J.P. Morgan Country Insights

THE CHANGING DYNAMIC OF PAYMENTS IN EUROPE

The Netherlands

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Introduction

The Dutch economy is performing well, driven by the positive performance of the Eurozone, as well as buoyant domestic demand that will be further supported by the government's fiscal stimulus package, which was announced by the new government in the 2018-2021 Coalition Agreement.1 GDP growth is expected to hit 2.7% in 2018 and 2.5% in 2019.2 Meanwhile, private consumption is likely to be stimulated by an improving labour market (unemployment is forecast to fall to 4.5% in 2018),3 which could be positive for consumer spending and retail sales. One downside risk is that a strong euro could weigh on export growth. Despite this potential headwind, the overall economic indicators are encouraging for the coming two years.4

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

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Source: World Bank, CIA (2016), GlobalData & Thuiswinkel, Internet Live Stats, E-commerce Foundation, Lafferty, 2016, Ficus Economics

Netherlands: At a glance

Population 17.02m

Average age 42.5 years

GDP €0.73trn

B2C eCommerce market value €20.16bn

Internet penetration 94%

Smartphone penetration 64%

Card penetration per capita 0.34(ecommerce enabled)

Consumer confidence drives rapid ecommerce growthWhile the Netherlands accounts for just 3.8% of Europe's total ecommerce market,5 the Dutch market is notable for its strong gains in recent years. The Netherlands' B2C ecommerce value hit €20.16bn in 2016, up from €16.45bn in 20156 – representing a very healthy 22.6% year-on-year (y-o-y) growth, the fastest of a selection of countries reviewed by J.P. Morgan.7*

The Dutch appetite for online shopping can be explained in part by increased consumer confidence, which in Q3 2017 hit its highest level in a decade, coupled with a low inflationary environment.8 This confidence translated into an eagerness to spend, particularly in the IT, footwear, fast moving consumer goods (FMCG) and toy categories, all of which enjoyed high growth rates.9

The expansion of ecommerce in the country is also a function of a higher penetration of online consumers, with 95% of the Dutch adult population shopping online in 2016,10 and almost 40% of ecommerce conducted on smartphones.11 While this means the average Dutch shopper is already well versed in online shopping, there are still opportunities for retailers to make gains. The Netherlands' B2C ecommerce market value is forecasted to grow at a compound annual growth rate (CAGR) of 16.2% between 2016 and 2020, to hit €36.71bn by 2020.12

One area ripe for growth is boosting basket spend: the average annual online spend per Dutch e-shopper is €1,090, significantly less than the European average of €1,543.68.13 Meanwhile, the ecommerce share of the total Dutch retail market was 8.5% in 2016,14 comparable to Sweden (8.6%) and close to the European average of 8%.15 This is still far below the European forerunner, the UK, which leads at 16.8%16 – suggesting the Netherlands is a country with high potential for further ecommerce growth, and an opportunity for international e-tailers looking to court new customers.17

Netherlands: Consumer spending

Source: Trading Economics, Statistics Netherlands

EUR

Mill

ions

74,000

73,500

73,000

72,500

72,000

71,500

71,000

70,500Jan

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's 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 (2016)

3%Mass Merchandise

35%Accommodation/ Hotels

10%Fashion/ Apparel

2%Grocery/ Supermarkets

30%Public Transit (metro/rail/bus)

100%Digital Goods

95%Airlines

10%Consumer Electronics

3%Department Stores

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)

0.000.34

0.34Source: J.P. Morgan's 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 Global Data & Lafferty

DEBIT

CREDIT

TOTAL

Bank transfers are the most popular payment methodWhen it comes to paying, the Dutch ecommerce market stands out for having one method dominate the market. Bank transfers are far and away the Dutch nation's preferred method for online payments, accounting for 62% of sales and €12.5bn in total transactions in 2016.18 The most popular bank transfer service in the Netherlands is iDEAL, which accounts for 56% of the market by value.19 The ecommerce payment system launched in 2005 and enables shoppers to pay using bank transfers direct from their account.

58%Online travel agents (OTAs)/ Tour Operators

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iDEAL's popularity is in no small part due to its large consumer coverage, but is also helped by a healthy smartphone penetration in the country, as iDEAL is enabled for mobile transactions.20, 21 International alternative payment method (APM) providers hoping to acquire market share may find themselves facing a significant challenge: iDEAL is a home-grown product, developed by the Dutch banking community and therefore enjoys high levels of domestic support.

