How the Digital Single Market Impacts Global eCommerce

Will New EU Policies Shape Merchant Interactions Globally?

The European Commission first announced plans to build a Digital Single Market throughout the Eurozone back in 2014. However, just what shape this new idea will take and how it will be regulated leaves many questions up in the air.

What is the Digital Single Market?

The Digital Single Market (DSM) is intended to mirror the original concept of the EU single market itself.

In theory, this continental eCommerce market benefits businesses and consumers by removing barriers to cross-border trade and encouraging the movement of goods and services in the EU. As the Commission asserts on their site, “It’s time to make the EU’s single market fit for the digital age—tearing down regulatory walls and moving from 28 national markets to a single one.”

Proponents of the idea suggest that the DSM has the potential to free-up an immense reserve of fiscal resources—roughly —415 billion each year. In turn, this would create hundreds of thousands of new jobs throughout Europe, the European Commission asserts.

The Digital Single Market was originally intended to be in-place by the end of 2016. Though the process is moving more slowly than anticipated, especially amid the current political and economic instability in the EU, plans for the digital single market continue moving forward.

Is the DSM as Great as it Sounds?

The Commission promises immense benefits for European businesses. However, this plan may also result in unintended consequences for merchants and other organizations around the world.

More Barriers to Entry

European businesses will enjoy unrestricted market access across the entire EU. In contrast, merchants outside of the single market will face barriers to their eCommerce operations, negatively impacting those businesses’ competitiveness.

Many businesses located in non-member states might find it too difficult to enter or remain profitable within the market. This will ultimately limit shopping choices for European consumers, undercut the bottom lines of businesses outside the EU, and have potentially negative long-term implications for international relations.

This was not the original intent of the Digital Single Market; however, as the framework developed and started taking shape, the DSM developed a decidedly pro-Europe protectionist bent.

Mistargeted Cybersecurity Concerns

Another proposed benefit of the new DSM is that it will encourage adoption of digital sales by improving cybersecurity and consumer protections. This highlights a definite concern regarding the state of eCommerce on the continent—EU consumers have been much slower to adopt online shopping practices than consumers in other markets.

The evidence suggests that cybersecurity concerns are not at the root of why the development of the European online market has been so sluggish, though.

Europeans are less concerned about their online data than Americans—overall, 15% of Europeans believe they’re in total control of their data, compared to just 5% of Americans. At the same time, Europeans are more likely to use social media regularly than Americans, demonstrating that it’s not Europeans’ fears of digital security keeping them from shopping online. The standardization of security protocols under the DSM will do little to encourage greater adoption by consumers, instead simply adding to the regulatory burden on non-EU businesses.

Innovation Becomes Less Appealing

Engaging in protectionist policies that give advantages to European business throughout the EU seems like it might give those businesses an unfair advantage. In reality, the reduced competition coming in from other markets creates a disincentive for merchants to innovate and continue improving.

Forward-thinking brands that have developed out of the European marketplace did so not because they were protected by artificial barriers to competition. Instead, they flourished through innovation and quality in providing the services consumers want. By stifling non-EU competition, the DSM will make EU businesses less competitive outside of the European market, shortchanging their talent and creativity.

Fraud Burden Increases for Merchants

It’s impossible to regulate the actions of fraudsters; therefore, it makes no sense to expect that uniformity of regulation throughout the EU will pose a serious obstacle to fraudsters.

Even within a unified, single market, there is still a great deal of diversity throughout the 28 EU member states—fraud threats in France, for example, will be very different from those in Romania. Merchants need to consider threats on a national and regional basis in response to that reality if they’re going to have any hope of fighting fraud effectively.

This also extorts an important element of decision making power from merchants. By unifying the EU’s digital market, the DSM forces some merchants into riskier economies in which they did not want to participate. However, merchants are forced to take an “all-or-nothing” approach and accept customers from all EU member states or none.

It’s Not All Bad—May Spur Broader Compliance

Of course, the DSM also offers opportunities for the broader eCommerce market as well. For instance, the fact that eCommerce adoption has been comparatively slow in the EU may allow for more thoughtful regulatory policy based on the lessons learned first-hand by early adopters. Payments industry compliance and standardization stands out as an area in which the rapid adoption of eCommerce in the US led to widespread problems.

Much of the infrastructure upon which eCommerce developed in the US was built in the pre-internet age. These policies didn’t account for the unique needs of online retail and were not optimized to govern such transactions. This continues to cause a great deal of issues with compliance as policy can be interpreted and applied unevenly between parties.

There is very little transparency in the payments industry as it stands now. However, the creation of the DSM presents an opportunity to create unified standards that consider the unique needs of the eCommerce environment.

Could Go One of Two Ways

This would initially benefit European merchants and financial institutions, but the lessons learned from a successful pilot could then circle back and influence the early-adopters that inspired those policies. The benefits, however, are dependent on those markets’ willingness to adapt.

If the US and other markets feeling the sting of a lack of standardization and compliance fail to adopt lessons learned under the DSM, it could be disastrous. EU merchants would benefit, but international merchants who do not enjoy the perks of industry compliance would find their competitiveness further impacted.

Preparing for the Digital Single Market

The above-mentioned effects we can predict are only a relatively small number of potential implications following the completion of DSM rollout. Until it’s more clear the shape that the European market will take once rollout is complete, the best course of action open to merchants it to be proactive.

Developing a strategy to identify and address risk sources now, along with keeping up-to-date with further developments in the DSM, is merchants’ best bet to insulate themselves against negative repercussions.