If payments were seen as a commodity by large traditional players a decade ago, new technology companies have proven them wrong and demonstrated that payments are actually a key element of a business strategy. Never have ecommerce merchants had to adapt so quickly to a changing world as they have over the last eighteen months, whether to drive cashflow, re-invent a seamless customer journey in the pandemic context, or define the best online payment experience for those who are starting their ecommerce journey. Because payments are a critical lever of business success, it is now more important than ever to invest some time to get it right. Helping key players of the industry define their payment strategies, Allyiz has identified five points that businesses should take into consideration when designing their payment strategy.
1. Design your own strategy, one size does not fit all
To be successful, a company should define its own payment strategy based on its own objectives, business model, and covered geographies. An important step in the design of the definition of a payment strategy is the definition of the right KPIs adapted to the company business objectives.
First comes the definition of which KPIs are key to tracking whether your business objectives are being met. Some of these KPIs, such as acceptance rates, will be standard across companies, whilst others will be specific to your business.
The second step should be to set an appropriate benchmark for these KPIs. The emphasis you give to individual KPIs and therefore the applied benchmarks will vary by company. It takes industry insights and guidance to ensure they are pitched at an appropriate level. There are many considerations to take into account, for example, if your business objective is to grow as fast as possible, conversion will be first, whereas if you are in a competitive market with low margins, your priority will be to increase profitability as much as possible. In between, there are various ways to move the cursor to find the right balance between conversion and costs.
The third dimension is to define how sensitive your business is to risk. Numerous factors can be taken into consideration, from the payment methods selection to the types of checks and risk management features to implement.
It is critical to ensure that KPIs are taking the whole picture into account. For example, when measuring payments costs, the focus should not only be on the cost per transaction. Additional costs, often hidden in the terms and conditions, should be measured, as they can bring the total costs to over three times the base transaction cost.
2. Define the right payment method mix is like solving a complex puzzle
New payment methods are coming up on the market all the time, but which ones should you implement on your check-out page? Geography is often the most important variable, but the business model is a second important dimension to take into consideration.
To illustrate this point, even within Europe we have different payment cultures. In the UKor France, credit and debit cards are widely used and expected as part of the payment flow. However, in other European countries bank-based instant payments are more popular, such as iDEAL in the Netherlands and Sofort/Klarna in Germany. In parts of the world where large percentages of the population are unbanked, cash-based methods become far more important to reach as many customers as possible.
But even within a country, among the popular payment methods, some will be more suitable depending on a company’s business model, for example.
Subscription business models will require different payment methods than a marketplace business model. On the other hand, it is important to find the right balance between managing the complexity of multiple payment methods, the costs of these payment methods, and customers payment method preferences. And to make the puzzle even more complex, research shows that offering too many payment methods can also confuse customers. However, missing a core method that customers expect for the type of service you are offering may mean they will shop elsewhere!
One recent example of where new payment methods are helping merchants increase sales and conversion is Buy Now, Pay Later (BNPL). Five years ago, would a customer expect to see this payment method offer? It is certainly less likely in most markets, but today it has become a core way in which many shoppers make their purchases, especially among the new Gen Z customers. Those who adopted this payment method early on have therefore reaped more rewards from this new service.
Another interesting new development to watch are prepaid vouchers, which can be bought at convenience stores to pay online. An easy way for customers to make sure they control their budget and are not taking any risk to pay hidden fees, and unwanted recurring charges. Furthermore, this method serves the unbanked population and is also avoiding financial data compromise. A very interesting proposition for merchants looking for a fair way for their customers to pay.
Finding reliable expertise to understand what the right fit for your business is, can be helpful to design the best customer check journey and build solid customer loyalty.
3. Navigating the evolution of regulation requires built-in flexibility
Wherever money management is involved, there is the inevitable burden of regulation. This varies by payment method and geography, but over time, regulations start to align and at least have some common themes. In Europe, SCA has been a big area of focus, with significant changes to the online payment journey anticipated.
In reality, so far, there is a sense of ‘The Millennium Bug’ as the significant increase in declined transactions across the industry did not happen, as predicted at the start of 2021. However, SCA is not fully in place across the whole of Europe and for those who blanket implemented 3DS2 from the start, the outcome has often been a roll back when possible. If many merchants themselves report not seeing a decline in their authorisation rates, this should be approached with caution as the devil is certainly in the detail. For example, many of these merchants continue to use 3DS1, and although decline rates have not increased, it means they will be unable to leverage exemptions going forwards. In addition, although aggregate numbers may not have significantly shifted, those merchants who conduct detailed analysis have spotted some important trends and have been able to adapt their payment flows accordingly using the ability to dynamically switch which 3-D Secure version is being used, in order to optimise performance. Among the decline spike factors, mobile as well as transactions involving specific card issuers continue to be a challenge for seamless SCA adoption.
The biggest challenge to understanding the SCA story so far is the lack of transparent data. Metrics around current performance are limited, unclear on sources, and calculations in some instances only represent a piece of the overall picture.
4. Understand the opportunities offered by new payment services players
2020 has seen an explosion of new types of services offering in the field of payments. From payment services orchestration to smart routing, to a pure technical platform giving access to the latest technology and payment features as well as hybrid services or even marketplace payment service models, the range of strategic choices for acquirers, payment service providers and merchants is extending drastically. Given the huge potential impact and competitive edge that these new services can give to businesses, it is very vital to clearly understand the possibilities they offer. An external independent view to get insights on the new possibilities out there and how they can translate into your business strategy can be extremely helpful to stay ahead of the payment technology development curve.
5. Stay up to date on the latest developments
Knowing where to go to stay current is relatively straight forward. As a baseline, signing up to industry newsletters and publications, following key hashtags, and joining industry bodies are a great starting point. Turning the content of these into what it means for your business though usually takes a human touch, whether building a network of people you can regularly bounce ideas with, leveraging your existing vendors, or seeking independent insights. It is important to constantly be on top of the latest industry developments to tailor industry concepts, jump on new opportunities, or make decisions to choose a path to handle new market context.
Financial technology is, by a long way, the hottest sector worldwide. In 2020, EUR 5.3 billion was invested in European fintech startups alone, and 2021 is shaping up to be another record year. Payment technology is evolving fast, and it is therefore paramount to invest the right resources with the right expertise to make the most out of its potential.
This article has been published in The Paypers' Who’s Who in Payments Report 2021. To learn more about the payments industry's high-rising trends, M&A activity and investments, startups to watch, along with detailed accounts of all the relevant capabilities and distinguishing portfolios of players activating in the B2B and B2C ecommerce space, download the full report here.
About Delphine Bos
Strategic marketing top executive who has led the development of highly recognised payment brands including Adyen and GlobalCollect (now Worldline) and repositioned brands such as SafeCharge. Specialising in B2B Marketing & Communications, she helped key players build brand equity and market themselves successfully. Always going for a fresh and innovative approach, she integrates thought leadership content, PR, events and digital marketing into powerful aligned systems driving businesses successes. Delphine is a Doctor in Corporate Communications (CESLSA – Sorbonne University) and listed in the top European B2B Tech Marketing 100. She is also a Board member of the French Tech Amsterdam community.
About Catherine Tong
With over 20 years’ experience, while in senior roles at PwC, Tesco and Accertify, Catherine is now an independent fraud, risk and payment specialist with Allyiz. Previous projects include setting up and managing ecommerce fraud and payment teams, payment reviews, payment industry market research and training. She has also served as a European Board member for the MRC and is currently an Ambassador for the European Women in Payments associations.
About Allyiz
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