E-commerce has evolved significantly in the last few years, ushering in an era of connected payments. This era is characterised by the emergence of innovative payment types, cutting-edge payment infrastructure, and novel business models.
A key symptom of the connected payments era can be observed in the fact that successful businesses have started to embrace the power of payments as a revenue accelerator. Payments are no longer viewed as the cost of doing business but rather as an opportunity to accelerate revenue, reduce the overall cost of processing and improve the customer experience.
Payment departments in today’s environment are focused on constant optimisation because they recognise the strategic significance of payments to a business’ strategy and long-term plans. But CEOs often don’t recognise this fact. There are a lot of misperceptions about payments and it’s the payment industry’s job to educate, dispel common myths and push for payments to ‘have a seat at the table’ in any e-commerce business.
Busting the fraud myth
Let’s take fraud as an example. Fraud has long been recognised as a significant financial burden to e-commerce businesses, resulting in massive cost implications. While fraud is often perceived as a primary drain on a company’s resources, the impact of false declines is far greater.
False declines happen when legitimate payment attempts are inaccurately flagged as fraudulent and subsequently rejected. In 2022, losses due to online payment fraud were estimated at U.S.41 billion globally. In 2021, false declines cost businesses US$430 billion, proving that the latter comes at a far greater cost. Not to mention the fact that in the case of fraud it is either the merchant or the issuing bank who foots the bill, depending on circumstances. In the case of false declines however, it’s the merchant who loses – every time.
These false declines not only result in immediate revenue loss but also undermine customer confidence, potentially leading to long-term revenue erosion. Revenue loss from false declines points to the fact that identifying legitimate transactions is just as, if not more important than identifying the fraudulent ones.
Luckily for businesses, the occurrence of false declines can be reduced by taking a proactive, strategic approach to risk management – one that balances fraud prevention measures with a smooth customer experience. Using Artificial Intelligence and Machine Learning powered fraud detection tools, customising detection settings, and implementing multifactor authentication are just a few examples of ways in which legitimate transactions can be identified and processed, hence directly contributing to a business’ bottom line. This process requires constant optimisation and monitoring, but true payment optimisation doesn’t stop there.
Optimise, optimise, optimise
Payment optimisation is the strategic process of fine-tuning every aspect of the payment journey, from the point of purchase initiation to the final confirmation. It involves implementing measures to increase transaction approval rates, reduce payment processing costs, and ensure a frictionless, secure and familiar payment experience for customers. If properly implemented and optimised, these measures can have a huge impact a business’ bottom line. Let’s take a closer look at these revenue boosting characteristics.
Increasing transaction approval rates sounds relatively straightforward and the approval rate is a key metric businesses measure. In reality, there are many tools that can contribute to increasing authorisation rates, including:
Decline Recovery – Prevents cart abandonment by offering customers an alternative way to complete their transaction. Designed to increase approval rates, it triggers an automatic response upon refusal, enabling customers to select another payment method or to be connected to the merchant’s support team.
Partial Approval – Increases approval rates by triggering an automatic response upon refusal, enabling consumers to select another payment method. Partial approval allows the end-user to successfully complete a deposit even if they do not have sufficient funds in their account. This can have categoric impact, since nearly 40% of credit card declines happen due to the cardholder’s lack of funds.
Account Updater – Reduces customer attrition due to credit card account changes through an automated process of updating cardholder account information, which ensures uninterrupted payments for recurring billing and subscriptions. Ultimately, this reduces time and cost associated with manually updating card data and ensures payments do not get declined due to incorrect or expired card details.
Tokenisation – Enables customer card details to be stored under a unique, safe and unidentifiable network token. This technology minimises the merchant’s PCI compliance by making cardholder data inaccessible, as well as helping to reduce the fraud risk. Tokenisation of card data also makes it possible for merchants to seamlessly enable subscription and one-click payments; both of which can have tremendous revenue enhancing potential.
Streamlining the payment process
There is always going to be a cost associated with processing payments. Despite this, there’s no reason why the cost cannot be optimally controlled. The complexity of new payment types across regions and the multitude of players in the ecosystem highlight the importance of a holistic vision of payment flows and the need for payment orchestration.
One of the most obvious examples of this would be the smart routing feature, which essentially does what it says on the tin. Merchants can create their own routing parameters to determine how each payment transaction is processed – sending transactions to the most relevant and cost-efficient acquirer every time, increasing authorisation approval rates, and minimising fees.
According to Canadian payments company Nuvei’s research, some organisations utilise up to 20 different payment providers in their payment stacks – especially when operating in multiple markets. Payment orchestration platforms are an excellent way to help streamline the management of these providers and give the merchant full control over decisions that can seriously improve or hinder their companies bottom line.
The payment stage is the last step in the customer journey. For the merchant this is the most crucial phase, but for the consumer – the goal is for it to be almost forgettable. Because a payment experience that is remembered is often a bad one. Successful businesses have started to consider the payment stage as key to the overall customer experience to boost revenue.
But what matters most to the consumer when reaching the all-important payment page? In our experience their expectations are often related to seamlessness, security, and choice.
The digital shift has changed consumer expectations regarding speed and convenience, and this extends to payments. Making the payment flow frictionless and fast is no longer a key differentiator, it’s table stakes. Some of the tools referenced earlier, namely account updater, one-click payments, all contribute to creating a frictionless and fast experience for the customer, hence maximising conversion and therefore revenue.
Balancing security and customer experience
Consumers are also preoccupied with security, especially as fraudsters are getting more and more astute. So, a frictionless payment experience shouldn’t come at the expense of a secure one. But there are clever ways to use technology to ensure utmost security while minimising friction. Tokenisation and multi-factor authentication thorough using facial or fingerprint recognition for example, are perfect examples of ways in which transactions and customer details can be accurately secured and verified; the best part being that consumers already expect it.
Last but most certainly not least, we have customer choice. The last few years of digital evolution has given rise to a multitude of innovative alternative ways to pay. These often differ by region or even country and are inherently related to culture and customs. It’s incredibly important for businesses to be able to offer their customers a choice in how to pay for their goods and services, especially when operating in multiple distinct markets.
Let’s take Europe alone as an example. Expanding into the Netherlands would prove difficult without offering iDeal, while in Poland Blik reigns supreme. The French love Carte Bancaire, while in Croatia cash is still widely used so digital top-up wallets are popular. Offering the right mix of payment methods in the right regions has become vital to the success of any business – especially those with global expansion on their roadmap.
Pivotal role of payments strategy
In the evolving e-commerce landscape, the rise of connected payments emphasises the need for a strategic approach to drive revenue and cultivate customer loyalty. Acknowledging the pivotal role of payments strategy is paramount. Falling behind means forfeiting the chance to shape a future where payments actively steer success in the ecommerce industry, underscoring the importance of giving payments a seat at the table.
Nuvei’s new study, written in collaboration with IDC, explores why innovative businesses now recognise payments as a crucial element in customer experience and business growth. To find out more about how payments can be utilised to drive revenue for online businesses, download the study here.