New European restrictions on online purchases could cost the ecommerce sector tens of billions of euros in lost revenue and hold back the growth of new startups, according to the payments giant Stripe.
Stripe’s UK and Ireland country manager, Iain McDougall, told Sifted that the Strong Customer Authentication rules (SCA) in Europe’s open banking directive, designed to cut back on consumer fraud, is a huge challenge for consumer-focused startups.
“Every single time consumers want to pay for something (a taxi ride, dinner or new clothes), they’ll need to confirm their identity with, for example, a password, a text on their phone, or a fingerprint,” he says.
“In the short term SCA will come at a heavy cost for the European internet economy. Millions of European businesses will have to introduce the extra authentication. Otherwise, non-compliant transactions will simply be declined.”
“This means that if SCA is not taken seriously, the estimated impact on European ecommerce will be in the tens of billions of euros.”
The new rules, coming into force from September 2019, could be a huge blow to Europe’s growing ecommerce sector. German headquartered fashion retailer Zalando stands out as a European success story, with more than €5bn revenue last year and aims to reach €20bn within five years, but European consumers are increasingly ordering online from China, according to international delivery service DPD’s 2017 report.
“Globally, intra-European purchases are declining in favour of purchases made from Chinese websites,” it said. “AliExpress is the main driver of this growth and is clearly targeting the European market.”
Given that the new requirements to authenticate every transaction will only apply to orders where both the payer and the payee are in Europe, the added friction is another push-factor which could redirect customer demand away from European businesses to China or the US.
“The ecommerce startups are “global natives” and a central pillar of the UK’s future economy, so it’s a real cause for concern that these ambitious internet firms feel held back by protectionist measures.”
For Stripe, which is “ramping up European expansion” this year with roll-outs in Italy, Poland, Estonia, Lithuania and Latvia, the risk to Europe’s internet economy is a risk to its own business providing behind-the-scenes online payments services to ecommerce businesses and startups.
“The challenge of keeping up with payments innovation when more regulatory complexity is being introduced makes it very difficult for businesses to keep up,” McDougall says.
But McDougall hopes Stripe can use its technology to insulate businesses from the evolving complexities of the financial regulatory system. For SCA specifically, Stripe will be rolling out product updates to comply with the rules, but without reducing the number of completed transactions, he told Sifted.
Stripe is also planning to support startups around the world through the UK’s withdrawal from the EU, anticipating that barriers to free trade and restrictive immigration policies could have severe consequences for European businesses and any international ecommerce companies which rely on UK and EU business.
“Europe’s startups are thriving with instant access to a global internet economy,” McDougall says, referencing UK food delivery company Deliveroo and German fintech N26.
“The ecommerce startups are “global natives” and a central pillar of the UK’s future economy, so it’s a real cause for concern that these ambitious internet firms feel held back by protectionist measures.
“I just hope that all of this progress that has been enabled by technology is not diminished by the current trends towards reinstatement of hard geopolitical borders. This could indeed be the thing that thwarts the continued success of startups and investment in Europe in the years ahead.”