European e-commerce is a mix of steady established markets and exciting emerging opportunities. Find out which payment methods are essential for reaching a diverse customer base.
E-commerce continues to expand across Europe, driven by a combination of steady growth in Western Europe, alongside a rapidly expanding e-commerce landscape in Poland, Romania, the Czech Republic, and other several Central and Eastern European countries.
As in many other parts of the world, mobile devices are the main driver of growth for e-commerce in Europe. The UK, Czech Republic, Ireland, and Norway have been key adopters of smartphone-based payments. European consumers, meanwhile, are also embracing other innovations in online payments, such as instant payments and Buy Now Pay Later (BNPL).
Successful e-commerce merchants rely on a global approach that takes into account the need for localization – which extends to the choice of online payment methods that local consumers use and trust.
Which payment options should merchants offer to streamline the checkout experience and win more customers in Europe? Keep reading to learn more.
European payment trends to watch
Case study: 5 popular payment methods in Europe
Summary: Leverage global and local payment methods for success in the European market
The European payment landscape is evolving at a fast pace. E-commerce businesses looking to establish themselves among European customers need to embrace the latest technologies and keep an eye on new solutions that quickly gain traction among digitally savvy consumers.
Choosing the right payment methods to localize the checkout experience is a must when expanding into new markets. Offering the right payment methods in the right places helps merchants to increase checkout conversions, improve payment approval rates, and build customer loyalty.
Before looking at some of the key payment methods dominating European e-commerce at the moment – what are the key trends driving European payments generally?
Let’s start by taking a deep dive into four core payment trends that every merchant should be aware of.
Europe, like the United States, was an early adopter of e-commerce and therefore of credit and debit card payments, which dominated the first wave of online shopping.
Today, despite a growing number of alternative payment methods on the market, credit and debit cards remain the most popular payment method amongst the majority of customers in Europe. In the European Union, cards still represent more than half of all non-cash transactions. Unsurprisingly, usage is higher in wealthy countries with high bank penetration.
Since major card payment brands like Visa and Mastercard have strong brand recognition and fraud prevention methods like 3D Secure have improved significantly, it’s likely that cards will remain an essential part of the payments landscape in the near future.
Open banking was born and raised in Europe, which is still the main hub for innovation in this area. In January 2016, a revised payment services regulations known as Payment Services Directive 2 (PSD2) came into force across Europe. The main goal of this new regulation was to promote the use of innovative online payments through open banking, as well as giving customers open access to their financial data.
PSD2 required banks to develop regulated APIs (application programming interfaces) on customer accounts, allowing account information service providers (AISPs) and payment initiation service providers (PISPs) to easily plug into their accounts with their consent and provide an additional range of new service.
The rollout of open banking has resulted in a wave of alternative payment methods and other financial services innovation across Europe. The trend is ongoing and is likely to result in even more innovation over the coming years.
The rise of digital payments, and the growth of digital payments generally, are driving the uptake of instant payments in Europe. In fact, the European Commission is now calling for instant payments to become the norm for payments in general.
The increasing adoption of instant payments will lead to further digitization and diversification of payments on the continent, delivering further benefits to consumers, businesses, and e-commerce in general.
2022 has been a big year for Buy Now, Pay Later (or BNPL) throughout the world, but with homegrown global powerhouses such as Klarna (see below) as well as other local offerings, Europe continues to maintain a strong claim as the global BNPL capital.
The European BNPL market is expected to reach over $300 billion by the middle of the decade, while accounting for an increasing share of overall e-commerce transactions.
According to Worldpay’s 2021 Global Payments Report, BNPL made up 7.4% of e-commerce transactions in Europe in 2020, by far the highest in the world. By 2024, this number is projected to double.
In Europe, it’s very common to pay with credit or debit cards for online purchases. However, one can note significant differences among the countries when it comes to card adoption and usage.
For example, in the Netherlands, credit cards aren’t very popular because more than half of Dutch consumers use their national payment method, iDeal, for online purchases. In Germany, on the other hand, many consumers prefer to pay by invoice, digital wallets, or direct bank transfers.
