Partner Article

It’s all in the mix

Tobias Schreyer, Co-founder and Chief Commercial Officer at PPRO Financial Ltd

Supporting local payment methods is a simple and effective way to increase e-commerce conversion rates and reach. So why have so few traders embraced the opportunity to internationalise their business?

Imagine you run a shop on one of Europe’s busiest high streets. You have spent a lot of money on your furnishings and fittings, not to mention marketing and your business has really taken off. Lines of locals and tourists with armfuls of merchandise wait their turn to pay. But before they come to the cash desk, they see a small sign: “We only accept payment by Visa or MasterCard.” In other words, you can forget about paying by cash, cheque, EC card or voucher. So the tourists put away their American Express or UnionPay credit cards and you lose a sale.

By excluding certain payment options you are limiting your sales opportunities, because some customers will have no choice but to leave without purchasing what they wanted. They will simply go elsewhere – and probably will not bother coming back to you. You might not think that any merchant would damage their own business in this way. But most online traders do exactly that – whether they are retailers, travel companies or service providers.

Proven correlation between conversion rate and payment method

Recent studies have shown a clear link between conversion rates, customer reach and the right mix of electronic payment methods. 83 per cent of online shoppers have said that choosing between different ways to pay is important to them, while 42 per cent declared that a wider range of payment schemes would result in them spending more[1]. Credit card fraud was the number one online shopping concern for 81 per cent of the respondents, with 83 per cent of this group saying that they would shop online more often and spend more if they could use secure payment methods[2].

The message is clear: merchants need to offer a wide range of online payment methods that meet customers’ expectations and needs if they want to increase site traffic and revenue. For international online stores in particular, a variety of payment methods is a key success factor.

Across the world, credit cards are still the most common way to pay for goods and services online, but they are not equally favoured in all countries. Alternative payment methods – i.e. payments that are not made by credit or debit card – are becoming more and more popular around the world. In 2013 alone, transactions using alternative methods increased by 21 per cent compared with 2012, with a further prediction of alternative payments accounting for 59% of all transaction methods by 2017[3]. Analysts agree that the share of alternatives will continue to increase in the coming years. Payment method preferences vary by region first and foremost, but also by target group and product group. In the Netherlands, for example, around 65 per cent of all transactions are carried out using the iDEAL online banking system. In Germany and Austria on the other hand, most digital buyers prefer payment on account and direct debit. In Russia, e-wallets have become popular and cash is the preferred method in most of South America.

But does this mean that you should just offer 20 or more online payment methods at checkout to be on the safe side? Unfortunately, it is not that simple. E-commerce merchants have to take a number of payment factors into account to ensure the success of their online shop:

• Offer each market its preferred payment methods

Online traders must research the most common and popular payment methods in their target markets and offer these to customers.

• Know and support the payment preferences of your target groups

A mature consumer from France purchasing a designer sofa online will naturally prefer a more secure method of payment than a Brazilian teenager downloading an online game. So aside from regional trends, merchants will also have to consider target group preferences and the suitability of various methods for different product categories.

Merchants can consult a large number of studies and surveys to establish payment preferences across countries, target groups and product categories. Checking what the competition is doing is also worthwhile. Simply look for a shop with a similar portfolio and a comparable target group and see what payment methods they are offering in each country.

• Ensure your checkout page is clearly structured

Another critical success factor in e-commerce is the design of the checkout page. It is important that e-tailers offer their customers a wide choice of payment methods, but equally important that the checkout page is designed for ease of use and transparency.

There is no point in offering 60 international payment methods to each customer. Instead, the ideal choice would be four to six of the most popular payment methods for that country, target group and product type. The available options could be filtered through technical parameters (e.g. the shoppers country of origin) or by asking the shopper to select their country from a drop-down list. Differentiating between new customers, non-registered customers and regular customers is also an option, if for example the trader wants to offer only risk-free payment methods with guaranteed payment to non-registered customers.

As the world’s leading online retailer, Amazon adopted a clear-cut approach from day one. No complicated options at checkout, a limited number of payment options and a clear layout – all designed to steer the customer through the payment process as quickly and efficiently as possible. Amazon is actually very restrictive in this sense, generally offering customers only three to four pre-selected payment options, depending on the country, the customer’s purchase history and sometimes the contents of their basket.

It’s all in the mix

Ultimately, it is not about the number of payment methods offered – the key is to find the right mix for each market and target group. In the ideal checkout, the choice of payment methods offered will vary – based on the user’s country at the very least.

For most US-based customers, credit cards, an e-wallet, possibly ACH (Automated Clearing House) and a cash option for those without a bank account should suffice. In the Asia-Pacific region, which is projected to overtake the USA for e-commerce sales in 2014, e-wallets have a particularly large market share at just over 40 per cent.

German customers are fond of payment on account, direct debits and PayPal; in Finland around half of online purchases are made by online bank transfer; almost one in five online transactions in Portugal are paid by offline bank transfer; and around 45 per cent of Russians favour cash on delivery.

Selecting the right payment partner

Discovering the best payment methods for particular markets and target groups is costly, time-consuming and requires a certain level of experience. That is why online retailers usually turn to payment solution providers (PSPs). Ideally, PSPs should not only provide a wide-ranging portfolio of payment methods, but also offer valuable experience of international markets.

Looking beyond technical onboarding and transaction performance, factors such as experience, a large selection of payment methods and a comprehensive portfolio of value add services generally outweigh even attractive fee structures. E-tailers who want to expand their business internationally would therefore be well advised to look closely at the payment issue. Ultimately, this is a defining factor when it comes to increasing reach and conversion rates.

[1] Worldpay alternative payments report 2013

[2] FirstData, Consumer Online Shopping Fears 2008

[3] Worldpay alternative payments 2nd edition report 2013

This was posted in Bdaily's Members' News section by The PPRO Group .