Debtor rate at 5.5% – how online retailers can avoid payment defaults with credit checks

Current debtor rate in Switzerland

CRIF AG calculated the debtor ratio in Switzerland in August 2024. This currently stands at 5.5%, which corresponds to a slight decrease compared to the 5.6% in January 2024. The number of over-indebted persons has risen by 1.5%. The decline in the debtor rate can be attributed to population growth.

In absolute figures, this means that 412,762 people are considered overindebted. The cantons of Neuchâtel (9.2%), Geneva (8.8%) and Basel-Stadt (7.3%) have particularly high debtor rates.

Challenges for e-commerce

Despite the slight decline in the debtor rate, the risk of payment defaults in online commerce remains. Purchase on account in particular, one of the most popular payment methods in Switzerland, harbours an increased risk of default for merchants. It is therefore essential for online retailers to take preventative measures to minimise financial losses.

Measures to avoid payment defaults

1. General terms and conditions (GTCs): Clear and precisely worded T&Cs form the basis for every business relationship. They should contain provisions on payment deadlines, dunning procedures and consequences in the event of late payment. Transparent GTCs inform customers about their obligations, which reduces the risk of payment defaults.
2. Credit check: A credit check is advisable before granting payment terms, especially when purchasing on account. This provides information about the customer’s creditworthiness and helps to recognise potential payment defaults at an early stage. To do this, online retailers can use credit agencies that provide up-to-date credit information.

Data protection aspects of the credit check

Carrying out credit checks in e-commerce requires the processing of personal data and is therefore subject to the provisions of the revised Swiss Data Protection Act (DPA, SR 235.1), which has been in force since 1 September 2023.

A central element here is the justification for data processing. According to Art. 31 para. 1 FADP, the processing of personal data is only permitted if it is based on a legal basis, consent or an overriding private or public interest.

Relevance of Art. 31 para. 2 lit. c FADP

E-commerce providers often rely on the overriding private interest in accordance with Art. 31 para. 2 lit. c FADP, particularly in the case of credit checks. This provision permits the processing of personal data without express consent, provided that the data processor has an overriding interest and there are no interests of the data subject that are worthy of protection.

In the context of online trading, this means Credit checks may be permissible if they are necessary to prevent payment defaults – for example, in the case of offers on account. However, interests must always be weighed up:

• Is the processing suitable for achieving the legitimate objective (protection against bad debts)?
• Is it necessary or would there be milder means?
• How serious is the interference with the rights of the data subjects?
• In practice, this means that the more invasive the check, for example by obtaining data from external credit agencies, the stricter the requirements for balancing interests. In order to fulfil the transparency requirement, data subjects must also be clearly informed about the purpose of the credit check – e.g. in data protection declarations or as part of the general terms and conditions.

Further data protection principles

• Transparency: Customers must be informed prior to data processing, for example by means of a notice at check-out or in the privacy policy.
• Proportionality and data minimisation: Only data that is required for the credit check may be processed. The storage of scorings or negative features over longer periods of time can be critical.
• Information rights: Data subjects have a right to information about which data was used and how the scoring came about (Art. 25 FADP).
• Security: Appropriate technical and organisational measures are required to protect the data from unauthorised access.

Practical recommendations for online retailers

• Integration of credit checks: Use automated solutions that are integrated into the ordering process to check the creditworthiness of customers in real time. This enables a quick and efficient decision on the payment methods offered.
• Employee training: Ensure that your employees are trained in handling personal data and are familiar with data protection regulations
• Regular review of processes: Regularly check your internal processes and systems for data protection compliance and adjust them if necessary.

Conclusion and outlook

The current debtor rate in Switzerland shows that, despite a slight decline, there is still a risk of payment defaults in e-commerce. Online retailers can minimise this risk through preventative measures such as clear general terms and conditions and careful credit checks. At the same time, it is essential to comply with the data protection provisions of the Swiss Data Protection Act (DSG) in order to ensure both legal security and customer trust.

Sources

• Slight decline in the debtor rate to 5.5% – CRIF AG
• Credit assessment – CRIF AG