Where has the checkout gone?
One of the biggest differentiators amongst the retail giants that you will notice – or won’t – is the moment you pay. From a one-click checkout with your stored card, to walking out of a store and only scanning your palm, to unlocking your phone to a digital wallet, merchants are increasingly pulling the payment step of the shopping process into the background.
On the front-end, the journey to the ‘pay’ button is everything for an online merchant. Last year, the average conversion rate sat at 2.8%¹, meaning approximately 14 in every 500 shoppers visiting a website ever reached the purchase point. For specific cases, such as luxury handbags or home furniture, the rate was less than 1%.² Even those customers came at a cost; the proportion of paid online traffic increased by 40% between 2020 and 2021³, showing merchants’ urgent need to jostle for customers in the digital space.
And then comes the checkout...
Here, there are a host of variables that merchants can control to boost conversion and reduce costs. From generating trust with the look and feel of an embedded payment page, to entering strategic partnerships with every party from banks to digital wallet providers, to dynamically steering customers towards the optimal route, the savviest merchants are building loyalty to their brand and their payment preferences. With almost 70% of checkouts abandoned – and 17% of those down to time spent at the checkout – these strategic decisions are crucial.⁴
However, the customer makes the ultimate call. Although one-click checkouts may bring benefits around speed and conversion, they may also limit visibility, leaving merchants faced with a pot-luck of default payment methods. But what happens next? Many merchants are finding that handing over control to the consumer is costly – but nowhere near as costly as blindly handing it to the supply chain once a customer clicks ‘pay’.
A good payment gone wrong
Once a merchant has sunk all of the acquisition costs necessary to make a sale, the moment a payment is declined is doubly frustrating. It’s frustrating for the customer, too – especially when they know they have the funds in their account, and that the payment is entirely genuine. But these ‘false declines’ are far more common than merchants know; CMSPI estimates that 1 in 5 transaction declines online are false, and leave behind a trail of loyal customers who may go to make their purchase with a competitor. As Figure 1 shows, our data suggests that it is very rare that the fault sits with the merchant.
Figure 1. False decline responsibility by party
Source: CMSPI project insights.
In fact, a payment can go wrong at many points in its journey to a final approval. Many are invisible even to the supply chain itself; from global processors whose systems do not support the necessary digits for a local currency, to issuing banks continuing to sanction merchants who have had a fraud attack resolved for months, CMSPI has time and time again observed the barriers that prevent competing parties from resolving issues that harm everyone. Our estimates suggest that merchants in the United States lost more than $50 billion in revenue to false declines last year - and that’s without even considering the cost of handling the genuine instances of fraud. Your average apparel merchant, for example, selling a shirt worth $20, would need to sell far more than the single shirt to recoup the cost of one chargeback. Without full visibility into data across suppliers and competitors, these patterns often leave merchants and their payments partners in the dark.
How merchants are regaining control
For retailers whose margins are being crunched in all directions, every element of the customers’ experience is pivotal. On the front-end, reports suggest that 18% of abandoned baskets happen because a customer doesn’t trust a merchants’ website with their card information.⁵ On the back-end, CMSPI estimates that only 50% of customers will try again with the same merchant once their payment is falsely declined. This delicate loyalty is central to retail revenues, and so the payments journey needs to be priority number one for the C-suite today. But handing over full control shouldn’t be part of the deal: merchants need to be guiding customers to their most productive payment method from the get-go, and then spotting and communicating data anomalies directly to every party in their supply chain – from processors, to issuers, to alternative payment method providers – to protect those transactions in the digital age