International risk management

What retailers should be aware of

Retailers need to take care of risk management as soon as they accept certain payment methods for which there is a risk of default – this primarily concerns purchase on account (payment after delivery), but also SEPA direct debit and credit card purchases and, to a lesser extent, alternative payment methods, which can have payment default risks. Retailers must evaluate the creditworthiness and willingness to pay for each customer and put measures in place to minimise payment default.

Retailers have two possibilities: either they have the risk of default protected by a specialised provider for a fee, or they carry out a creditworthiness check on the customer themselves during checkout. We recommend using internal data from the customer’s order and payment history or – for new customers – to consult a credit agency.

Which variants would you recommend to dealers?

If the retailer wants certainty about their calculations and they do not have country-specific expertise in risk management for international sales, it can make sense to devote part of the profit margin to safeguarding payments. For example, the fee charged by the payment service provider (PSP) for the commission is generally two to five per cent of the value of the goods, depending on the industry and the retailer’s product range. The PSP takes over risk checking, invoicing and credit management. However, the disadvantage is that the retailer generally hands over the task of customer communication as well and can only have a very limited influence on the conversion rate, because the service provider decides whether a customer is offered the corresponding payment option or not. Retailers must weigh up whether they handle risk management as a core competency or outsource it.

What advice do you give retailers who want to sell their goods internationally?

There are major differences in the types of payment that are preferred by e-commerce customers. Purchase on account is not as popular and widespread in all European countries as it is in Germany; in Europe as a whole, credit cards and country-specific e-payment processes dominate, especially in Scandinavia and the Benelux countries. Debit cards are very widespread in France and Italy; in Italy, Spain and Poland, cash on delivery has an important role as a payment method. Only in Sweden is payment on receipt of invoice as popular as it is in Germany, Austria and Switzerland.

If retailers want to allow international customers to make purchases using risky payment methods, they should be supported by a specialised PSP for their risk management. This provider can often safeguard the payment method itself or advise the retailer on payment processes with a payment guarantee. Alternatively, retailers can also get information from credit agencies in other European countries. By doing so, the retailer itself does not need to develop and operate a number of technical interfaces; it can be part of a “multi-credit-agency approach” – use a central interface for specialist providers in order to retrieve information from market-leading credit agencies domestically and abroad.