Five ways to use payments to differentiate and grow your business

2021 is the year that payments move from the back office to the boardroom. Our article pulls actionable advice from leading experts, data and critical insights to give you the tools you need to make the shift.

Five ways to use payments to differentiate and grow your business

In this guide you will learn :

  • How do companies that align their payments with the overall corporate strategy see 21% YoY growth
  • Data is essential for payments optimization. Learn where to start, where to focus, and how to manage and report more effectively
  • How consumer behaviors are changing – fast. Discover four ways to maximize conversion through the customer experience
  • Why managing risk is a balancing act. See how to develop a more sophisticated approach to risk, preventing fraud while minimizing false declines

Content Summary

Introduction: Seize the year of payments
Take payments from the back office to the boardroom
Use data to close the payments optimization gap
Focus on balancing risk and return
Understand changing customer preferences
Optimize money going out as much as you do the money coming in
Conclusion

Introduction: Seize the year of payments

The COVID-19 pandemic has proven a catalyst for a massive change in payments and ecommerce.

As the pandemic swept across the world, we saw a rapid acceleration in the shift towards digital commerce. Almost overnight, vast numbers of people of all ages fired up their phones and laptops and began purchasing goods and services online. In the United States alone, McKinsey estimates that ecommerce penetration grew by nearly 20% in the first few months of the pandemic.

With ecommerce booming, so too are digital payments. Consumers are ditching cash in favor of cards and digital local payment methods. Accenture expects nearly 420 billion transactions worth $7 trillion to shift from cash to cards and digital payments by 2023 — and increase to $48 trillion by 2030.

The crisis has brought the future upon us quicker than anybody could have imagined. And despite all the challenges it has created, what comes next is exciting.

Merchants — of all shapes and sizes — have a once in a generation opportunity to seize upon massive shifts in consumer behavior. Those that provide consumers with deeply-personalized, contextual digital experiences can set the benchmark for commerce in the post-COVID world.

And by setting the standard and capturing the latest wave of digital consumers, these merchants will unlock unlimited possibilities to deepen their consumer relationships and offer a range of innovative new products and services that increase revenues.

Payments sit at the heart of this opportunity. Payments are no longer just a business necessity; they’re a competitive advantage. That’s because, with better data and deeper insight into payment flows, merchants can unlock innovation faster and create memorable customer experiences.

If 2020 was a year when payments changed in your business out of necessity, 2021 is the year to embrace payments as a strategic tool to differentiate and grow your business.

In this article, we’ll show you how. Whether you’re a Head of Payment at a digitally native business looking to unlock more value from every transaction or a CFO of a business selling online at scale for the first time, we have actionable advice for you t o kick-start your optimized payments journey and make payments a function that:

  • Creates exceptional customer payment journeys that increase conversion and promote brand loyalty
  • Harnesses the full potential of payments data to uncover actionable insights that inform and drive business decisions
  • Pushes payments as a source of innovation and driver of new revenue streams across the business

Take payments from the back office to the boardroom

Payments are a topic that belongs in the boardroom. And in some organizations, that’s already the case. For companies like TransferWise and Revolut, payments are the business — these fintechs move billions of dollars each year across their platforms. Payments has a seat at the top table. While at others, like Uber, Facebook and Deliveroo, payments have become crucial to every aspect of the business and have naturally shifted from the back office to boardroom.

But these are exceptions rather than the rule. In most organizations, payment teams were set up in response to a problem. Whilst this pays testament to their necessity, it also hints at why traditionally payments have been thought of as a cost center, rather than as a strategic imperative.

As Trevor Nies, Director of E-Commerce Payments, Risk Operations and Analytics at Microsoft told us in our report, Black Boxes and Paradoxes: The Real Cost of Disconnected Payments: “Payments is a very complex space and I think the vast majority of people who aren’t really close to payments don’t realize that.”

That’s a problem. Not only because it means decision-makers remain unconvinced by the impact that payments can have, but because it prevents them from even wanting to engage in payment discussions.

The pandemic has likely changed attitudes slightly. But there remain question marks over whether executives fully appreciate the competitive advantage payments can deliver to their business.

