Fashion Merchants: The Holiday Season is Nearly Over, How Can You Wrap Up Your Payments Acceptance?

Debit Optimization: Routing Moves Online

Debit routing has historically been a tool that merchants can use to optimize their acceptance costs in store. That has fundamentally changed in 2021. This year, the Federal Reserve announced a proposal to clarify the rules of the Durbin Amendment to apply to all debit transactions, including those that happen online. With PINless technology, retailers can route transactions that take place on their website, or through a mobile app, which brings the power of choice back into the hands of merchants in terms of their debit acceptance costs. CMSPI data suggests that ecommerce represents over a third of all transactions for apparel merchants in 2021, whereas only 20% of fashion spending was online before the pandemic. The Federal Reserve announcement is a welcome respite for fashion merchants, who can now take advantage of the routing benefits as digital volumes are soaring in 2021.

Routing transactions to the least-cost network, however, is no simple task. Fully optimizing debit routing requires robust data sets to analyze costs at a transaction level, as well as a full understanding of the routing capabilities of your processing partner. The most cost-effective network online may be different than in store, so optimal routing arrangements will differ from channel to channel, by dollar amount, and even by issuing bank. Banks will also change what networks are badged on their cards, so what was optimal yesterday could already not be optimal today with the sheer volume of changes in the market. Because of these considerations, becoming and staying optimal regarding debit costs is incredibly complex and ever-changing. It is never too early to revisit your arrangements.

Buy Now, Pay Later (BNPL): Worth the Risks?

The award for fastest growing payment method in the US in 2021 was won by BNPL by a wide margin, and the fashion industry is one of the key industries involved with its growth because of its above average transaction values compared to other industries. A payments manager’s job is more difficult than ever, as BNPL is one piece of an ever-growing list of payment types that merchants are accepting in an increasingly digital environment.

Like any other payment method, BNPL comes with specific challenges for merchants, especially because it’s largely used in a digital environment. CMSPI analysis shows that BNPL solutions can perform lower on average than other payment methods by 10%-15% regarding their transaction success. This means that, although merchants might see an increase in conversions as a result of accepting the payment method, actual sales are going to be harder to come by for the payment method. Transaction success is just one of the many pieces of the BNPL puzzle, and fashion merchants must consider more than just costs and revenue growth when choosing a correct partner for a BNPL solution.

Fraud and the Pursuit of Transaction Success

With the focus shifting to ecommerce in 2021 and into the holiday season, our data suggests fraud losses are greater than ever for merchants. CMSPI estimates that fraud losses grew from $9bn to $10.7bn in the US and EUR from 2020 to 2021, bringing to light the delicate balancing act that all fashion merchants face: letting legitimate customers pay for their goods while turning away fraudsters. Fraud tools exist in all parts of the payments supply chain, from in-house merchant solutions to issuing bank rules, so optimizing all these moving parts is a complex process that requires meticulous attention from merchants, and a balance needs to be struck with the cost of fraud solutions. A data driven collaboration with issuers is imperative in order to fully mitigate the losses due to fraud while maintaining a painless checkout experience for your well-intentioned customers.

Fashion merchants in 2021 are faced with an evolving, increasingly complex payments acceptance environment. More than ever, robust data is crucial for merchants to fully optimize their acceptance, whether that is routing their debit transactions to the least cost network, implementing a BNPL solution, or adjusting their fraud rules to fit the needs of their business. This holiday season and beyond, there are billions of dollars in revenue at stake due to false declines and fraud, plus numerous complex opportunities to tackle the rising cost of card acceptance. Fashion merchants need to stay vigilant in their pursuit of an optimal and robust payments strategy.