The topic of payment is playing an increasingly essential role in e-commerce. Price and offer no longer define the success or failure of a business. At least not exclusively. Soft factors such as the payment process are now also relevant decision-making criteria. Shop operators should therefore orient themselves to the customer when selecting possible payment options and pay attention to their acceptance. Or not. After all, customer service is one thing, but the cost-benefit analysis is a business imperative from the entrepreneur’s point of view. If shopping basket values climb but turnover stagnates or even shrinks, the cost-benefit calculation may not have been optimal. Retailers should therefore check their payment set-up for profitability and effectiveness.
The most important KPIs for the payment process in E-Commerce
According to a TeamBank study in 2017, 41 percent of online shoppers are downright annoyed and irritated when their preferred payment method is not offered. So there should also be a choice of different payment options at the virtual checkout – especially the options requested by the customer.
PayPal and Co. unsurprisingly lead the popularity ranking. Hire purchase also remains one of the most popular payment methods. Credit or debit cards and direct debit are also popular options. And indeed, hire purchase is also becoming increasingly important. After all, almost two-thirds of all customers can imagine financing their purchases. Even one in nine explicitly asks for it.
Total Cost of Payment
Every payment method is associated with costs and effort. Even if the payment setup should be broadly diversified; including every conceivable payment version in your portfolio is not the best approach. It is less about the transaction costs and more about the so-called “total cost of payment”. The total cost of a payment method is the sum of many more factors. Some of these relevant cost elements are …
The fees or transaction costs of the individual payment methods are known to (most) vendors and are their focus.
… Return costs and rates
They are a headache that can cause serious problems, especially for smaller online shops: For example, the average loss in value of the goods after the customer returns them. Postage costs, material and personnel costs, logistics and restocking costs are also incurred. There may also be costs for external service providers. However, shop operators and retailers can control and influence the return rate to a certain extent. With purchase on account, for example, the proportion of returns is significantly higher than with other payment methods such as direct debit or card payment.
… Payment defaults
Keyword risk management. Here, the various payment systems differ significantly. The purchase on account is a source of uneasy nights for many vendors. Slow payers and payment issues of unreliable customers are unpleasant cost drivers. This is because, in addition to the actual shortfall, additional costs are incurred due to dunning and court fees. In a worst-case scenario, these costs exceed the original order value.
In summary, reconciliation describes the administrative effort of payments or the acquirement of data from different accounts. Each individual transaction must be unambiguous and traceable at any time throughout the entire purchase process up to the verified receipt of money.
By definition, the conversion rate describes the ratio between website visitors and transactions made. It is perhaps the most significant indicator for shop operators to evaluate their success rate. Decisive factors here are, for example, design and usability. They are responsible for the UX and UI multipliers that are so important in e-commerce.
In contrast, vendors have less influence on the new EU payment directive PSD2. Two-factor authentication will become mandatory for all online operators. Recurring payments and amounts under 30 euros as well as instalment purchases are exempt from SCA (Strong Customer Authentification). But fundamentally, the new directive strains consumer tolerance for difficult payment processes. In a recent study by Stripe and 451 Research, European e-commerce is predicted to lose 57 billion euros in revenue in the first year after PSD2 comes into force.
Support for merchants and consumers
It’s not what you say, but how you say it. Neither vendors (with cooperation partners or payment service providers) nor consumers (with shops or creditors) want to put themselves in bad hands. The quality of communication between the customer (yes, even the shop operator himself is a customer) and customer service is essential in risk and demand management. The dialogue must be conducted in a correspondingly confident manner. After all, customer service is also part of the customer journey.