The changing dynamic of payments in Europe

By Shane Brodbin

How do your customers pay for their purchases? Card, cash, a tap of a phone, PayPal? Chances are, it’s now a combination of these. The payments market in Europe is undergoing a period of great transformation. The continuing growth of the ecommerce sector, technological innovation, and an evolving regulatory environment are combining to fundamentally change the way people pay for goods and services.

Customers are more connected and digitally integrated than ever before, and this is raising expectations: we now expect fast, convenient, and secure payment options, available on demand and using the device of our choice. As a result, online merchants are having to expand the payment methods they work with.

Online shopping is driving innovation

Our recently-released report on payment trends, J.P. Morgan’s Country Insights – The changing Dynamics of Payments in Europe, charts the changes in this rapidly evolving industry. One key finding was that the European payments industry is being driven and shaped by robust ecommerce growth. Although retail markets across Europe lie relatively stagnant, the ecommerce channel is in rude health, and continues to grow at a prodigious rate.

In fact, with the exception of Finland and Switzerland, all of the markets we surveyed in our report are forecast to post double-digit compound annual growth rates (CAGR) in ecommerce in the coming years.

Italy (16% CAGR) and the Netherlands (16% CAGR) are leading the way, albeit for very different reasons: Italy's ecommerce market has traditionally been underdeveloped for its size, mainly because it has one of the lowest internet penetration rates among European countries. However, from this low base, Italy's online sector is rapidly beginning to catch up, driven by a generation of young, tech-savvy customers.

In contrast, the Netherlands already has a very mature and well-developed ecommerce sector and approximately 95% of the Dutch population shop online.  With excellent infrastructure in place, as well as wide acceptance of e-tail, strong economic growth and high customers confidence in the Netherlands has translated into booming ecommerce sales – and an opportunity for payment providers.

Meanwhile, pockets of opportunity can also be found further north in the Nordics, which are all progressive and digitally advanced ecommerce markets. Denmark's average online spend per capita stands at €3,111.8 more than twice the European average. Norway is not far behind with an average spend of €2,467.9.

Payment innovation is everywhere – but cards remain key

As it becomes ever easier and safer to pay online, customers are being drawn to the online channel in greater numbers, and are comfortable trying new methods of payment. That said, while e-wallets, banks transfers, direct debits and other alternative payment methods (APMs) hold great promise, for the time being cards remain the dominant form of payment in the European ecommerce sector.

For example, in the UK, 54% of online transactions are carried out using cards, while in France, the figure stands at 45%. Cards have an advantage in that they are already a trusted and well-established system. In fact, cards are the leading online payment method in seven out of the eleven countries we surveyed.

Regulation is encouraging new ways to pay

While we expect cards to remain the leading payment option in Europe in the coming years, APMs are becoming more popular. Regulatory change is helping to support this transformation: for example, the EU’s Second Payment Services Directive (PSD2) will help boost security standards for online transactions, whilst giving merchants options that enable them to retain a frictionless payment experience for customers.

In addition, PSD2 is providing a framework that will allow third party companies to initiate payments on behalf of a customer, which will spur new innovation in the payments space.

Another, alternative method – bank transfers – has developed a strong position in the Netherlands, Switzerland, and Finland. Despite the fact they pose difficulties with reconciliation and can take a long time to clear in some markets, we believe this APM will continue to capture market share as banks throughout the region become increasingly interconnected.

This is being aided by the establishment of the Single Euro Payments Area (SEPA), which has helped harmonise payment systems in the Eurozone, and includes infrastructure that will support both transfers and direct debits. One market that is already being impacted is Germany, where SEPA direct debits now account for 20% of the payment market, while bank transfers are also growing rapidly. 

Meanwhile, e-wallets also hold great promise as they increasingly become optimised for mobile and add new functionalities such
as peer-to-peer payments, which will help them gain further customer acceptance. Spain is notable for its relatively high usage of e-wallets, where they take 25% of the payments market. 

Open invoice where a customer pays after the receipt of goods is not a widely used APM but has a loyal following in Sweden and Germany, and accounts for around a fifth of transactions in both countries. As a result, merchants operating in these territories will have to have a well-developed system for returns.

In the future we expect APMs to become increasingly integrated, giving customers a more comprehensive and flexible payment framework. Rather than just one dominant method of payment, the goal is for multiple payment methods to offer a seamless shopping experience.

We predict that, soon, customers will not differentiate between Apple Pay, Samsung Pay, their credit cards, bank transfers or cash – and simply assume they can use their preferred forms of payment, whenever and wherever they are.

Shane Brodbin, Senior Product Manager, J.P. Morgan

Read the full suite of 11 Country Insight Reports here.


Chase Paymentech Europe Limited, trading as J.P. Morgan, is regulated by the Central Bank of Ireland.

The information herein does not take into account individual client circumstances, objectives or needs and is not intended as a recommendation of a particular product or strategy to particular clients and any recipient of this document shall make its own independent decision. This document and the information provided herein may not be copied, published, or used, in whole or in part, for any purpose other than expressly authorised by Chase Paymentech Europe Limited.     

© 2018, JPMorgan Chase & Co. All rights reserved.

Join thousands of other Online Retail professionals

Get unique insights straight to your inbox for free, and improve your understanding of online retail. Subscribe to Online Retail Weekly now.

Delivery Week 2020 scroll banner
Join thousands of other Online Retail professionals

Get unique insights straight to your inbox for free, and improve your understanding of online retail. Subscribe to Online Retail Weekly now.

Delivery Week 2020 scroll banner