In today’s fast-evolving digital landscape, customers expect seamless payment experiences, while businesses aim to minimise costs and maximise profitability. Payments mix optimisation sits at the heart of this balancing act, ensuring that companies capture as many sales as possible while keeping payment processing costs and fraud risks to a minimum.
Optimising the payments mix should be primarily focused on existing users who have already found enough value in the platform to stick around. The goal is to nudge these retained users toward cheaper, more efficient payment methods without driving them away. On the other hand, new users should face minimal friction when it comes to payments, as they are still in the process of forming opinions about the product or service – and are more likely to churn if they encounter a negative experience.
At its core, payments mix optimisation helps businesses strike a balance between offering a wide array of payment options and keeping operational costs low. This process becomes essential when considering the following key benefits:
Lower payment processing costs – different payment methods have varying transaction costs, with credit cards generally being more expensive than options like direct bank transfers (ACH) or digital wallets. By optimising the payments mix, businesses can steer users toward lower-cost payment options, significantly cutting transaction expenses. For instance, for a US-based company processing USD 100 million annually, credit card fees might account for around 2.5% or USD 2.5 million in costs. If just 10% of this volume shifts to ACH payments, which cost only a few cents per transaction, the business could save up to USD 250K annually – a considerable win.
Improve conversion rates – offering the right payment options also plays a significant role in boosting conversion rates. New customers expect frictionless checkout experiences. If they prefer paying with local methods like Klarna (EU), iDEAL (the Netherlands), or Bacs (UK), or if they find Apple Pay, Google Pay, or PayPal (on mobile) most convenient, they should be able to do so with the fewest clicks possible. Providing payment methods that align with a user’s preferences minimises the likelihood of cart abandonment and enhances the chances of completing a sale.
Manage fraud better – while making the payment experience seamless is important, businesses also need to safeguard against fraud. Some payment methods are more prone to fraud than others, and fraud prevention costs can mount if a company doesn’t optimise its mix effectively. By curating the right blend of payment methods and leveraging fraud prevention tools like tokenization and encryption, businesses can reduce fraudulent transactions and chargeback rates while maintaining a user-friendly experience.
Predictable cash flow management – certain payment methods settle faster than others, which can significantly impact businesses’ cash flow. For instance, digital wallets typically process quicker than (some) credit card payments. By optimising their payment mix to prioritise faster-settling options, businesses can access funds more rapidly, improving their liquidity and operational efficiency. In my experience, this has not been one of the top reasons to decide on, but it is important to be aware of it.
For merchants with high transaction volumes, it makes sense to optimise the payments mix. Before taking any steps, merchants should build a high-level strategy and start by negotiating with their existing payment partners, such as PayPal, Mastercard, Visa, Amex, to name a few. Sharing your plans to shift payment volumes away from specific methods can help negotiate better rates and potentially unlock incentives from these providers. In order to optimise, there are a few things that merchants should do:
Offer localised payment options – global businesses like Amazon and Shopify understand that payment preferences vary by region, so they customise their payment methods for each market. For example, iDEAL is popular in the Netherlands, while Alipay dominates in China. By tailoring their payments mix to suit local preferences, these companies not only improve customer satisfaction but also increase conversion rates.
Incentivise cheaper payment methods – some businesses, like Uber and Airbnb, leverage incentives to encourage users to switch to preferred payment methods. Offering discounts, loyalty points, or other benefits for using lower-cost options like ACH transfers or digital wallets helps reduce transaction costs while keeping the customer engaged. These incentives are one of the most effective tools for altering user behaviour without causing dissatisfaction.
Use design and marketing effectively – to get a user to switch payment methods, merchants can employ design changes to promote preferred payment methods, making them more prominent in the checkout flow. Additionally, targeted marketing messaging – via emails or notifications – can encourage users to adopt these methods. Design and messaging, when combined with incentives, can drive significant shifts in customer behaviour without negatively impacting the user experience.
There are, however, a few things to keep in mind. Firstly, over-optimising might lead to additional complexity in financial operations such as the reconciliation process. It might also increase administrative overhead and require managing multiple relationships with payment processors. Secondly, asking users to shift their payment methods every few months might lead to frustration and cause them to churn from your platform. Instead, if done right, payments mix optimisation will help unlock greater savings for the business and provide a seamless payment experience for customers.
Parth is a Product Manager on the Payments team at Upwork, where he leads the Payments Risk division and manages the payins process for the platform. His primary responsibility is to ensure that Upwork users can access their preferred payment methods securely and efficiently. Parth brings extensive experience to this role, having previously worked with leading companies such as eBay and Robinhood, where he contributed to their payments teams.
Upwork is the world’s work marketplace that connects businesses with independent talent from across the globe, serving one-person startups to Fortune 100 enterprises with a trust-driven platform that enables companies and talent to work together in new ways. Upwork’s talent community earned over USD 3.8 billion in 2023 across more than 10,000 skills in website & app development, creative & design, data science & analytics, customer support, finance & accounting, and more.
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