J.P. Morgan Country Insights

THE CHANGING DYNAMIC OF PAYMENTS IN EUROPE

Switzerland

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Introduction

Economic activity in Switzerland is beginning to pick up again, with GDP forecast to grow 1.7% in 2018 and 1.8% in 2019.1 Nominal wage increases and an expected drop in unemployment from 4.8% in 2017 to 4.5% in 20182 should help boost private consumption, which is set to grow 1.4% in 2018.3 In turn this should be positive for retail sales. Meanwhile, growth in the Eurozone could prove supportive for the Swiss economy, which is heavily dependent on growth outcomes in external markets.4

This information is based on projected figures and is subject to change at any time.

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Sources: Edgar, Dunn and Company via World Bank, 2018 CIA 2016, Netcomm Suisse & E-com-merce Foundation 2016, Internet Live Stats 2016, GlobalData 2016

Switzerland: At a glance

Population 8.37m

Average age 42.2 years

GDP €540bn

B2C eCommerce market value €9.8bn

Internet penetration 87.2%

Smartphone penetration 64%

Card penetration per capita 1.96(debit & credit)

A small market with good potentialA compact, wealthy, landlocked nation, Switzerland has a host of unique features that make it stand out as an attractive option for online retailers, but it is not without its challenges, as discussed in greater detail below. In recent years, ecommerce growth has been healthy and in line with its EU-member neighbours. Online shopping grew at a compound annual growth rate (CAGR) of 15.4% in Switzerland in 2016, generating €9.8bn of sales.5 However, unlike the majority of the EU, this upward trend is predicted to slow: Switzerland's ecommerce industry is projected to expand at a CAGR of just 7.4% to 2020.6 Whilst this is a respectable figure, it is the lowest out of all the countries included in our study.

Swiss shoppers still waiting for international e-tailers to open their doorsSwitzerland's expected single-digit growth rate can be explained in part by the fact that Swiss shoppers are still waiting for many international e-tailers to open their doors to them, for a number of reasons. There are operational challenges around creating some websites as they have to be in Switzerland's three national languages, if they sell goods targeted at consumers.7 Also, the customs process can be tricky, with all packages requiring a complex customs clearance.8,9 Meanwhile, there are many other small but significant differences in Switzerland, which ecommerce companies have to be aware of when operating there. For example, electronics require a Swiss approval mark,10 while Switzerland has its own standard for plugs.11 There are also generally higher logistics costs in Switzerland, due in part to the customs process. For instance, if a parcel does not include a correct clarification of value there is a CHF13 charge.12

Switzerland: Consumer spending

Source: Trading Economics, State Secretariat for Economic Affairs

CHF

Mill

ion

92,500

92,000

91,500

91,000

90,500

90,000

89,500

89,000

88,500Jan

2015July 2015

Jan 2016

July 2016

Jan 2017

July 2017

Jan 2018

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eCommerce: % of total sales by segment

eCommerce penetration (%)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 & E-commerce Europe, 2016

20%Public Transit (metro/rail/bus)

100%Digital Goods

50%Online travel agents (OTAs)/ Tour Operators

50%Accommodation/ Hotels

20%Fashion/ Apparel

11%Consumer Electronics

2%Department Stores

2%Grocery/ Supermarkets

4%Mass Merchandise

70%Airlines

As a result, many shoppers make cross-border purchases with limited choice and elevated prices from other international sites.13 This has led to heated conversations in the Swiss parliament14 about the prevalence in Switzerland of geoblocking, a practice whereby e-tailers prevent shoppers from buying products more cheaply outside of their home country.15 Switzerland, also has no specific regulations for ecommerce companies.16 For instance, there is no state-imposed right to return a product and no legal maximum delivery times.17

Despite these barriers, the Swiss are still keen to shop online, and when they do they are high spenders. The average online spend per e-shopper was €1,815 in 2015 – €271.3218 more than the European average – and an estimated 72% of Swiss people shop online at least once a month.19

