Managing Payments is Harder than Ever: CMSPI’s Three-Pronged Performance Optimization Guide for 2022

12th January 2022
Contributor:
Martha Southall
Martha Southall

Today, the job of a payments manager is harder than ever. Sitting behind every seemingly-simple checkout is a complex labyrinth of technology, competing parties, hidden margins, and inefficiencies… and that’s just card payments.

But if 2021 has shown the experts anything, it’s the potential that their payments strategy can unlock. As a competitive differentiator, a loyalty generator, and a source of customer acquisition, payments has come to sit at the forefront of retail strategy. So, how do payments managers get the most from their setup in 2022? In this article, CMSPI looks at the three pillars that should be the focus of every merchant, for every payment method, in the year to come.   

1 – Failed Transactions

We’ve all been there. You go to check-out online, enter your details, and see the all-too-familiar message to say that your payment has failed. You know the funds are in your account, and that you entered your details correctly – so what next? Perhaps you try again. Or perhaps you find the item on a different site, and try there instead. For the merchant, that’s a frustrated buyer at best, the loss of a sale and a lifelong customer at worst.

CMSPI estimates suggest that 1 in 5 payment declines online are just like that one: perfectly good customers who see their payment fail due to inefficiencies in the payments supply chain. Ahead of all else, limiting these failed transactions should be top of every payments manager’s list. Especially in the digital environment, it is the final hurdle that puts every cent spent on product development, marketing, customer acquisition, web design, and more, on the line.

What You Need to Take Away

Protecting revenues means forming direct relationships with every party a transaction passes through, using data to facilitate the transparency that they often can’t access alone. The process is highly complex, but it’s also fundamental; with the right strategy, CMSPI has seen retailers achieve actual, tangible, increases to revenue as high as 10%. Those kinds of results could change the whole outlook of a business this financial year.

2 – Fraud

It’s not just false declines that can affect merchants’ revenues. Traditionally, protection against fraud has been a key focus for payments managers, and the rules used to do this are closely intertwined with a merchant’s decline rate.

But managing fraud isn’t what it was in years gone by. Firstly, merchants are facing a whole new fraud landscape, as the digital and in-store environments merge and challenges such as refund fraud come to the fore, often slipping undetected through setups not configured for today’s environment. Even when exploring the market’s latest solutions, merchants can lack the data to verify that their fraud providers are targeting the correct points in the transaction flow. On top of that, we find that most retailers simply pay too much for their fraud management – a double-blow if that same strategy is sending too many good customers away.

What You Need to Take Away

The first step in any fraud strategy is looking to the data. That doesn’t just mean understanding your own unique fraud mix across every channel and payment type, but also gaining visibility over the data points best-in-class merchants are using and their resultant fraud levels. Only by using these insights directly in negotiations with providers can merchants ensure they are minimizing fraud efficiently, freeing up some of the $7.4 billion U.S. retailers are estimated to have spent on handling chargebacks alone in 2021 (CMSPI estimates and analysis).

3 – The Cost of Acceptance

As all payments managers know, fraud prevention fees are only one of the myriad costs that squeeze their company’s margins. The cost of accepting each transaction – often the third-largest expense for a merchant – is still at the forefront of their minds heading into 2022.

In the cost arena, card remains king. Across the globe, merchants are bracing themselves for billions worth of highly-complex increases to network and interchange fees in the coming year. In fact, CMSPI forecasts that the cost of accepting card payments could double between 2009 and 2025 for U.S. merchants, due to a combination of rising fees and the host of Alternative Payment Methods such as Buy Now Pay Later whose fees typically sit significantly above their regulated counterparts.

What You Need to Take Away

There are always hidden charges and margins that you can chip away at and, with this year’s expected fee increases, doing so is more important than ever. Furthermore, as providers of new payment types – from Open Banking to BNPL – vie for transaction volume, a merchants’ payments become an increasingly important asset. Payments managers need to be thinking creatively about how their divvy up these volumes, whether that’s exploring preferential agreements with their suppliers of choice or utilizing their data to encourage customers towards low-cost alternatives.

In Summary…

Not one of maximizing transaction success, minimizing fraud, and reducing cost can be treated in isolation. Over-correct for fraud, and you could find yourself paying too much for a solution that turns good customers away. Optimize approval rates alone, and margins could be crunched for ancillary products that don’t always address the root of the problem. There are degrees to which each area can be optimized without sacrificing another, and many merchants are leaving profits on the table when they don’t address all three for every payment method in their mix.

Looking to 2022, the merchants who get ahead will be those who know that a successful payments strategy is a data-driven one. That means targeting fraud screening at the correct points for your distinct customer base, identifying when you’re falsely declining more than your competitors, and ensuring that costs are equal to the benefit you receive. For enterprise merchants, these considerations often amount to millions or billions in untapped revenue and outlay. These insights are set to be the difference between those who optimize and those who are optimal in 2022 and beyond.

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