Cross-border trade and the future of the European market | Articles
Today’s tech-savvy corporate buyer likes to compare goods and services online and knows exactly where to get the deal that appeals to them most, even if that’s outside their own country of residence. Whenever goods and services are exchanged between two countries, it’s called cross-border trade (CBT for short). It is also known as international trade, international selling, borderless business and some other colourful alternatives, but we prefer to call it cross-border trade. It just sounds better, don’t you think? And since – according to a report by DHL – every seventh online purchase is a cross-border trade and Bankingblocks provides cross-border payments, we thought it would be a good topic for the C in our ABC.
Cross-border trade, yes or no?
Let’s start with something that we think is funny. Not funny-haha, but amusing. Did you know that online trades between two countries that share their language, border and/or currency are not strictly considered cross-border trades? You would expect that because countries within the EU are separate entities, trades between these countries would fall in the cross-border category, but they don’t. So, if a Dutch company sells something to a Belgian business, it is not considered a cross-border trade, because Belgium and the Netherlands share their currency, border and language; the holy trinity. However, when a Greek company buys supplies from a company that is based in Denmark, it is considered a cross-border trade, because these two countries don’t share their language, border or currency, even though they are both part of the European Union. Peculiar, no?
CBT in the EU
The total worth of Europe’s e-commerce market is £263,4 billion, which puts in third place when compared to other economic regions. And according to Shopify, it currently houses three out of the ten largest e-commerce markets in the world:
- UK – £70,7 billion
- Germany – £58,5 billion
- France – £41,8 billion
According to Key Business Drivers and Opportunities in Cross-Border Ecommerce 2017, a white paper by Payvision, the annual growth rate predicted for cross-border e-commerce between 2017 and 2022 is 17%, whereas the predicted annual growth rate for e-commerce overall is “only” 12%. Another report by Forrester Research estimates that B2B e-commerce transactions will reach £1,37 trillion by 2023 in the US alone, let alone worldwide. These figures emphasise how important cross-border e-commerce already is and how much more important it will become in the near future.
The popularity of e-commerce titans like eBay and AliExpress is one of the reasons that e-commerce in Europe continues to grow every year. Local players like Dutch Bol.com and the German branch of Amazon have started to gain traction and are spreading across Europe. And with 250 million online shoppers, the EU is a breeding ground for e-commerce success.
For merchants looking to boost their conversions, marketplaces offer a very real opportunity to do so, because of the strong traffic that they attract. And because it’s relatively easy to set up a marketplace, retailers have the opportunity to gain visibility in foreign markets and boost their conversions with minimal effort and cost. Good on them, because a couple of years ago, Ecommercenews.eu predicted that global marketplaces will be responsible for about 40% of the online retail market by 2020.
As we know, the EU is a union, which implies that the rules and regulations surrounding cross-border trading are the same across the board. However, this is not the case. Sure, there are some overarching rules, like GDPR and PSD2, but each country also has its own specific set of rules that pertain to that country alone.
Last May, the General Data Protection Regulation (GDPR) came into effect. This regulation focuses on harmonising data privacy laws across the European Union and now makes it impossible to visit any website without pop-ups doing their thing and popping up asking you to agree to cookies and whatnot. You can read more about it here.
In January 2016, the EU revised their original Payment Service Directive and introduced its successor, PSD2. This new regulation is supposed to uniform financial transactions within the European Union and EU member states were given until January of last year to transpose it into their national laws. Read more about it here.
An example of a rule that only pertains to its own country is the German Abmahnung, which translates to written warning in English. You’ll receive one of these Abmahnungs if your e-commerce setup doesn’t follow German law.
European payment preferences
Traditional payment methods – like paying with cash – are still pretty popular in Europe, but alternative payment methods are slowly but surely gaining more traction. Ecommerce News Europe states in an article that PayPal and VISA dominate the European market when it comes to cross-border payments. Every country – except the Netherlands – has one of these two payment methods listed in their top 2 of preferred payment methods.
Risk & fraud
Unfortunately, fraud is a fact of life in the world of cross-border trades. With the 21st century well underway, cyber criminals have made the shift from data theft to payment fraud, which makes financial institutions and payment infrastructures primary targets. InfoSecurity magazine estimates that losses from online payment fraud will top £16.7 billion this year and could even grow to £36.5 billion by 2023.
As one would expect, fraud rates are significantly higher for cross-border payments than for domestic payments, because it’s that much harder to track international payments in real time. Threatmetrix has also noticed an increase in mobile attacks: 48% of all phishing attacks are targeted at mobile users and a whopping 4,000 new mobile phishing sites are unleashed upon the ether each day.
Even though this blog focuses on cross-border trades within the European Union, we would be amiss if we didn’t at least mention China, land of the rising trade. With marketplaces like Alibaba and Taobao, and Internet increasingly penetrating the far East, it is no surprise that e-commerce in China is a £562 billion market, set to grow to £825,4 billion in 2023. Move over USA, China is the new sheriff in e-commerce town.
If you have any questions about cross-border trading and what it means for your business, please drop us a line or give us a call!