Everything You Need to Know about Selling in Italy

E-commerce in Italy is in an interesting position for sellers and buyers alike. Considering it is a European country, the urban population is relatively low and, with an internet penetration of less than 60%, the infrastructure for e-commerce remains underdeveloped. Because there are few options in the domestic market, cross-border activity is flourishing, with almost one third of Italian consumers participating in cross-border e-commerce, and most of the growth is driven by the high mobile penetration rate. Let’s take a look at the Italian e-commerce market and how your business can benefit from selling in Italy.

SELLINGITALY

In the Everything You Need to Know series, we take a look at a specific e-commerce market to help you decide whether you should expand online sales across borders. As a provider of comprehensive payment processing services, we at DalPay specialise in cross-border commerce and have first-hand experience facilitating business in over one hundred markets worldwide.

Online marketplaces vary significantly around the world in a wide number of ways, such as their level of economic development, shopping habits, preferred payment methods, access to technologies, legality, logistics, etc. Because of this, there are a great many factors to consider when choosing which international markets to expand to. This series is designed to provide you with all the information you need to choose which countries are a good fit for your business and to begin selling across borders.

Unless otherwise noted, figures in this article are sourced from:

The European Union has made considerable strides in the last two decades to create a single, unified European economy, from the introduction of the euro in 1995 to the official integration of the Single Euro Payments Area (SEPA) just last year.

Despite the harmonisation of the currency and payment systems throughout the Eurozone, the countries of Europe will always have their own differences in culture, language and payment habits. SEPA makes cross-border e-commerce within Europe much more accessible to businesses on or off the continent, but no matter how easy it is, there will always be regional differences in how people shop and Italy is no exception.

Quick Figures

  • Total population: 60 million
  • Internet penetration: 58.5% (36 million)
  • Mobile penetration: 159%
  • Online shoppers: 15.8 million
  • E-commerce sales: EUR 11 billion
  • E-commerce annual growth rate: 18.2%

Italy has become a very attractive target market for online retailers looking for new countries to expand to for a number of reasons. Thanks to initiatives by the European Union, it’s easier than ever to do business in Italy, especially for businesses that already operate elsewhere in Europe. Though still a relatively small e-commerce market, Italy has the third largest economy in Europe and 30% of online shoppers buy from businesses across borders, amounting to roughly 5 million potential customers and growing.

Italy also has one of the highest mobile penetration rates in Europe. 21% of mobile users make mobile purchases at least once a month, and retail apps in Italy show a year-over-year growth of 74.8%. As m-commerce becomes increasingly synonymous with online retail, merchants selling across borders gravitate toward mobile-ready markets.

What You Need to Know

Top e-commerce categories

When making cross-border purchases, Italian consumers mostly buy from the UK and Germany. The most popular product category is airline tickets, followed by consumer electronics and apparel. Niche online retailers have the most success in Italy. There is a significant demand for high-end cosmetic and fashion brands as well as niche products marketed to young consumers more accustomed to shopping online.

Preferred payment methods

The most common method of online payment in Italy is by credit or debit card with 25.6%, followed by e-wallets with 22.7%. The leading credit card in Italy is Visa, followed by MasterCard, with the two providers accounting for 99% of the total credit card market.

One of the reasons why e-commerce is underdeveloped is that Italy is still very much a cash-based economy. Many consumers are not comfortable buying online. Because of this, in tandem with the high mobile penetration, omni-channel retailers can drive e-commerce revenues by leveraging online retail inventory at the point-of-sale, i.e. “order-in-store, ship-to-home”. Allowing consumers to purchase in a physical store and have the products delivered to their homes can help grow acceptance of online payments in Italy.

Logistics

The reverse is also true. 51% of Italian consumers have said they prefer to shop from an online retailer that offers in-store pick-up, and 59% prefer the ability to return items in-store that were purchases online. Italian consumers also have a high expectation for delivery services, with 63% citing free delivery as a major factor in their purchasing decisions.

Cybercrime report

Italy is the eurozone’s third largest economy, and with the growth of credit card usage in recent years, card fraud has followed suit. Card fraud in 2013 accounted for a total of EUR 56.8 million, with half of that being attributed to counterfeit fraud largely associated with cross-border payments. Card-not-present transaction account for EUR 14.2 million in fraud losses and lost or stolen cards account for over 10 million. Still, Italy’s total fraud rate of 2.1 compares favourably to that of France (7.4) and the UK (5.9).

Legality

International sellers planning to expand their e-commerce operations into France will have to familiarise themselves with local legislation as well as, if they are based outside of Europe, the legislation of the European Union.

For example, under the European WEEE regulation, it is mandatory to register the number of physical products being put to market, as well as the number of items taken back from the market (as in the case of returns), or risk thousands of euros in fines. Products imported from outside of the EU are subject to duties, while inter-EU deliveries are subject to the EU Directive on the VAT-system.

