from one country to another.

The only countries where ecommerce customers had pretty much the same payment preferences to the UK are Ireland and Australia. This is probably due to a shared anglo-saxon heritage.

When it comes to ecommerce payment methods Europe is a very foreign land.

Below I will share some of my findings and experiences on preferred payment methods in a range of European countries.

In Germany cards (debit or credit) are very unpopular and account for about 9% of our website orders. Germans really do hate credit (and debit) cards. The words from “debt” and “guilt” in German are very similar I am told. British consumers, in contrast, have no such “guilt” hang-ups about using their cards as they account for 56% of consumer orders on our UK website.

The breakdown of the payment types on our German website is as follows:

• PayPal 54%
• Invoice 24%
• Bank transfer 12%
• Cards 9%

PayPal is clearly very popular with our German customers. This is partly due to our typical basket size. Retailers with higher basket values may find Invoice a more popular payment method. You have to be offering PayPal in Germany. Furthermore you should have PayPal express in order to reduce friction at checkout generally and when using Smart-phones in particular.

Paying by invoice (ie consumer credit) is also very popular with German consumers. It should be offered in Germany as failing to do so will materially impact website conversion rates.

Giving consumers credit isn’t something many UK internet retailers would look to offer except some focusing on lower income customers like the Shop Direct group. There is an understandable nervousness about possible bad debt rates.  

We use a payment supplier called Klarna (www.klarna.com) who act as an intermediary between us and our German customers in the credit process. They credit screen the customer. The customer then pays them who in turn pay us. We have to wait a couple of weeks to get paid.

As long as there are no issues with delivery or damaged goods Klarna will pay us even if the customer doesn’t pay them. They are taking the credit risk. This is effective and popular but is expensive from a retailer perspective compared to card or PayPal payment. Companies such as ASOS also use Klarna as their invoice payment partner for Germany.

I know of at least one UK online retailer who has run their own German consumer debt book. I won’t name them but they are a very middle class fashion retailer. They credit screen the customers and then give them credit. The affluence of their typical customer helps them keep their bad debt rate under 2%.

Various forms of bank transfer are popular particularly in northern Europe.  Such transfers can be verified or unverified. The latter involves the customer transferring some money to your bank account. Such payments require identifying and matching, often manually, to orders in your system before they can be released to picking and packing. This can be costly from a finance department administration perspective.

A popular verified transfer payment method in Germany is Sofort (www.sofort.com). With a verified transfer a real time payment confirmation is attached to the website order confirming it so no manual matching is required.

In the Netherlands they hate cards as much as the Germans. They also have no time for PayPal. The breakdown of payment types on our Dutch website shows this clearly:

• Bank transfer 86%
• Cards 7%
• PayPal 7%

The key take-away from the above is that offering bank transfer is vital to Dutch customers completing a purchase. The bank transfer payment method which they love is called iDEAL (www.ideal.nl). It is a verified payment method that works in a very similar way to Sofort in Germany. If you are not offering iDEAL in the Netherlands then you are going to struggle to convert website sessions into orders.

When considering payment methods for your Dutch website don’t forget their Dutch (Flemish) speaking cousins across the border in Belgium. There are circa 17 million Dutch speakers in the Netherlands but another 7 million in Belgium. They should make up a considerable proportion of the visitors to any Dutch language website. Very few of these Flemish Belgians tend to pay using iDEAL and most of them will instead pay using cards or PayPal.

The prevalence of bank transfer as a payment method in certain countries makes it essential to have a euro bank account in a Euro Zone country (ie not the UK). You will need to refund customers by same payment method with which they originally paid. This inevitably means doing many bank transfer refunds. If you do this from a UK based euro account it will quickly become costly as you will incur bank charges. If you do these transfers from an account in the Euro Zone there will be no bank charges.

The French are more like us Brits than you may think at least in the area of ecommerce payments. The breakdown of payment types on our French website is:

• Cards 72%
• PayPal 28%

In France they prefer cards to PayPal by a slightly larger margin than the UK but otherwise it is very similar. Carte Bancaire (CB) is very popular in France. These cards can be either credit or debit. Do make sure you put the Carte Bancaire logo on your website.

We did offer bank transfer on our French site in the early days but the take up was so low we stopped offering it on our site. Having a local bank account can be useful should you decide to decline a high risk card transaction. You can then ask the customer to make a bank transfer instead.

Swedish payment preferences differ considerably for other European countries. The breakdown of payment types on our Swedish website is:

• Invoice 65%
• Cards 28%
• PayPal 7%

The market leader for Invoice payment in Sweden is Klarna. They are a Swedish company.

Just across the water in Denmark preferred payment methods are very different to Sweden. We ran a Danish site for a while and found that at least 90% of all orders came via a card. Nearly all of them were debit cards. I have no idea why Danes love debit cards but they do. Payment by invoice is not at all popular in Denmark.

As one goes further south and east in Europe there is often both a lack of trust in delivery and a more cash based economy. This makes it a little more difficult for an ecommerce business to get traction. There are, however, some big markets and none is bigger than the 60 million or so Italians.

Our Italian payment method data is superficially similar to France and the UK. The breakdown of payment types on our Italian website is:

• Cards 55%
• PayPal 45%

These figures mask an alternative payment method which Italians like but we are struggling to offer. Website conversion rates in Italy are markedly lower than Northern European countries. This is not just a Baker Ross thing. I know the same is true on Amazon Italy.

A lot of Italians would really like to pay by cash on delivery. I am consistently told by my Italian colleagues that not offering it impacts conversion rates. The challenge with offering this payment method is not so much financial as logistical. You need a parcel delivery partner who offer this and can do so cost effectively. We are in the process of upgrading our parcel label software we use with DHL and this will allow us to test cash on delivery shortly.

I am currently testing the demand for our product in Poland using a local marketplace (www.allegro.pl). Unlike Amazon this marketplace requires the seller to make its own payment arrangements rather than using the marketplace’s own checkout. My initial findings are that Poles will purchase using an e-wallet but not PayPal. Instead they prefer a local equivalent called PayU (www.payu.pl) which is much more popular. I have also found bank transfer to be popular in Poland. This necessitates opening a Zloty bank account in Poland.

Paul Giuffredi is an experienced Finance Director with an in depth knowledge of internet retailing. He has been the Finance Director of privately held, private equity backed and AIM listed companies.