It’s a sentiment that we hear often from many other merchants. And the general lack of understanding within and across the business about the impact of payments is a pervasive pain point for those working in the field.

But it’s more than just a pain point: it’s preventing merchants from realizing their full potential.

As our research shows, those companies who align their payment strategies with the overall corporate strategy realize 21% year-on-year growth. Yet the majority of CEOs don’t recognize the impact payments have on growth. This lack of focus on payment means time and investment is wasted — potentially costing businesses millions of dollars, if not tens of millions of dollars, in revenue every year.

So the message business leaders need to hear this year is that payments are not some anonymous back-office function or a cost center built to firefight problems. It’s a mission-critical, value-creating, innovation enabler that’s up there with finance, sales, marketing, legal and the other traditional bastions of the boardroom.

How do you make that happen? A good place to start is with the proof points that clearly show the strategic impact payment has on a business.

If you’re just starting to move payments to the top of the agenda at your organization you can go macro, citing how merchants in the U.S, U.K, France and Germany lose $20.3 billion of online sales a year due to disgruntled customers abandoning their purchase because of poor payment experience. And don’t forget to add that $12.7 billion of that lost revenue is handed directly to competitors that don’t create the same customer friction. These numbers are just the tip of the iceberg and should help make the C-Suite take notice of the importance of payments.

If payments already have a degree of boardroom attention, the challenge is keeping it there. You do that with constant education about the impact of payments on the success of the corporate strategy and ultimately profit.

“Leadership teams would do well to look at payments data not only to help drive their localization strategy but even pricing and product strategy too,” says Logan Vander Linden, Head of Payments at Scribd. “What do payments issues do to our pricing dynamics and what does that do to our content cost in that market? This all relates to profitability.”

The value of payments to a business is immense. And still the specifics of this value are poorly understood, less unlocked. Driving home this understanding and ensuring payments has a seat at the top table must be top of mind in 2021.

Expert View

“I’ve seen the positive impact payments can make on a business time and time again throughout my career. But having this impact isn’t always easy, especially when leadership is unaware of the opportunities that unlock when you optimize payments. So you need to make sure they’re aware and raise the brand profile of payments within your organization. And the best way to do that is to bring mature business cases to them that show the opportunities the business is missing and how your work optimizing payments can impact the bottom line. This is a surefire way to keep the boardroom’s attention and make sure payments are part of the strategic conversations in your organization.” – Cyndi Hoddinott, VP Financial Partnerships, North America, Checkout.com

Use data to close the payments optimization gap

In payments there is always room for improvement. Understanding that is what sets the world’s leading companies apart from the rest. They realize that even the smallest improvement in their payments performance can significantly impact the bottom line. That’s why in companies like Uber and Deliveroo, payments have shifted from a necessary cost center within the business to a strategic function.

But what payments leaders at these companies will also tell you is that driving these improvements isn’t easy. And knowing where to start is the most challenging part — especially when you don’t have access to the data needed to make informed decisions.

And regrettably, a lack of access to actionable data is a significant challenge for many organizations. According to our research, 41% of the merchants don’t receive any actionable analytics from their payments data.

This is a big problem. As Andrew Row from Uber Payments tells us: “The data that is returned by third-party partners is very, very critical for extracting the most value and increasing your ability to optimize both conversion and then for reducing the cost of payments.”

Of course, knowing the value of payments data is only half the story. If you can’t collect and visualize the data in a meaningful and timely way, then the value is just theoretical.

So the payment service providers (PSPs) you work with must prioritize data visibility as much as you do. Whether a payment platform is integrated into a broader suite of solutions or you’re using it in a standalone fashion, your payments data should be at your fingertips whenever you need it. And the payment experts at your PSP should be at the end of a phone, when you need them, to help guide you through the data.

You’ll then need to understand which data points to focus on. Conversion, authorization and chargeback data are likely to feature high on the list of priorities for most payments teams. But your business is unique, so you’ll want to select the data points that are right for you. Here are some examples if:

You have a subscription business model, or your customers pay you on a recurring basis: you’ll want to know how much churn is resulting from failed payments.

  • Your payments strategy is focused on targeting growth: customer preference is going to be important.
  • You’re in a period of consolidation: your PSP’s operating costs may count for more.
  • You have an international footprint: you’ll want to know the true cost of processing cross-border payments in each of your markets.