Levies weigh down on shoppersThe historical absence of tailored Swiss e-tail sites means the country's online shoppers are increasingly well versed in international shopping, even if they do have to pay more in levies. Cross-border shopping is a significant growth market: Swiss shoppers made €1.22bn of online purchases from abroad in 2016, up 18% on the year before.20

The most popular online product categories are clothing, travel and entertainment.21 One element unites these three categories and provides another insight into Swiss ecommerce: postal charges. A pair of jeans, a holiday booking, or a concert ticket are not heavy items to ship. As a country that imposes import duties by weight,22 this has a significant impact on ecommerce decision making as heavier cross-border online orders swiftly become expensive, which helps to explain the dominance of these three shopping categories.23

Domestic brands still feature in the top ten ecommerce sites in the country,24 but this could change as tailor-made Swiss sites finally emerge from international e-tailers. It has been reported that Amazon is in talks with domestic post and customs clearing service Swiss Post to deliver its items from a dedicated Swiss site later in 2018.25

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Bank Transfer

Card Other E Wallet Cash

60%

20%

2%

16%

2%

Payment method split by value (%) Payment method split by value (%)

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, 2017

Card penetration per capita

Metric indicator Total

Credit card per capita (ecommerce enabled)

Debit card per capita (ecommerce enabled)

Total cards per capita (ecommerce enabled)

1.250.71

1.96Source: 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 GlobalData, Lafferty 2016

DEBIT

CREDIT

TOTAL

Smartphones yet to become a go-to shopping deviceEncouragingly, the underlying technology is in place to support online shopping growth. Switzerland's fixed line infrastructure is well developed.26 Smartphone penetration is particularly high among people under 25 (97%),27 but there are opportunities to court older shoppers who are yet to embrace phone-based spending, as only 44% of Swiss people over 55 own a smartphone.28

However, the use of smartphones to shop online is not a mature phenomenon in Switzerland. While 47% of Swiss people use their smartphone to look for product information, only 3% purchase products on their phones29 – Switzerland's non-EU member status may be influencing this trend. Across EU member states, the cost of smartphone internet access has dropped due to the banning of roaming fees. As of June 2017, EU members have enjoyed a ban on extra roaming charges when travelling in the EU 28.30 In contrast, Swiss consumers are subject to much higher phone tariffs potentially keeping shoppers at their desktops.

Bank transfers dominateWhen paying for online shopping, bank transfers are highly popular, accounting for 60% of sales31 and €4.8bn worth of transactions in 2016.32 This could be down to the dominance of the 112-year-old PostFinance, the financial services arm of national post service Swiss Post. Its bank transfer, debit and bill payment services account for around 50% of the payment industry,33 and it acts as a service provider for e-tailers as well.

Cards were the second-most popular payment method in 2016, used for 20% of online transactions,34 or a total €1.6bn of sales.35 A wealthy nation with high disposable income, debit card adoption is still growing despite already being used more frequently than credit cards. There were 1.25 per capita in 2016,36 compared to just 0.71 for credit cards.37

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* 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

Information contained in this document has been prepared by third parties or obtained from sources whichare believed to be reliable; but neither Chase Paymentech Europe Limited nor any of its affiliates warrantthe completeness or accuracy of the information contained herein. Chase Paymentech Europe Limited andany 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 ofthe use of or reliance on the data or statements made available herein. Third party trademarks, brandnames, products and services are only referential and Chase Paymentech Europe Limited and its affiliates

