J.P. Morgan Country Insights. THE CHANGING DYNAMIC OF PAYMENTS IN EUROPE United Kingdom

Transcription

1 J.P. Morgan Country Insights THE CHANGING DYNAMIC OF PAYMENTS IN EUROPE United Kingdom

2 Introduction Three dominant forces have acted on the UK economy recently. On the demand side was the impact of Brexit-related uncertainty versus an increasingly solid global and European upswing, while on the supply side was a continuation of the very weak productivity trends seen since the financial crisis. 1 The result of these forces was sluggish domestic demand growth but an ongoing decline in unemployment, and an ongoing overshoot of the inflation target. Largely the same forces shape the outlook for Recent upward revisions to our forecasts for Eurozone area growth led us to nudge our forecast for the UK upward, and our 1.7% GDP forecast is, as best as we can tell, toward the top end of the range. 2 On the domestic side, the forecast shows the consumer doing a little better as labour market tightness causes nominal wage growth to pick up, as inflation begins to fall. While Brexit-related uncertainty remains a drag on investment spending, we do not expect that drag to intensify. Brexit may generate periods of volatility, but we expect that to remain within the bounds seen to date and for the process ultimately to be handled smoothly. Against this backdrop, our forecast anticipates the Bank of England raising interest rates a couple of times in This information is based on projected figures and is subject to change at any time. [ 2 ]

3 UK: At a glance Population 65.64m Average age GDP B2C ecommerce market value 40.5 years 2.4trn 156bn Internet penetration 93% Smartphone penetration 65% Card penetration per capita 2.64 (debit & credit) Source: World Bank, CIA (2016), GlobalData & FEVAD, Internet Live Stats 2016 The leader in European ecommerce Online shopping is part of everyday life for most Britons: 87% of the million-strong population made an online purchase in As a result, the UK is a key ecommerce market, accounting for 33% of all ecommerce sales made in Europe. 5 Unsurprisingly, this makes the UK the largest market by value out of the countries surveyed by J.P. Morgan.* The UK s demand for online shopping is considerable. The average annual online spend was 3,625 per person in 2015, well above the European average of 1, This appetite is served by the sophisticated online offerings of a wide variety of major UK retailers, many of whom have offered internet shopping for decades. Supermarket Tesco first started selling online in 2000, 7 for example, and retailer Marks & Spencer (M&S) now has a 19-year-old internet shopping operation. 8 UK: Consumer spending 2015 July 2015 Source: Trading Economics 2016 July July , , , , , , GBP Million Thanks to this well-established culture of online shopping, the UK's business to consumer (B2C) ecommerce market was worth 156bn in 2016, 9 more than double that of France at 72bn, 10 the next-highest country by value in this study. Decades after first venturing online, British retailers are now focusing on honing their payment options, returns, and customer service offerings as ecommerce has become vital to their success. ecommerce makes up 16.8% of the total retail market in the UK, 11 once again the highest figure of the countries analysed. Online shopping may be well established in the UK, but its growth shows little sign of slowing down. The UK ecommerce market increased by 16.2% in 2016, exceeding IMRG and Capgemini's forecast of 11% growth for the year. 12 This growth is fuelled by strong smartphone sales, as well as increasing numbers of e-shoppers. Double-digit growth is likely to continue, with a predicted compound annual growth rate (CAGR) of 10.8% 13 between 2017 and 2020, by which time the UK B2C ecommerce market is forecast to be worth 235bn. 14 [ 3 ]