The next step is figuring out what systems and tools to use to analyze and process the data. Most PSPs provide built-in data analytics tools, so that can be an attractive place to start. But if they’re only giving you data about their payment solution, then you’re also going to have to find a way to pull native data from the other PSPs in your portfolio. And bringing these various data sources into one place creates an extra layer of complexity.

One alternative is to partner with a PSP that lets you aggregate and view all of your providers’ data. Or you can use an off-the-shelf data aggregation platform that leverages APIs to connect your different PSPs. This can be a better option if your payments strategy requires you to perform a more sophisticated analysis.

It’s also worth considering how much non-payments data you want to bring into the picture. Or, to ask that question the other way round: how connected is your payments strategy to other areas of your business? Our research shows that only 35% of companies are using payments data to inform business strategy. So there is ample opportunity here to plug your payments engine into other data stores throughout your business to inform decision making and strategy.

Finally, you’ll need to consider how you access the data and how often you look at it. Monthly and quarterly reporting is standard practice in most businesses. But that cadence doesn’t set you up to make quick, agile decisions with data. So getting the data you need at the click of a button is vital to empower colleagues to look at real-time payments data, manipulate it to answer a specific question or hypothesis, and visualize the results with clarity

Expert View

“A data-driven payments strategy will quickly fall down if that data is hard to view and harder to understand. And ambitions to be agile will be curbed if the key architects of your payments strategy need to request insights and reports from your data team. By approaching your payments strategy with a data mindset, so the two are aligned, you’ll not only select the best fit PSPs for your business but also squeeze more value from them and their platforms.” – Antoine Nougue, Head of Commercial, Europe, Checkout.com

Focus on balancing risk and return

The risk of fraud is intensifying as more commerce moves online. According to LexisNexis, successful ecommerce fraud attacks are on the rise across all sizes of business. This is frightening — especially to the executive team of a large business that could easily be losing millions of dollars a year to fraud.

But managing payment fraud is complicated. It’s not just about keeping the bad actors out. It’s about finding a balance to ensure you’re also letting legitimate customers in.

And our research finds that many merchants are struggling to find that balance. UK, US, French and German businesses are losing billions of dollars in sales a year at the checkout because of false declines — when transactions from legitimate customers are wrongly rejected, mainly due to overzealous fraud prevention systems.

And these numbers just reflect the immediate dollar losses which merchants experience due to false declines. They do not consider the loss of time, effort and additional money spent acquiring the customer and bringing them to the checkout. Nor do they consider the negative long-term impact on the brand and future loss of sales that often come when customers experience false declines.

The cruel irony is that the work you’re doing to mitigate fraud might be costing your business more money than it is saving.

It’s a catch 22. So what’s a merchant to do?

The answer is that merchants must take control of their risk appetite but in an informed way. As Andrew Row, Managing Director of Uber Payments, puts it: “A lot of sins can be hidden in the name of fraud prevention, because fraud teams aren’t always incentivized to have a very rigorous statistical measure of false positives and false negatives.”

There are numerous inputs you need to make an informed decision — both quantitative and qualitative. But a good place to start is getting a clear understanding of why transactions fail. And if your existing PSPs cannot deliver this information to you, then you need to find one that can.

With better access to this data, you can analyze patterns and start to build a clearer picture of the impact of fraud and false declines on your business. As Gaurav Yadav, Lead Product Manager at Deliveroo, explains: “Payments data is critical for ensuring that all fraud or casual abuse is addressed. Once you start understanding that data, and making those correlations, you’ll start finding key signals which give you granularity on the fraud you’re encountering.”

Armed with those deep insights, you can have frank discussions with leaders across sales and marketing and in the executive office. You might need to show them that the company’s risk tolerance is too extreme and costing you more in false declines than it’s preventing losses through fraudulent chargebacks. Or maybe it’s the opposite — perhaps fraud is having a significant impact on your revenues. Either way, there is a discussion to be had and decisions to make around how your organization balances risk with return. And all the time you must stay aware of the impact your actions have on how you’re scored by issuers.