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Copyright© 2018

References[1] OECD, ‘Switzerland - Economic forecast summary (November 2017).’ Accessed February 2018. [2] OECD, ‘Switzerland - Economic forecast summary (November 2017).’ Accessed February 2018. [3] OECD, ‘Switzerland - Economic forecast summary (November 2017).’ Accessed February 2018. [4] OECD, ‘Switzerland - Economic forecast summary (November 2017).’ Accessed February 2018. [5] 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 Netcomm Suisse & E-commerce Foundation, 2016. [6] 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. [7] Thomson Reuters Practical Law, ‘Digital business in Switzerland: overview.’ Accessed March 2018. [8] Federal Customs Administration, ‘Courier by post, online shopping, mail-order company.’ Accessed March 2018. [9] Federal Customs Administration, ‘Customs clearance of imported consignments made easy,’ via Swiss Post. Accessed March 2018. [10] Federal Customs Administration, ‘Certification safety mark,’ Accessed March 2018. [11] Worldstandards.eu, ‘Power plug & outlet Type J.’ Accessed March 2018. [12] Federal Customs Administration, ‘Customs clearance of imported consignments made easy,’ via Swiss Post. Accessed March 2018. [13] EcommerceNews.eu, July 2017. ‘Why isn’t more being done to end geoblocking.’ Accessed March 2018. [14] EcommerceNews.eu, July 2017. ‘Why isn’t more being done to end geoblocking.’ Accessed March 2018. [15] EcommerceNews.eu, July 2017. ‘Why isn’t more being done to end geoblocking.’ Accessed March 2018. [16] EcommerceNews.eu, October 2017. ‘What Retailers Need to Know When Exporting to Switzerland’. Accessed January 2018. [17] EcommerceNews.eu, October 2017. ‘What Retailers Need to Know When Exporting to Switzerland’. Accessed January 2018. [18] 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 E-commerce Foundation, 2016. ‘Global B2C E-commerce Report 2016.’ [19] University of Applied Sciences in Business Administration Zurich and Swiss Post, 2017. ‘Swiss e commerce trend indicator 2017.’ Accessed January 2018. [20] EcommerceNews.eu, October 2017. ‘What Retailers Need to Know When Exporting to Switzerland’. Accessed January 2018. [21] 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 Post CH, 2016. [22] Federal Customs Administration, ‘Courier by post, online shopping, mail-order company.’ Accessed March 2018. [23] EcommerceNews.eu, October 2017. ‘What Retailers Need to Know When Exporting to Switzerland’, Accessed January 2018. [Switzerland is the only country in the world besides Australia that levies weight based duties. So for example, sports shoes have a duty rate of 206 Swiss francs per 100 kilogram, while a cotton dress has a duty rate of 171 Swiss francs per 100 kilogram.]. [24] Bilanz.ch. ‘Die beliebtesten Onlineshops der Schweiz.’ Accessed January 2018. [25] Bilanz.ch, November 2017. ‘Jetzt kommt Amazon in die Schweiz!’ Accessed January 2018. [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 Internet Live Stats & Eurostat, 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 Google Survey, 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 Google Survey, 2016. [29] 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 Google Survey, 2016. [30] Europa.eu. ‘End of roaming charges in the EU: Joint statement by 3 EU institutions.’ Accessed March 2018. [citizens who travel within the EU will be able to call, text and connect on their mobile devices at the same price as they pay at home. Eliminating roaming charges is one of the greatest and most tangible successes of the EU]. [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] 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 Netcomm Suisse, 2016. [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. [34] 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. [35] 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 Netcomm Suisse, 2016. [36] 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. [37] 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 Lafferty, 2016. [38] 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. [39] 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. [40] GesKR, 2017 ‘Regulation of Electronic Payment Service Providers in Switzerland.’ Accessed March 2018. [41] 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.

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E-wallets were used for 16% of transactions in 2016,38 helped by the popularity of PayPal, which occupies a 12-15% slice of the payment market.39 Switzerland has some barriers to entry for international payment providers. For example, when a system electronically stores a customer's money for future payments, this can necessitate a local banking license.40 This may have prevented other, smaller payment services from making their mark – no other alternative payment provider takes up more than 3% of the market.41

A market to watchSwitzerland's ecommerce market has been underserved to date by some of the world's biggest ecommerce players, but this looks set to change, which should help ease some of the burdens and costs posed by importing goods as well as providing more consumer choice. However, we do not expect the market to improve upon its predicted single-digit ecommerce growth figure in the near term.

Penetration of alternative payment methods (%)

50%PostFinance

12-15%PayPal

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