Today, businesses try to offer to European customers not one but several payment options. In this article, we will analyze the most popular EU payment methods and will outline a few trends of the sphere.
When accepting payments from European customers, businesses can choose from diverse payment methods. No method is perfect, so each company owner needs to make a decision based on which type of payments they are collecting and from which countries. Thanks to SEPA (Single Euro Payments Area) money transfers within the EU have become quick, cheap and easy. But when a business receives money from outside the EU, it might need to pay high fees. In this article, we will briefly analyze the most popular payment methods and compare their respective pros and cons.
Bank Transfer
This is the most common payment option for business-to-business transactions. Private users resort to it only when they need to send large one-off amounts. Thanks to SEPA, the cost of transactions within the Eurozone is affordable. But the fees for cross-border bank transfers in non-Eurozone currencies might differ greatly. To collect payments from European customers through bank transfer, the organization needs to share with its clients its SWIFT code and International Bank Account Number (IBAN). The SWIFT code is also known as BIC (Business Identifier Code).
Credit Card
This is a convenient and reliable payment method. To offer it to its clients, the business needs to integrate with a payment processor or payment service provider. Unfortunately, credit cards imply high fees. Normally, there would be a fixed fee plus 2-4% of each payment. If the company is planning to collect payments from abroad, the fees will be even higher — and it will need to open a merchant account in a major trading country.
Web Wallets
Such wallets operate with e-money — a digital analog of cash that is stored either remotely on a server or an electronic device. This payment method greatly facilitates cross-border transactions but it has 3 essential disadvantages.
- It accounts for less than 10% of online payments in Europe.
- To use it, customers need to create a wallet in the system of the payment provider. They share their personal data with the provider and they can only hope that this company is responsible and professional enough.
- The fees are almost just as high as with credit cards. There would be a fixed fee plus 1.5-3.5% of each payment. The cross-border fee might reach 1.5% and there will be a currency conversion fee.
Most businesses offer web wallets as an additional payment option. If they rely only on this method, their conversion will be substandard and customer experience will be mediocre. Ideally, organizations should combine web wallets with credit cards and/or Direct Debit.
Direct Debit
This method is optimal for regular subscriptions and invoicing. It is convenient, safe and cheap. Also, European customers are used to it and feel comfortable about it.
On the flip side, the SEPA Direct Debit scheme implies an 8-week refund period. Also, it takes several days for the funds to clear. Sometimes, it is necessary to clear the payment immediately — and Direct Debit is not suited for that at all. Businesses that sell high-value goods cannot employ this payment option.
Those companies that find this method suitable can use a Direct Debit bureau or management software provider. For this, they will need to pay an additional fee. If they decide to collect payment themselves via a bank, they will need to apply for a Creditor Identifier and do further legal and financial paperwork.
Cheque
This is an outdated payment method. However, some businesses in Italy and France still stick to it. Its primary shortcoming is exorbitant fees for foreign currencies and cross-border transactions.
A cheque confirms the agreement of the individual to transfer funds to another person or organization. By writing a cheque, they give instructions to their bank to carry out the payment. Before the recipient gets their money, the following process takes place.
- The recipient deposits the cheque to their bank account.
- Their bank contacts the bank of the person who wrote the cheque.
- That second bank verifies the legitimacy of the cheque and makes sure there is enough money in the sender’s account.
- The bank of the person who pays transfers funds to the bank of the recipient.
- The recipient puts the money in their pocket.
The bank can apply a hold on money deposited by cheque to manage the risks in case the sum is not enough to cover the cheque.
Normally, the recipient can get the cash the same day when the other person writes the cheque. But sometimes, the process might take a few days. Now that most payments are instant or nearly instant, hardly anyone would like to wait that long.
Integrated Solutions as a New Trend
When a company offers to its customer several payment options, its managers might spend too much time and effort on supervising its finances. They would need to analyze the statistics of each payment system separately and then integrate the results in a unified report. Such an approach is too prone to error because of the human factor. This is why developers today come up with advanced solutions that enable businesses to control their cash flow from different systems in one interface.
One of such solutions is Genome. It can serve as an illustrative example of what integration means. In 72 hours after a company installs it on its website, it will be ready to receive payments. The clients will be able to use those payment methods that they are accustomed to. Genome is licensed and regulated by Lithuania’s central bank. It complies with the same strict standards as conventional banks. The business that employs it will be able to receive funds from bank accounts and send them to such accounts with a tiny fixed fee of 1 euro. The speed of domestic and international transactions will be comparable to Internet banking. When the business grows, it can easily scale Genome to meet its new demands.
Conclusion
To take payments from European consumers, companies use bank transfers, credit cards, Direct Debit, and cheques. Normally, an organization would offer its customers not one but several payment methods to choose from. The latest trend in the sphere is integrated solutions that enable businesses to manage their cash flow from different sources through a unified interface. They will make payment processing quicker, easier, cheaper and more reliable.
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