Risky Business? Open Invoice Payments In Germany

PayProtect is used by merchants and payment service providers to manage the risk around 'purchase on account' – a payment method that is a must when operating in the large German eCommerce marketplace. Jens Kühle, MD of GPP, a company of the GFKL-Lowell Group, sat down with us to explain the specifics of eCommerce risk management in the German market.

GFKL is one of Europe’s leading receivables management companies, managing EUR 17 billion in receivables. The GFKL Group also offers the PayProtect eCommerce risk management solution, which is fully integrated with ACI’s UP eCommerce Payments solution.

So-called ‘purchase on account’ – delivering physical goods along with a paper invoice to be paid by the receiver – undeniably carries higher risk for the merchant. Why offer this, when there are many payment methods considered safer?

Purchase on account remains the preferred payment method of the majority of Germans who shop online. Some studies show that nearly 80% of consumers want to have the option of paying by invoice, so it’s clear that offering it is necessary to convert shoppers into buyers. This preference extends to the rest of the German-speaking DACH region (Austria and Switzerland) too. The continuing popularity of purchase on account is due to the fact that the shopper does not need to enter sensitive payment data (including credit card numbers) on a merchant’s website, but also because of speed – the shopper only needs to enter address information.

This is certainly quite a difference to card-dominated markets such as the U.S. or the United Kingdom – what is your recommendation for merchants and payment service providers from these regions that want to reach German shoppers?

Germany, considered by many businesses the doorway to the European region, is an enticing market, with EUR 70 billion in sales forecast in 2017. But any international merchant or payment provider that wants to take advantage of this market should support purchase on account. Not offering it will lead to lower conversion rates, as shoppers abandon their shopping carts at the checkout, due to their preferred payment method – purchase on account – not being available.

A survey of the most profitable online businesses in Germany shows that purchase on account is now offered by 93.3% of merchants, so it is also easy for shoppers to shop elsewhere, rather than select a less preferable payment method, such as credit card.

Can you explain then, in more detail, the steps that merchants and payment providers – including those operating cross-border - can take to manage risk when they do choose to support invoice payments?

It all starts with having the right fraud checks in place, determining the likelihood of fraud before purchase. For example, our PayProtect product is integrated into an online shop, and in the background a real-time address and credit check takes place. The result of this check leads to a recommendation, based upon which PayProtect will take on guarantee of payment.

A simple traffic light system is used; green means that PayProtect takes on the full payment guarantee, even if a consumer deemed to be trustworthy does not pay after the net-30 terms. After the first reminder from the merchant, PayProtect will reimburse the merchant and take on collection responsibilities. We also do this for direct debit, where we check account data. For the shopper, there is no difference to the checkout process; for the merchant, there is the possibility and the security of being able to offer riskier payment methods without the risk.

What results can merchants expect from implementing PayProtect?

Our own data shows that integration of PayProtect can deliver a 25-35% revenue increase, and this is confirmed by feedback from our customers, including a major fashion label with subsidiaries across Europe.

So how important is it then – in your view – for payment service providers to offer merchant tools that ensure a smooth and seamless payment process?

It is absolutely crucial for payments to be smooth and seamless. PayProtect does this by remaining in the background, while protecting from fraud and ensuring that the merchant is paid directly by the consumer. Our goal is to simplify eCommerce expansion and risk management for those global businesses that want to succeed in the DACH region.

Regardless of the market, integrating the most popular payment methods demonstrably leads to a higher conversion rate and increased sales, which ACI enables through itsg global payment network. As a fully integrated endpoint within that network, PayProtect is quick and easy to set up for any business using ACI’s UP eCommerce Payments solution.