However, new entrants to the payment services market such as Payment Initiation Service Providers (PISPs) are now regulated under the Second Payment Services Directive (PSD2). A PISP is a third party provider that is able to initiate payment on behalf of a consumer, without them having to visit their online bank's portal. This could potentially stimulate competitors in the Dutch market.

Meanwhile, cards take around 12% of the payment market,22 which is lower than in many markets studied, perhaps due to the ubiquity of iDEAL. The Netherlands also has a relatively low penetration of cards per capita because Maestro/V-Pay can't be used online in the country.

High fraud rates a feature of the marketeCommerce fraud is relatively high in the Netherlands. According to figures from Kount, (a fraud and risk management provider), ecommerce fraud (chargebacks) occur in 0.162% of total online sales.24 This compares to an average chargeback rate across the region of 0.108%.25 A growing ecommerce market, plus high card usage, may have made the country a target.26

A technologically-savvy, consumer-confident nation, with the appetite to embrace new methods of shopping and payment: all of these factors make the Netherlands a country to watch. The Netherlands continues to undergo strong, double-digit growth and despite its small population is expected to eclipse Italy and Spain, both much larger countries, in terms of B2C market size by 2020.27

Payment method split by value (%)

Bank Transfer

Card Other E Wallet Cash Direct Debit

62%

12% 9% 6%6% 5%

Source: J.P. Morgan's 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 EHI-Studie (2016)

Penetration of alternative payment methods (%)

5%PayPal

4%AfterPay

Source: J.P. Morgan's Country Insights: The Changing Dynamic of Payments in Europe: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company

56%

iDEAL

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* J.P. Morgan's The Changing Dynamics of Alternative Payments in Europe study includes the following countries: U.K., 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] European Commission, ‘Autumn 2017 Economic Forecast’. Accessed March 2018. [2] European Commission, ‘Autumn 2017 Economic Forecast’. Accessed March 2018. [3] OECD, ‘Netherlands - Economic forecast summary (November 2017).’ Accessed March 2018. [4] European Commission, ‘Autumn 2017 Economic Forecast’. Accessed March 2018. [5] J.P. Morgan’s 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, Thuiswinkel.org & E-commerce Foundation, 2016. [6] J.P. Morgan’s 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, Thuiswinkel.org & E-commerce Foundation, 2016. [7] J.P. Morgan’s 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, Thuiswinkel.org & E-commerce Foundation, 2016. [8] Trading Economics, ‘Netherlands Consumer Confidence, 1986-2017’. Accessed November 2017. [9] J.P. Morgan’s 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 (in collaboration with Thuiswinkel.org), Ecommerce Report The Netherlands 2017, 2017. [10] J.P. Morgan’s 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 (in collaboration with Thuiswinkel.org), Ecommerce Report The Netherlands 2017, 2017. [11] J.P. Morgan’s 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. [12] J.P. Morgan’s 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, Thuiswinkel.org & E-commerce Foundation, 2016. [13] J.P. Morgan’s 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, Global B2C E-commerce Report 2016, 2016. [14] J.P. Morgan’s 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), EDC Research & Analysis. [15] J.P. Morgan’s 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), EDC Research & Analysis. [16] J.P. Morgan’s 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), EDC Research & Analysis. [17] J.P. Morgan’s 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. [18] J.P. Morgan’s 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, Thuiswinkel.org & E-commerce Foundation, 2016. [19] J.P. Morgan’s Country Insights: The Changing Dynamic of Payments in Europe: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company. [20] European Payments Council. ‘The Dutch payment landscape: One of the most cashless in Europe.’ _Accessed November 2017. [21] Currence.nl. ‘Collective Payment Products.’ Accessed November 2017. [22] J.P. Morgan’s 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, Thuiswinkel.org & E-commerce Foundation, 2016. [23] J.P. Morgan’s 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, Thuiswinkel.org & E-commerce Foundation, 2016. [24] Kount, Proprietary Research Q1, 2018. [25] Kount, Proprietary Research Q1, 2018. [26] J.P. Morgan’s 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 Global Data & Lafferty. [27] J.P. Morgan’s 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), EDC Research & Analysis.

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