There used to be a mantra for enterprises: “Always accept how your customer wants to pay.” That was easier when four or five payment mechanisms were available to the customer. Now, with payments taking an almost unimaginable number of forms, enterprises are trying to play catch-up, serving their customers and, possibly, making some revenue from the payments process.
In a recent PaymentsJournal webinar, Trevor Nies, Senior Vice President for Digital at Adyen, spoke with James Wester, Co-Head of Payments at Javelin Strategy & Research, about the range of challenges digital-first enterprises face in digital payments. The good news is that these challenges are surmountable, and with the right partner, payments can even be a profit center.
The 3 Challenges Facing Digital Payments
Nies sees three challenges shaping digital payments. The first is local nuance, where significantly more payment types are accompanied by more regulation. Much of the worldwide regulation started in Europe, and India has played a big role in regulation as well. But U.S. regulation has opened up opportunities for many enterprises.
In July, the Durbin amendment made it clear that e-commerce retailers must allow a second network to be utilized for any debit card. This offers enterprises an alternative rail besides Visa and Mastercard. That alternative rail can provide significant cost savings, and performance can be better as well. Adyen is investing heavily in these rails as an alternative to the card networks.
The second challenge is fragmentation and complexity, which allows enterprises to route the transaction to the rail that has the highest performance and or the lowest cost. Even when enterprises have a limited set of payment types and regulation comes into play, there are options to determine where and how they route transactions that can still provide an amazing customer experience.
“We used to always tell merchants that you don’t want the consumer to revisit their purchase decision at the time of purchase,” Wester said. “You want to make it as seamless as possible to get it to fruition. Butnow within that payment experience, sometimes we do want them to rethink it because if there is an opportunity then for a BNPL sale, lower your cost, maybe attract them to spend a little bit more.”
The third challenge lies in payment processing. After all of the developments of the past 10 years, observers might expect payments to have reached a point of stasis, with everything sort of the same, reliable and dependable. But the payments landscape remains very fragmented.
“Aside from very big merchants, it’s rare that you run into large payment teams,” Nies said. “Even some billion-dollar businesses don’t have that. And then you ask yourself, where are they sitting? With accounting? Finance? Customer experience? Or do you have that knowledge spread around? That one person that you deal with may know a lot about payments, but they don’t actually control that relationship with a vendor or a partner.”
While you’re making all of those decisions about performance and cost and everything else, you have to make sure that the customers are not the ones making that decision, either. They just want to be sure their transaction went through.
Calibrating the Fight Against Fraud
Unsurprisingly, more fraud happens when the card is not present. When customers go to a retailer or a restaurant, they want to make sure their card isn’t declined to avoid embarrassment. When consumers make an online purchase, nobody knows if a prepaid card didn’t work.
It can become a vicious cycle: When enterprises start experiencing a damaging amount of fraud, issuers become more sensitive to the fraud and start rejecting more transactions. Then the enterprises start getting false positives, and good transactions are blocked on top of the fraud.
Combatting fraud can be a strategic situation. An organization can get its authorization number high by blocking a good portion of the traffic, which leads to thinking the problem is solved. The issuer feels great because it’s not seeing any dirty traffic come through. But this also creates a lot of false positives on the fraud side of the house and can end up blocking a lot of legitimate customers.
The flip side is that the fraud team can let more suspect transactions through and say, “OK, the fraud is a little bit high, but we have zero false positives.” But the issuer then sees an impermissible amount of fraud, which it starts blocking, which means it starts cracking down on its fraud system rules and models as well.
“The real way to look at this is end to end,” Nies said. “Make sure that you are tracking this funnel from the beginning to the end, see where the drop-offs are, but measuring that because any one of these can negatively or positively impact the others if you’re only focusing entirely on them.”
Attracting Foreign Payments
Enterprises also have to keep their eye on their options when it comes to foreign payments. Brazil’s Pix is the fastest-growing payment method the industry has seen, even faster than UPI in India.
New payment methods can show up and take a market by storm, and enterprises need to be prepared to adapt and adopt. If a business doesn’t offer that method, its customers are probably going to go elsewhere. It’s important for businesses to have the right local payment methods.
There’s a time element, too. Businesses have to be able to anticipate new payment mechanisms. If something like Pix takes an area by storm, it needs to be integrated quickly. A good partner has its ear to the ground in those areas, paying attention to the stories, the products, the banks, the central banks, and everything else that’s going on in that geography.
Payment as a Revenue Driver
Not long ago, when a vendor delivered a payment system, the enterprise simply wanted that product to work as advertised. It expected to pay a certain percentage for the transaction, and that was it. But now a vendor can come in, learn the business, and come up with some ideas that can increase that enterprise’s revenue.
“It used to be that if you had a brick-and-mortar store, you put a little terminal on your counter and that was the end of it,” Wester said. “Now there are so many different levers that you can pull. A partner can come to you and say, ‘Hey, we know your business, here are some things that you can do to save on costs. Here are some places that you might be able to get additional revenue out of payments.’”
A good payments partner has all the relevant data. It knows what day of the week is the best day to charge—in the United States, make sure you charge a debit card on a Friday, or on the 1st and 15th, when people typically get paid. If you have fraud or compliance problems, there are a lot of risk providers that can help you with that, too.
These services are no longer available only to billion-dollar companies with a technically savvy team of people. They are available to midsized and even small businesses.
“As a very large PSP, we can see data across the ecosystem and provide insight into what’s happening,” Nies said. “Maybe we see that everybody in your industry is offering Cash App, for example, and are seeing tremendous growth because of it.
“It’s important to consider future proofing in terms of payment mechanisms. A lot of conversations right now have to do with things like artificial intelligence and machine learning. How are you going to capture that data in a way that can be used for future applications with payments? We’re not even to the point where we understand where we need to go. We are only just now beginning to understand how big this is going to be.”