Understanding the Complexities of European Payments And How It Compares Against the US

Written by Dwayne Gefferie

Guest Author @ PayShield

May 6, 2024

The Payments industry continues to push the envelope on what is possible. Having fully bounced back from the pandemic, we are currently seeing records of processed volumes online and offline.

To give you an idea of how big the market was in 2023, the total transaction value of payments was over $42.6 Trillion, with Point-of-Sale (POS) accounting for $36.5 trillion and E-Commerce for $6.1 Trillion*.

But even more impressive is the projected compound annual growth rate for POS and e-commerce between 2023 and 2027, which is 16% and 15%, respectively.

This means that by 2027, we will have global payments volumes in excess of $51 Trillion.

While big parts of that will be in emerging markets such as Asia and Latam, for the majority of E-Commerce businesses, the European and US markets are still the most important to conquer first.

Let me explain why…

Europe consists of 44 countries** and is collectively responsible for $3.6 trillion in Payments volume, $2.7 trillion in POS, and $893 billion in E-Commerce, produced by a total population of 746 Million.

And standing out in Europe is the United Kingdom, which, despite having the fifth largest population in the world with just 66 million inhabitants, is fifth in the world for POS volume with $1.4 Trillion and third with $315 billion in E-Commerce volume.

On the other hand, the US market, while fourth in the ranking of population with over 333 million inhabitants and fourth in GDP per capita, is still the largest Point-of-Sale market in the world, with $10.4 Trillion in volume and the second-largest E-Commerce market in the world, with $1.9 Trillion.

Based on these figures, it is understandable that companies quickly decide that the European and US markets are the ideal markets to focus on initially.

However, while the numbers are great, there are significant differences between the European and US markets that Merchants need to understand if they want to operate successfully in these markets.

The most prominent one is the difference in adopting the various payment methods.

While credit and debit cards continue to dominate the payment landscape in the United States, Account-to-Account payment methods have already become fairly established in Europe, especially in markets such as the Netherlands (iDeal), Poland (Blik), Sweden (Swish), and Finland (Siirto), especially driven by regulatory frameworks like PSD2.

But as Digital wallets are growing in popularity, they are expected to have a global 49% market share by 2027. What is most interesting is the difference in how European and US consumers are utilizing them.

In the US, digital wallets such as Apple Pay, Google Pay, and PayPal are mostly used as an additional technology layer, funded by a Card. In Europe, digital wallets have mostly evolved through bank or fintech initiatives, where the application is connected directly to a bank account or a financial company that has an E-Money Institution License (EMI).

As already mentioned above, the regulatory environment in Europe has had quite an impact on the way that the Payments industry has evolved in the last few decades. Something that the United States has a lot less of, which has created a more fragmented financial landscape, stimulating innovation through Fintechs but within the existing framework that is still dominated by the major card networks and banking institutions.

Another key difference is Technology. Of course, when we think of Technology, we might directly think of the US’s Silicon Valley, which isn’t less true for payments. However, the majority of successful products coming out of the US are strongly aligned with established financial services, such as mobile payments and digital wallets. In Europe, however, driven by a need for more security and ease of payment, there has been a quicker adoption of emerging payment technologies such as contactless, 3DS, and instant payments.

All of this has translated into a drastically different E-Commerce payments landscape. Where in Europe, most e-commerce companies are highly integrated with various payment methods to cater to local needs, the US continues to be very card-focused, with digital wallets slowly but surely increasing being adopted as US consumers are getting more comfortable utilizing them, it has helped transactions become more seamless and secure.

Whether you are coming from Europe and moving into the United States or the other way around, the United Kingdom has emerged as the gateway market for both.

While Credit Cards were created in the United States, Banking and financial services have always been ingrained in the City of London. 

Because of this, companies such as MasterCard, Visa, and American Express have made the UK their second most important market. This has led to a hybrid market that seems to have taken the best of the United States’ drive for innovation and Europe’s regulatory framework, now mostly guided by the Financial Conduct Authority since Brexit, leading to faster adoption of innovation such as contactless, mobile payments and Buy-Now-Pay-Later providers.

Additionally, with English being the UK’s native language, the majority of companies focus on the UK, as it allows them to utilize the global language in commerce, which is a lower bar to enter than for example China or India, despite having larger populations. Because of this combination of card focus, favorable regulatory framework, quick adoption, and language, the UK has emerged as the ideal place for E-Commerce businesses that have a global perspective. As being in the UK, puts especially US-based companies just at arm’s length of mainland Europe, while for European companies it’s a crucial market they need to prove themselves in before trying their luck in the US.

So, I think it is important for any company considering the European and US markets as potential expansion areas to understand what is currently driving these markets. 

Especially in Europe, where we often fall into the trap of considering it a uniform region, the truth is that it still consists of 44 individual markets with drastically different payment behaviors and adoptions of payment methods. 

While cards will definitely be a crucial component in most of those markets, merchants will need to be aware that expanding into Europe requires a deeper understanding of the local payment methods that consumers prefer and integrating them to provide the best possible experience.

In contrast, in the United States, I expect that cards will continue to be the most dominant payment method for the foreseeable future. 

While there are definitely great developments in Buy-Now-Pay-Later adoption, and Account-to-Account solutions through Open Banking, those still have a long way to go.

The only real change I expect to see there will be the adoption of Digital Wallets, as more consumers expect to be able to utilize Apple Pay, Google Pay, or PayPal and will continue to fund that through their debit or credit card for the many benefits they already offer.

Click here to read more about Dwayne and his wealth of experience in the payments industry!

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