Italian E-Commerce in Brief

Pros:

  • One of the largest economies in Europe
  • Over 15 million online shoppers
  • Widespread acceptance of cross-border e-commerce
  • Very high mobile penetration rates
  • Few barriers to entry

Cons:

  • E-commerce relatively underdeveloped
  • Cash-based economy

It is no secret Italy’s economy has been in turmoil in recent years. While the recovery is well underway, there is still a wide income disparity across the country. Due to the economic instability, many Italian consumers are hesitant to participate fully in e-commerce and harbour concerns about the security of online payments.

However, e-commerce in Italy broke EUR 10 billion in 2013 and is showing five years of consistent, stable growth. The economy is now one of the strongest in Europe and the mobile penetration is one of the highest. The result of this is that the demand for online retail is growing faster than domestic providers can keep up, and Italian consumers are turning to cross-border retailers for their e-commerce needs.

Expanding into a new international market is a risky venture but a very rewarding one if done correctly. For the latest information about how you can build and maintain a strong e-commerce enterprise and keep it compatible with legislation and buying habits at home and abroad, subscribe to the DalPay Blog and follow us on Facebook and Twitter for the latest industry news.

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Multilateral Interchange Fee Caps will have a Mixed Effect in Europe

Interchangefees

Earlier this year, the European Parliament voted to regulate credit and debit card interchange fees, lowering the cap to 0.3% and 0.2% respectively. Coming into effect in January 2015, the multilateral interchange fee (MIF) regulation is designed to enforce a fair price among all products and providers in order to encourage new market-entrants and increase competition within the Single Euro Payments Area (SEPA).

MIFs are the fees paid by merchants to payment card providers in exchange for the ability to accept credit and debit card payments both online (card-not-present or CNP transactions) and at the point-of-sale (POS). There has been some resistance to the regulation, particularly from card providers who collect the profits from MIFs, but also from merchants and SEPA-opponents in specific parts of Europe which could potentially see negative effects as a result of the regulations.

SEPA and MIFs

 The Single Euro Payments Area is a payment integration initiative coordinated by the European Payment Council in order to introduce a single, harmonised payment format for all transactions in the euro currency. The initiative was designed to integrate the separate national European markets into a single domestic market.

Following in SEPA’s footsteps, the new MIF regulation eliminates the difference between cross-border and national card payments, treating all European card payments equally. While our previous article about SEPA mostly focused on the benefits of that initiative, now that the deadline has passed there is going to be a long period of growing pains while the formerly fragmented European markets merge their payment systems.

Added to these growing pains are further initiatives spearheaded by the European Commission, including the interchange fee cap. This and other initiatives are designed to be beneficial to the European payments landscape overall, but because they apply without prejudice to all eurozone countries, some countries will initially benefit more than others due to existing payment habits, technological infrastructure and economic realities.

UntitledFor example, in the UK the introduction of additional layers of security to card-not-present (CNP) transactions such as Visa 3D Secure and MasterCard SecureCode has had a positive impact on conversion rates. Despite the additional step in the purchase process, customers in the UK are more likely to make a purchase if they have the additional assurance of security. Meanwhile in Germany, the very same technologies have had a significant negative effect on conversion rates.

These extra layers of security are being enforced by the MIF regulation and will therefore now be required by all payment card-accepting merchants. Because of this, merchants who do not already offer the required extra layer of security, particularly those in markets where these technologies have had a negative effect on conversion rates, will initially be at a disadvantage once the regulation comes into force.

However, in the long-term, the regulation will force merchants to increase their level of security and ultimately allow them to profit from the lower interchange fees, which are likely to be shared with consumers in the form of lower prices.

In addition, the mixed effects that the regulation will have in different regions of Europe only applies to card-not-present transactions, while the effects on point-of-sale transactions will almost universally benefit merchants within the eurozone. This is because POS transactions in Europe are already compliant with the security requirements enforced by the new regulation and there is no additional investment necessary on the merchant’s side.

The Benefits

For consumers:

  • Secure and low-cost electronic payments widely available across the eurozone.
  • Wider acceptance of payments cards as more small merchants can afford the fees.
  • No hidden or unexpected fees from card providers.

For merchants:

  • The ability to accept payment cards at fair prices.
  • Cost savings which can be used to improve services and be passed on to customers.
  • Eurozone-wide products and services at a standardised cost.

For payment providers:

  • New market entrants and increased adoption of payment card services will grow total transaction numbers.
  • Increased e-commerce traffic mean increased opportunities for market additional services.
  • New and innovative payment products and technologies will be developed.

Proponents of the MIF regulation view it as a necessary component in establishing a true single euro payments area and in preparing the European payments industry for an increasingly digital marketplace. The European Commission has concluded that current interchange fee levels are anti-competitive, in that they discourage new market entrants and cost businesses an average of 9 billion euro per year. Much of those costs are then passed on to the consumer in the form of higher prices.

In regards to that, lower MIFs are expected to promote innovations, improve customer service and ensure flexibility. The costs savings to merchants are expected to increase competition and result in lower prices for their customers. The negative side-effects involved in establishing SEPA and its associated regulations, while not insignificant, are merely growing pains in the process of building a strong, modern European economy.