How Brexit impacts cross-border online retail

By Mike Goodenough, Global Head of e-Retail at Worldline, Digital Commerce

European sales as part of cross-border shopping without additional fees were almost taken for granted by consumers before the Brexit transition period ended at on December 31, 2020, but that is no longer the case following the end of the UK’s transition period out of the EU.

The UK is the world’s third most popular market for online cross-border shopping, despite the impact of Covid on most retailers on both sides of the Channel  they simply cannot afford to miss out on European sales due to Brexit.

Even though the UK Brexit referendum delivered the ‘leave’ result back in 2016, UK and EU merchants had to wait for four years to fully understand all of the changes that would come from Brexit on supply chains, compliance and revenue. In the end, the announcement of a deal signed on Christmas Eve 2020 gave just a matter of days to work out how to begin to navigate the changes.

VAT changes have already appeared

As soon as the UK left the European Economic Area (EEA), duty and VAT was applied to any cross-border sales. This means e-retailers have had new levies applied since January 2021 which vary according to the type of goods, which direction they are travelling in and the cost of those goods. Since July 2021, all goods regardless of cost which are imported to the EU have had VAT up to 20% applied. 

The increase in complexity and administration has added a number of costs, and 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. If the paperwork is not correct, then customs can reject goods or hold them at the border, incurring further duty charges and possibly fines. This makes it less cost effective for UK customers to buy from European firms.
 

Higher credit card fees to come from October 2021

To add insult to injury, 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. Some card schemes have used this opportunity to raise fees on cross-border transactions – to 1.5% for cross-border credit card payments and 1.15% for debit card payments from October 2021.  Depending on the supplier, the fees may apply to online purchases in both directions or in the UK from the EEA.

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 charges.

Safeguarding e-retail businesses

So, what can online retailers do to safeguard their online businesses against these additional challenges? Well, there are a few things: 

1. Cut your tax burden with a local store
   Any EU merchant could avoid these extra fees by having a company in the UK – but this is unlikely to be cost-effective for smaller merchants. Alternatively, you can appoint an EU-resident intermediary or VAT agent who can access the new EU Import One-Stop-Shop IOSS return on your behalf, which simplifies VAT reporting at the point-of-sale.

1. Use alternative payment methods that don’t attract interchange fees
   Using card payment alternatives such as PayPal or buy-now-pay-later (BNPL) in the UK can help improve payment efficiency. In the Netherlands, for example, you could use iDeal bank transfers, or Cartes Bancaires cards in France. 

1. Reduce disputes
   By explaining any Brexit-related changes effectively to buyers, you can prevent unnecessary chargeback claims. Also, make sure you provide tracking information and delivery updates and respond quickly to purchase queries. And don’t forget to update your T&Cs clearly on your website, including details about the refund process. 

1. Plan ahead for compliance
   There is a lot to think about just coping with the Brexit changes, but you cannot afford to forget about other upcoming changes in regulations. For example, PSD2, has announced an extended deadline of 14 March 2022 for the implementation of Strong Customer Authentication (SCA) by merchants.

Ask for help if you need it before it’s too late

COVID has pushed more customers than ever online, so there is a lot at stake for cross-border retailers navigating the new UK/EU relationship. It can be hard to know what to do for the best, but if you want to explore new options, then a good first port of call is your payment services provider. They can help you deal with the changes that have already arisen and explore new options to improve your business and optimise your processing going forwards.

Mike Goodenough (pictured) has extensive experience working in payments and has held senior management roles throughout his career, currently for Worldline he is the Global Head of e-Retail, one of the key verticals within the organisation. Most recently as General Manager EMEA for Ingenico Mike lead all commercial activities within the region. Other roles have included managing the Global Partnerships and Alliances team responsible for optimizing global relationships such as large acquiring banks, card schemes and global alternative payment providers, leading product teams, sales teams and advising on M&A opportunities.

He has been deeply involved in Ingenico’s strategic growth initiatives and has accumulated more than 20 years of knowledge working in Global e-Commerce. Mike is a charismatic leader who enjoys working on complex projects and is well-known within the industry as a payments expert.