With the help of digital transformation and an increase in use of mobile phones and the internet, online purchases have increased dramatically. Online shopping is now a common aspect of modern society. In 2020, over 2 billion people purchases goods and services online, with e-retail sales reaching over $2 trillion worldwide. It can be argued that the pandemic ignited this shift towards e-retail, with several surveys illustrating significant purchasing differences between 2019 and 2020. According to Selligent, 36% of consumer’s shop online on a weekly basis, an increase from 28% before the pandemic. Similarly, 49% of consumers show more online now than they did pre-COVID-19. Online shopping is not only done domestically, but it a common way for consumers to gain access to products and services internationally. Technology and the free movement of goods, services, money and people, has facilitated international purchases. The automatic change of currencies and overall simplicity of international online purchases, arguably blinds consumers from the multiple hidden costs incurred.
What are the Different Charges?
In 2019, it was found that 1 in 7 shoppers made online purchases overseas per week, with price being the most important factor. Companies and website developers have created websites to hide additional costs that customers face when purchasing online. Such charges include; international delivery costs, VAT and customs and foreign currency transactions costs. Companies have a tendency of advertising “free delivery” across their websites as a means of luring consumers to purchase their goods and services. Many consumers fall for this trap, later realising that “free delivery” is only applicable to specific countries.
Whilst postal charges are a hidden cost, they can be avoided, unlike foreign currency transactions costs. When consumers are shopping online, they have the option to view prices in the currency of their choice. Whilst this is attractive, consumers are not able to see the spread they are charged for changes in currency. A conversion spread is charged whenever a credit card is being used internationally. Conversion spreads can even be charged twice for consumers in specific countries. For example, if someone in Singapore purchases overseas that is not in USD, the foreign currency is changed to USD and then converted to SGD and charged to the consumer’s credit card. The conversion spread is paid twice without the knowledge of the consumer.
Exchange rate fluctuations impact how much consumers pay for a good, with the rate on the day the money is taken from the account being more important than the rate on the day of purchase. Due to the potential rate fluctuation, consumers risk paying more for their purchase than originally intended. On top of this, banks charge a conversion fee. This fee is the cost of the card issuer converting the transaction from the currency of purchase to your home currency, which can reach up to 3% of the transaction amount. Consumers end up not only paying for postal charges, but also for foreign currency transaction costs, foreign currency conversion spread and conversion fees.
International purchases in a post-Brexit world
As mentioned, consumers are unaware that they are liable for additional costs, especially in the wake of Brexit. Statistics show that only 15% of consumers are aware that buying from non-EU websites may attract higher charges, and only 1 in 10 consumers plan to pay more attention where a website is based after Brexit. Pre-Brexit, goods were able to move freely without taxes being charged. Online shoppers face import fees and delivery charges when making purchases from the EU. These new costs are considered “hidden” as consumers are charged VAT at their doorstep whereas previously they would be charged at checkout. Furthermore, customs duty is added to goods priced above £135, something that is unknown to consumers.
In this new post-Brexit era, there has been a change in the way VAT is collected on EU purchases, with couriers now charging additional fees to cover admin costs and customs check. Additional handling fees are charged to cover costs associated with customs check and paperwork. Royal Mail are charging an £8 fee that reflects the cost of clearing items through customs and presenting it to Border Force. DHL are also charging a minimum of £11 to clear items through customs. Again, consumers are faced with these fees once their order has arrived, instead of at the checkout.
Additionally, due to Brexit, MasterCard and Visa have decided to increase the interchange fees they charge to businesses. MasterCard have decided to impost a 5-fold rise in fees for Britons purchasing from the EU, thus increasing the prices of everything that is purchased abroad. In 2015, the EU introduced a cap on interchange fees, due to hidden costs concerns that could lead to 100s of millions of euros in costs for consumers. Since Brexit, this cap has been removed, resulting in higher prices for consumers if merchants choose to pass on costs to end-users. The various hidden charges that consumers face shows the dire need for consumers to be more vigilant when purchasing anything outside of their home country.