Even in countries where cards are popular, the market tends to include a lot of local players. In order to ensure maximum payment method coverage, merchants should ensure they are able to offer plenty of card options from local issuing banks in addition to the global brands.
Another holdover from the early days of e-commerce, PayPal has continued to innovate and remains on the leading edge of payment trends. PayPal has its own line of products and services that are incredibly popular around the world. Recent data from PayPal shows that senior citizens were its fastest-growing segment on a global scale in early 2020.
What’s unique about PayPal is that it has the scope and brand recognition to offer a comprehensive package of payment services, while financial technology companies in Europe still tend to focus on a particular service.
Europe has yet to see super-apps such as AliPay dominating the payments landscape across the continent or even in just one country, making globally recognized alternative payment methods like PayPal especially important.
For merchants interested in entering the dynamic Eastern European e-commerce ecosystem, Poland is a great place to start. With a population the size of Spain, rising wealth, and a growing online consumer base, the country is full of e-commerce opportunities. Still, merchants must be prepared to adapt e-commerce customer experiences to the local market. One place to start is by understanding which local payment methods are important in Poland.
Blik is currently the most popular mobile payment method in Poland. The system is embedded across multiple banking applications, covering all major Polish banks. As a result, more than 90% of all customers of Polish financial institutions can use Blik in mobile banking applications.
How does Blik work? When a customer proceeds to the checkout page, they can choose Blik from the list of available payment methods. Their mobile banking app then generates a code which the customer can enter at checkout. After the user clicks to pay, all he or she needs to do is confirm the payment in their mobile banking app.
This mobile payment method is convenient, fast, and easy to use. Blik is currently used only in the Polish market, but its popularity indicates a bright future across the continent.
As noted, the $100 billion BNPL industry has seen the greatest levels of consumer adoption across Europe – especially Sweden, Germany, and the UK. Klarna is a Swedish online payments company and the most highly valued private fintech company in Europe.
It offers a Buy Now Pay Later (BNPL) solution consumers can use to purchase goods online with payment plans, as well as social shopping and personal finances.
To date, over 200,000 merchants have implemented Klarna both online and in-store. The solution is active in 24 European countries and has 99% coverage of banks in those markets, processing more than 150 million transactions per year. Klarna’s open banking solution allows third-party providers to simplify consumers’ access to their bank account data via Account Information Service (AIS) and Payment Initiation Service (PIS) services provided under PSD2.
A real-time online payment service based on inter-banking, Giropay also has a more established history in European payments, having initially become popular over a decade ago. Since then it has achieved milestones including more than 100 million euros in purchases and over 3.2 million transfers, with transactions totaling 185 million euros.
Giropay remains particularly popular in Germany, where customers can log into their bank by entering a PIN before completing the transaction, which increases security.
The solution uses the same environment as banking sites and requires no additional hardware on the part of merchants. Some German banks offer two-factor authentication (2FA), such as a challenge-response access token based on the chip embedded in the debit card or ATM card. Others offer simpler PIN and TAN-based online banking services. No sensitive information is shared with the merchant, such as credit card or Giro account numbers. Another advantage to merchants is that Giropay does not allow chargebacks.
While Giropay, like card payments, has seen increasing competition from alternative payment methods in recent years, its legacy position in the market ensures that it will continue to be an important payment method for the immediate future.
According to data from Eurostat, over 73% of Europeans shopped online in 2020, of which 31% bought or ordered goods from sellers in other EU countries. In part from living on a highly internationalized continent, Europeans have a high openness to cross-border trade in general, which extends to cross-border e-commerce.
In order to reach European e-commerce customers, however, merchants must be prepared to offer the right payment methods in the right local European markets.
Most payments in Europe are via digital payment methods such as e-wallets, debit or credit cards, PayPal, instant payments, or BNPL. For merchants eager to provide the right mix of local, global, and alternative payment methods to customers in Europe and beyond, PayU simplifies the process by enabling access to hundreds of payment method options via a single global payment solution for accepting and optimizing online transactions.