4 This growth will also be supported by British brands, capitalising on their experience in serving domestic customers, to launch sophisticated international online shopping platforms. John Lewis, for example, now offers international delivery for just 10 per order, 15 while M&S has launched various sites around the world with free delivery options. 16 Retailer innovation to serve the UK customer There are various reasons behind the success of ecommerce in the UK. There is a strong underlying consumer acceptance of online shopping, and high internet use: in 2016, almost all adults aged 16 to 24, and 25 to 34 years, were recent internet users (99.2% and 98.9% respectively). 17 When examining the breakdown of sales by sector in the UK online shopping market, accessories was the fastest-growing segment in 2016 with a 38% growth rate, followed by lingerie (33%), gifts (26%) and footwear (21%). 21 By contrast, the health and beauty sector suffered a negative growth rate (-3%), 22 perhaps influenced by a rise in popularity in the UK for bricks-and-mortar destination beauty stores. According to market research group NPD, in-store UK prestige beauty sales hit an all-time high of 2.2bn in ecommerce % of total sales by segment 100% Digital Goods 80% Airlines The senior demographic is also engaged, representing an opportunity for retailers. One third of the UK population is aged 55 or over and recent internet use in the 65 to 74 age group has increased by 68.7% since In addition, strong UK online sales regulations, which enforce rights of return for shoppers, have helped build trust in buying from UK e-tailers. Delivery options have also been finessed in the UK. Amazon, for example, has made fast UK delivery a priority. After the US, the UK (alongside Germany) 19 is the company's biggest country by sales, and the company has made its Amazon Prime Now twohour delivery option available in nine UK cities. By comparison, elsewhere in Europe, it is only available in six cities in total. 20 UK retailers with physical store operations have also helped spur the UK's ecommerce success. Consumers can now benefit from greater flexibility and convenience having ordered products online. Many retailers offer click-and-collect services and a network of online parcel collection services, such as Pass My Parcel and CollectPlus, can be used to arrange delivery to local newsagents. 70% Accommodation/ Hotels 40% Public Transit (metro/rail/bus) 16% Consumer Electronics 6% Department Stores Source: J.P. Morgan Country Insights: The Changing Dynamic of Payments in Europe: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via emarketer & ecommerce Europe, % Online travel agents (OTAs)/ Tour Operators 16% Fashion/ Apparel 11% Grocery/ Supermarkets 5% Mass Merchandise ecommerce penetration (%) [ 4 ]

5 Payment method split by value (%) 54% Card payments were used for just over half of sales (54%) in 2016, with e-wallets the other significant method of payment at 23%. 24 The popularity of cards in the UK is driven by high historical acceptance of the payment method the UK was an early adopter of plastic in the 1960s and, more recently, UK consumers have demonstrated a strong preference for using contactless cards for physical payments. Indeed, the UK is the leading user of contactless payments in Europe, along with Spain and Poland. 25 Card payments grew 16.61% between 2014 and 2016, accounting for 84.24bn of sales in % Bank Transfer 12% 23% 4% 5% Card Other E Wallet Cash Direct Debit Source: J.P. Morgan Country Insights: The Changing Dynamic of Payments in Europe: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via GlobalData The e-wallet market, with 35.88bn of sales, is dominated by PayPal, which takes an 18-20% slice of the alternative payments market. 27 The UK was PayPal's first international market outside of the US, and today it is offered as the primary e-wallet payment method by most major UK online retailers. The growing popularity of this method of payment suggests that UK consumers are ready to embrace innovation in this area. 28 While the use of debit and credit cards will remain the payment method of choice, retailers will be able to use alternative options as a way to target specific segments of the population such as young consumers and the unbanked. Card penetration per capita Metric indicator DEBIT Debit card per capita (ecommerce enabled) Total 1.71 Penetration of alternative payment methods (%) CREDIT TOTAL Credit card per capita (ecommerce enabled) Total cards per capita (ecommerce enabled) Bankers' Automated Clearing Services (BACS) 5% PayPal 18-20% Source: J.P. Morgan Country Insights: The Changing Dynamic of Payments in Europe: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via GlobalData and Lafferty, 2016 Source: J.P. Morgan Country Insights: The Changing Dynamic of Payments in Europe: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company [ 5 ]

