The relationship between the UK and the EU following Brexit has changed significantly, Mike Goodenough, Global Head of e-Retail at Worldine Digital Commerce writes for PaymentExpert on how this will impact the ecommerce sector.
The UK’s long-term relationship with the EU as one of the member states came to an end on December 31, 2020 and with it ended the ability to make sales and send goods between the UK and EU countries without fees.
This position had been largely taken for granted until January 2021, when additional charges started to be added to these cross-border transactions, creating difficulties for e-retailers operating in this space. The UK is the world’s third most popular market for online cross-border shopping, and with the impact of COVID still very much in our minds, both UK and EU sellers cannot afford to miss out on sales.
It took more than four years for the final economic details of the ‘leave’ vote in the Brexit referendum back in 2016 to be established. UK and EU merchants in the end were given around a week to understand the impact all the changes would make on their supply chains, compliance and revenue as the deal – such as it is – was not agreed until Christmas Eve 2020.
VAT applied from January 2021
One of the first extra charges these retailers and their customers faced was from VAT, which was applied to any cross-border UK/EU sales in January 2021. The amount varied depending on the goods, their price and which direction they were travelling in. But as of July this year, all goods no matter what they cost, have VAT added at up to 20%.
Increasing complexity generally increases costs and selling between the UK and EU has undoubtedly become more complex, with additional administration being front and centre. For example, online stores in the EU must now file a tax return in the UK and need an EORI number if they want to ship products to UK customers. Incorrect paperwork can result in customs delays and even rejections, which further leads to extra duty charges and possibly fines, all of which would make it less cost-effective for UK customers to buy from EU firms.
Credit card fees increase from October 2021
As if that was not enough, consumers and merchants face additional charges from October this year as the UK is no longer operating under the intra-European cap on interchange fees. Both Mastercard and Visa are raising fees on credit cards to 1.5% and on debit cards to 1.15% on cross-border transactions, although Mastercard is only applying this to online purchases of goods in the UK from the EEA. Visa is applying it in both directions.
If UK/EU payments follow the same pattern as the US ones, these charges are likely to be passed onto the consumer, which could result in higher chargebacks as consumers cancel orders and refuse to pay due to the unexpected extra fees.
Can you safeguard your e-retail business?
There is a lot of pressure at the moment on cross-border sellers, but there are a few things you can do to alleviate some of the problems you could face:
- Get a local store
If you are a big enough firm, then getting a local store in the UK could help EU firms cut their tax burden. Smaller merchants may not be able to do this, so an alternative is to appoint an EU-resident intermediary or VAT agent who can access the new EU Import One-Stop-Shop IOSS return on your behalf. This simplifies VAT reporting at the point-of-sale.
- Use alternative payment methods
Interchange fees are not applied on transactions through the likes of PayPal or buy-now-pay-later (BNPL) in the UK, so can help improve payment efficiency. In the Netherlands, for example, you could use iDeal bank transfers, or Cartes Bancaires cards in France.
- Explain what is happening to reduce disputes
If customers understand why there are additional charges, they are less likely to dispute payments, so outline any Brexit-related changes effectively to buyers. You should also always provide tracking information and delivery updates and respond quickly to purchase queries. Remember to update your T&Cs too, including with details about how customer refunds are dealt with.
- It is not all about Brexit, so plan ahead for compliance
Brexit changes may be at the front of your mind in the short term, but there are many other regulatory changes to keep an eye on too. For example, PSD2, has announced an extended deadline of 14 March 2022 for the implementation of Strong Customer Authentication (SCA) by merchants.
Your payment services provider can help you
More of us are shopping online than ever as a result of COVID, so cross-border e-retailers need to be on top of their game when it comes to navigating the new UK/EU relationship. It is not easy working out what to do for the best, but your payment services provider can help you explore new options. It can help deal with changes that have already affected your business and work with you to make sure any further changes down the line have minimal impact on your bottom line.