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1 Fung Business Intelligence Centre Global Retail & Technology Flash Report: eCom Europe 2015 Copyright © 2015 The Fung Group. All rights reserved.

June 9, 2015

The core theme of this year’s E-‐Commerce Europe conference was the potential afforded by selling across national borders within Europe. Throughout the day, we heard from retailers, European legislators and trade bodies on how improving cross-‐border opportunities could help retailers and improve the consumer experience.

KEY TAKEAWAYS • While European e-‐commerce continues to boom, it still contributes only a small proportion

of the continent’s total retail sales—and this is heavily skewed by the scale of e-‐commerce in the UK, Germany and France. So, there remain big opportunities for retailers, and many of these are cross-‐border.

• Even in heavily regulated Europe, there are barriers to cross-‐border retailing, notably in national legislation, the logistics of transporting physical and digital products across borders, and different VAT rates and protocols.

• These barriers currently cost companies approximately €4.5 billion, according to the European Commission.

• European politicians think higher-‐level harmonization is the answer—standardizing rules and laws between countries, wherever possible. Yet retailers such as Amazon manage to keep it simple, suggesting that more legislation is not the definite answer.

The Scale of E-‐Commerce in Europe Kicking off the conference, host Dave Keating gave us some top-‐line stats on the scale of online shopping in Europe. Double-‐digit growth in Europe’s e-‐commerce market continues, he noted, and some 5.7% of the continent’s retail sales are now online. But sales are not distributed evenly: three countries—the UK, Germany and France—account for fully 61% of Europe’s total online sales. That means that elsewhere in Europe, there’s great potential for growth, and existing online retailers can tap these markets if obstructions to selling across borders can be minimized.


Keynote: A €4.5 Billion Barrier to Cross-‐Border Selling Even in heavily regulated Europe, we are a long way from seeing a single, seamless, cross-‐border marketplace. In a keynote speech on creating a digital single market, Juhan Lepassaar from the European Commission outlined some of the key barriers to doing business across borders in Europe: legal barriers, including the cost of setting up new companies; logistical hurdles; and VAT (sales tax), which has 75 different rates in Europe plus different rules for how it is collected in different areas.

Two guiding principles underlie the Commission’s work to create a digital single market, Lepassaar said: consumers should be able to buy across borders like they do at home, and businesses should be able to sell across borders like they do at home. Currently, he said, selling across borders can cost a business €5,000 in VAT compliance alone.

The total cross-‐border burden in Europe is around €4.5 billion, Lepassaar said, which means the potential boon to businesses if barriers can be reduced or removed is huge.

Agreement on the Problem, Time for the Solutions A panel of experts then ran with this theme, exploring how a digital single market can be achieved.

Jorij Abraham of E-‐Commerce Europe unveiled findings of a research survey of some of the organization’s 370 member companies. The survey highlighted the extent to which legal barriers and logistics issues are top of mind for retailers: some 46% of companies surveyed find legal issues difficult when selling abroad, while 44% said logistics and distribution is difficult.

European Parliament MEP Ramon Tremosa i Balcells concluded that these kinds of pressures heap demands on European legislators to enact regulations. “When the tools of antitrust aren’t working properly, policymakers receive pressure from companies and organizations to overregulate,” he said. But, Balcells claimed, European politicians are not engaged in a grab for yet more powers. “When Europe asks for more powers, it is not asking for more bureaucracy.”


Monique Goyens from BEUC, the European Consumers Organisation, emphasized that businesses and legislators must seek to understand the consumer’s perspective. Oftentimes, consumers aren’t aware they are making a cross-‐border transaction. The hurdles for consumers often pop up only when something goes wrong—when they need to return a purchase or make a complaint.

Goyens also noted that further legislation is not necessarily the answer. For example, Amazon manages to “keep it simple,” she said, by keeping all its European contracts with consumers under Luxembourgian law. There’s also a risk that cross-‐border issues are exaggerated among legislators and trade bodies, and so become a “self-‐feeding problem.”

Wrapping up the panel discussion, Gerard de Graaf from the European Commission noted that there was agreement on the problem—which is unusual for Europe—and that means legislators can move straight to the solutions.

European harmonization at a higher level is what’s needed, according to de Graaf. This is at odds with recent European trends to adopt minimum harmonization across countries, he said, but in a cross-‐border digital world, it’s necessary to make the market function.

Borderless Payments Next, we stopped by to hear about regulation and innovation in payments from Nicolas Vedrenne from Merchant Risk Council Europe, which represents 400 big European retailers.

Fraud is an issue, he said, albeit one that needs to be kept in perspective. On average, just 0.5% of payments carry a risk of fraud. But data breaches look to be a major potential problem for companies.

“There will be no way to prevent massive breaches of data,” Vedrenne said, and fining companies that have been hacked is not punishing the real offenders. Big problems include the relative lack of online law enforcement and the relative low priority of dealing with data breaches, even among those who are enforcing online laws. As more shoppers buy online, it’s likely to be an area in which law enforcement will be compelled to make investments.

China’s Booming Online Payments Market Later, Alipay’s Director of Business Development for EMEA, Yana Geng, took us on a whistle-‐stop tour through the Chinese online payments landscape and her company’s place within it.

Geng emphasized the scale of Chinese e-‐commerce. By 2020, the market is expected to be bigger than that of the US, the UK, Japan, Germany and France combined. And cross-‐border shopping is growing share of this. In 2014, Chinese consumers grew their cross-‐border online purchases by 150%, well ahead of the total e-‐commerce growth rate.

Alipay has a leading position within e-‐commerce payments in China, Geng told us. Online, the company accounts for some 50% of payments, but when we focus on mobile payments, this market share surges to 82%. These market shares are helped by Alipay’s status as the exclusive payments provider to Alibaba, its former parent company.

Geng ended by emphasizing the central role of innovation at both Alipay and Alibaba. The latter created the huge Singles’ Day promotion that generated 197 million transactions and $9 billion in turnover. And Alipay has launched services such as Alipay Wallet, which features audio payment options.


Deborah Weinswig, CPA Executive Director—Head of Global Retail & Technology Fung Business Intelligence Centre New York: 917.655.6790 Hong Kong: +852 6119 1779 [email protected] Cam Bolden [email protected] Sunny Chan [email protected] Marie Driscoll, CFA [email protected] John Harmon, CFA [email protected] Aragorn Ho [email protected] John Mercer [email protected] Charlie Poon [email protected] Kiril Popov [email protected] Stephanie Reilly [email protected] Lan Rosengard [email protected] Jing Wang [email protected]

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