When you’ve made your decision you need to ask whether your current fraud prevention systems are suitable for your business and can support a more dynamic approach. And the truth is many legacy systems can’t. They’re built using rigid algorithms and force you to choose between customer experience and fraud prevention.

Then there’s the matter of regulation. Regulations, like PSD2, are intended to protect merchants and consumers from fraud. And while there are fears this will create more customer friction and increased abandonment rates, our data finds that consumers actually value strong security at the checkout. In fact, 71% of consumers said they actively look for encryption details at the checkout and would abandon their carts if they had any concerns about security.

This paradox poses a challenge for merchants. Those that win will be the ones who find ways to optimize their customer checkout experience while also providing consumers — and themselves — with the level of security they desire. Finding that balance isn’t straightforward, and choosing partners that deeply understand regulations and think about them as more than a box-checking exercise are those that will help you maximize conversion while also minimizing fraud.

Expert View

“Even those merchants with a clear understanding of their risk tolerance often struggle to minimize the occurrence of chargebacks and false declines. Why? Because they’re not getting the necessary data from their PSP to see what payments are accepted or declined. Merchants are blind to what’s happening without that data.” – Gregorie Delpit, Head of Strategy, Checkout.com

Understand changing customer preferences

The best payment experiences are an extension of the best shopping experiences. Just as the best websites guide customers to what they are likely to want, so too should the checkout experience show them they can use the payment method they prefer. This is how payments help to turn occasional shoppers into loyal customers.

The key is to understand payment preferences. That is easier said than done. Payment habits are intensely local. They’ve developed over time and are formed by various factors. Many of these are cultural, some political or economic, others to do with technology or infrastructure. Payment preferences differ within countries as much as between them.

And our research shows that not offering a customer’s preferred payment option is a big conversion killer. 56% of consumers said that if they couldn’t use their payment method of choice, it would permanently put them off shopping on a site.

Payment habits also vary across different age groups and even between genders. For example, the COVID-19 pandemic has seen many people over the age of 65 enter the digital commerce marketplace. These consumers place a huge emphasis on brand trust and security. And they’re extremely loyal to the brands they select. This is different from younger consumers who may favor speed of checkout and be more price sensitive.

Just as with most other elements of payments, understanding preference is a data game. You need to do your research and understand the markets you operate in. Working with PSPs that can provide you with insights based on their own deep local expertise is one way to expedite this process.

It’s also a matter of experimentation. Humans are complex. The smallest changes can have surprising consequences on how we behave at the checkout. As Scribd’s Vander Linden tells us: “Understanding user behavior and using that to incentivize other kinds of user behavior is vital. There are many things that you can do around allowing your checkout to incentivize users to go towards a lower-cost payment method, or towards higher-intent checkout payment methods.”

At Checkout.com, we see four key areas merchants can focus on to ensure they’re creating the best experience for their customers and maximizing conversion.

The first is to personalize the customer experience. This includes ensuring your customers can buy in their preferred currency and displaying the checkout in their local language. It’s also about detecting the device and browser your customer is using to optimize the experience. You can also offer different payment methods based on their device — such as defaulting to Apple Pay or Google Play on mobile — to speed up the buying process.

Next is empowering your customers to pay the way they want. Here you need to consider whether you’re offering your customers the right local payment methods in the right markets. You might also want to consider whether you default to different payment methods depending on the basket size — defaulting to credit cards for high-value purchases, for example.

Thirdly you need to think about how to remove friction from the checkout. That means making it as easy as possible for your customers to submit their details and pay. It’s also about giving them confidence. Our data shows that despite the assumed push back against two-factor authentication, many consumers value this extra step, especially when making high-value purchases.

Finally, you must continuously improve and adapt. The job is never done when it comes to finessing your checkout experience. There are always improvements you can make. And subtle changes can have a big impact on conversion. So make sure you’re continually looking at the data, running A/B tests, and staying up to date with the latest trends in consumer behavior.