6 E-wallet growth has been supported by the rise of 4G access and free WiFi on UK transport, enabling shoppers to use their smartphones and tablets to complete sales. 29 Using smartphones to buy goods and services online is becoming commonplace in the UK. In 2016, smartphones were used to complete 51% of transactions, 30 making highly functional mobile ecommerce sites critical for retailers and merchants hoping to win over UK shoppers. The popularity of bank transfer payments in Europe does not exist in the UK, perhaps as a result of the strong card payment culture. But it is also important to remember that alternative payment methods such as bank transfers come with a number of disadvantages. For example, bank transfers pose difficulties with reconciliation and in some instances can take days to clear. In addition, bank transfers are not well suited for recurring payments. While demand for bill payment and bank transfer services is currently low, Swedish online bank Klarna is making inroads in the UK (although its market share is around 2%), 31 teaming up with major British retail group Arcadia to enable shoppers to defer payments on their online clothing shopping. 32 Rising fraud presents concern, and opportunity Fraud as a percentage of total UK online transactions stands at 0.8%, higher than the Western European average of 0.5%. 33 Given the size of the UK ecommerce market, it is unsurprising that it should be a target for fraudsters. Fraud is rising in volume in the UK, particularly during high-spend periods: UK police said victims reported losing nearly 16 million to Christmas shopping fraudsters in 2016, increasing from 10 million lost the year before. 34 Payment providers that can demonstrate improved security should attract the UK consumer. * J.P. Morgan Country Insights: The Changing Dynamic of Payments in Europe study includes the following countries: UK, the Netherlands, Germany, France, Italy, Spain, Norway, Denmark, Sweden, Switzerland, Finland References [1] Western Europe Economic Research, J.P. Morgan Chase Bank, Dec [2] Western Europe Economic Research, J.P. Morgan Chase Bank, Dec [3] Western Europe Economic Research, J.P. Morgan Chase Bank, Dec [4] Eurostat, December Internet users who bought or ordered goods or services for private use over the internet in the previous 12 months, 2012 and 2016 (% of internet users). Accessed uary [5] Ecommerce Europe, June European Ecommerce Report Accessed uary [6] E-commerce Foundation, Global B2C E-commerce Report Accessed uary 2018 [7] Tescoplc.com. Our History. Accessed February [8] Marksintime.marksandspencer.com. A Short History of Marks & Spencer. Accessed February [9] J.P. Morgan Country Insights: The Changing Dynamic of Payments in Europe: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via GlobalData & IMRG, [10] J.P. Morgan Country Insights: The Changing Dynamic of Payments in Europe: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via GlobalData and FEVAD, [11] J.P. Morgan Country Insights: The Changing Dynamic of Payments in Europe: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via Statista, [12] IMRG.org, uary UK online sales exceed 130 billion in 2016, fuelled by sales growth on smartphones. Accessed February [13] J.P. Morgan Country Insights: The Changing Dynamic of Payments in Europe: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via Statista, [14] GlobalData & FEVAD (2016). [15] Johnlewis.com. Customer Services: International Delivery. Accessed February [16] Marksandspencer.com. International Delivery. Accessed February [17] Office for National Statistics, May Internet Users in the UK. Accessed uary [18] Office for National Statistics, May Internet Users in the UK. Accessed uary [19] CNBC, August This map shows how quickly Amazon has expanded in Europe. Accessed uary [20] Primenow.amazon.co.uk. Explore Prime Now cities. Accessed February [21] IMRG.org, uary UK online sales exceed 130 billion in 2016, fuelled by sales growth on smartphones. Accessed February [22] IMRG.org, uary UK online sales exceed 130 billion in 2016, fuelled by sales growth on smartphones. Accessed February [23] Retail Times, June Sales of prestige beauty reach 2.2bn in store, NPD Group reports. Accessed uary [24] J.P. Morgan Country Insights: The Changing Dynamic of Payments in Europe: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via GlobalData, 2016 [25] Raconteur, May Are Contactless Payments Beating Cash?. Accessed uary [26] J.P. Morgan Country Insights: The Changing Dynamic of Payments in Europe: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via GlobalData, 2016 [27] J.P. Morgan Country Insights: The Changing Dynamic of Payments in Europe: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via GlobalData, 2016 [28] J.P. Morgan Country Insights: The Changing Dynamic of Payments in Europe: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via GlobalData, 2016 [29] TfL.gov.uk. Station WiFi. Accessed February [30] J.P. Morgan Country Insights: The Changing Dynamic of Payments in Europe: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via Statista, 2016 [31] J.P. Morgan Country Insights: The Changing Dynamic of Payments in Europe: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company [32] Klarna.com. UK: Payments giant Klarna launches Buy Now Pay Later with Arcadia Group in bid to streamline retail financing. Accessed February [33] J.P. Morgan Country Insights: The Changing Dynamic of Payments in Europe: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via KPMG, 2017 [34] Action Fraud (UK Police), November It's the thought that counts: Buyers urged to think as Christmas shopping fraud reports rise. Accessed uary For more information please contact: Your Relationship Manager or visit Information contained in this document has been prepared by third parties or obtained from sources which are believed to be reliable; but neither Chase Paymentech Europe Limited nor any of its affiliates warrant the completeness or accuracy of the information contained herein. Chase Paymentech Europe Limited and any of its affiliates shall have no liability to the user or to third parties, for the quality, accuracy, timeliness, or for any special, indirect, incidental or consequential damages which may be experienced because of the use of or reliance on the data or statements made available herein. Third party trademarks, brand names, products and services are only referential and Chase Paymentech Europe Limited and its affiliates disclaims any sponsorship, affiliation or endorsement of or by any such third party. Chase Paymentech Europe Limited, trading as J.P. Morgan, is regulated by the Central Bank of Ireland. Registered Office: JP Morgan House, 1 George's Dock, I.F.S.C., Dublin 1, D01 W213, Ireland. Registered in Ireland with the CRO under the Registration No Directors: Catherine Moore (UK), Carin Bryans, Michael Passilla (US), Dara Quinn, Steven Beasty (US) Copyright 2018 [ 6 ]