Expert View

“The best online merchants understand that payment is a crucial pillar of the overall experience they’re providing to their customers. Companies often do this by localizing the checkout process and ensuring consumers can pay with the local payment methods they’re most comfortable using. It’s also increasingly about understanding and staying ahead of new regulations that impact the checkout flow — like Strong Customer Authentication — so that they’re not creating any unnecessary barriers to payment for their customers.” – Bradley Riss, Chief Commercial Officer, Checkout.com

Optimize money going out as much as you do the money coming in

Most conversations around payments focus on money coming into the business — the point in time when money is exchanged for a product or service. But money moves in other ways, most notably when funds are transferred. Businesses and people do it all the time; from payroll to insurance payout, resettling money held overseas to sending funds to family abroad.

Yet this world of ‘payouts’ is relatively untouched by innovation. Most are still routed directly from bank to bank, on old architecture that was never designed for a world of digital expectations. Money moves slowly, processes are cumbersome, and costs are hidden. Recipients must wait, sometimes for days. It is an anathema to modern living, and an obstacle for businesses with growth plans, especially into foreign markets.

And it is therefore another opportunity for payment professionals to make their mark. Those willing to progress along the digital curve will begin unlocking more visibility over their payouts data. Data which will help them understand the trust cost of payouts to the business, and enable them to spot opportunities to innovate to deliver customers a better experience, create differentiation for their brand, and alleviate the frustrations of growth plans.

There is no one-size-fits-all approach to payouts. But many of the priorities will be familiar from other aspects of the overall payment strategy.

Visibility: It’s impossible to track progress if you can’t see it. Payouts have a long list of data points to help professionals drive efficiencies. Some are immediate, such as the status of a transfer, including if and why it has failed. Others take a longer-term look, such as peak and troughs in volumes, predicting potential pinch points or when to roll-out innovations.

User-experience: Businesses may look at payments and payouts separately, but people do not. The factors that influence the experience of making and receiving payment can — should — be applied to payouts. Speed is one, and increasingly, real-time payout delivery is the standard to aim for. So too access to multiple payout options, that are convenient or local to the recipient including non-banked methods like debit and prepaid cards. Clarity is another. The data protection agenda has gone hand-in-hand with data transparency, and these days most customers expect to know the fees they’ll pay and all other information regarding their payment upfront.

International scalability: Payouts between domestic banks are far from perfect, but transferring money across borders can take frustrations to another level. Though schemes such as SEPA have gone some way to networking national banking systems, global banking remains a largely disconnected landscape. Merchants moving money across borders must rely on intermediaries. Each adds complexity, time and cost to the process, and so hampers scalability. Payment professionals should look to simplify this chain by selecting partners with the footprint and infrastructure they need.

Cost: Payouts should be seen as a mini-business unit, with its own margins and bottom line. As such, the operational costs must be high on the agenda. Yet this can be a murky world of hidden fees, unexpected commissions, overlapping services and fluctuating currency values. Perhaps even more concealed are the costs of resourcing and administering the payouts flow; an impossible task if you’ve not got a clear sight of that flow and who is involved. Payment professionals must quickly get to grips with the ‘Total Economic Cost’ of their payouts operation so they know where to focus their efficiency drive.

Expert View

“Cross-border payments flowing out of your business are potentially costing millions of dollars more than they should each year. Why? Because the legacy rails payments flow through are costly and inefficient — with many hands lifting a few dollars and cents at every step between you and the payment reaching your recipient. Understanding just how much this inefficiency is costing your business — both directly in terms of cost and indirectly on the experience you’re delivering to your customers — is the first step on the journey to optimizing payouts.” – Yasmin Christie, Senior Product Lead, FX & Payouts, Checkout.com

Conclusion

Right now is the inflection point for payments.

Those who set out just to keep up will fall behind. Innovations and opportunities are moving too fast. Instead, the winners will be those who set the pace and steal a march on their competition.

As we have seen, the challenge is multi-layered. In 2021, the successful payment professional needs to be many things; ambitious for more accountability, aware of the levers of power, sensitive to other colleagues’ priorities, technically articulate, legally versed, comfortable with data, and able to communicate their vision and how to get there. They also need to ensure they’re empowered by the best tools and technology available to them.

It’s a truly holistic approach to making payments the core business function. The one that the C-Suite turns to first to realize efficiencies and plan for growth. The one that gets first dibs on new investment and the best talent. The division that calls the shots. The new competitive advantage.