High-performance payments: The hidden billion-dollar opportunity

Businesses are losing out on between 1.5% and 2.2% of their revenues due to suboptimal payments acceptance, according to research done in partnership between Oxford Economics and Checkout.com. This suggests a company earning $1 billion annually could have lost as much as $22 million to false declines alone in 2022. The scale of this loss is even more dramatic for those larger enterprises with $100 billion in revenue—they're looking at a staggering $2.2 billion loss. 

So, while consumers are increasingly taking advantage of the perks of online shopping, we’re seeing a disproportionate rise in false declines—This surge means businesses are losing out on a golden opportunity to boost their revenue. Even one false decline can now lead customers to abandon a site, which results in a significant loss of loyalty and revenue. This impact isn't exclusive to any one player—it's felt across the board, from small retailers to large enterprises.

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Progressive CFOs are seeing the benefit of turning to payments as a strategic tool, particularly in today’s challenging economic climate. By optimizing their payments these businesses are not just navigating tough times, they are gaining a competitive advantage.

The false declines epidemic and the rise of the savvy consumer

False declines— where legitimate payment methods are mistakenly rejected—are emerging as a serious issue for ecommerce businesses. Our research reveals a concerning trend—45% of consumers will not retry after one false decline, choosing to transfer their business to a competitor. Consequently, businesses lose out on legitimate customers after having done the hard yards of customer acquisition—the cost of which has risen by over 220% in the last decade.

The amount of money being lost to competitors following a single false decline has grown by 300% in the US compared to three years ago, putting $35 billion directly into the pockets of competitor websites or apps from the total $50.7 billion lost to false declines.

Rami Josef, Product Director for Payment Performance and Authentication at Checkout.com, suggests that the very pace and magnitude of online commerce and payments expansion have led to a complexity in payments. This complexity is intensified by elements such as a surge in cross-border shopping and new, divergent rules from schemes and issuers. The more complexity there is, the more chances higher the likelihood of encountering payment failures leading to false declines. 

But, there is an opportunity to reduce this complexity. With the right technology and increased transparency into the payments processes, businesses can identify and rectify the issues leading to false declines, thereby optimizing their revenue. To achieve this, businesses need the ability to fine-tune each step of the process and the agility to adapt to changes as complexity continues to evolve 

High-performance payments are the CFO's competitive incentive

Complexity in the ecosystem is inevitable, but sub-optimal payments needn’t be. 

Our research indicates that an increasing number of CFOs and their teams recognize the strategic potential of payments and their influence on revenue growth. They're eager to enhance their payments performance, not merely to recover losses, but also to grasp the potential for heightened profitability. These businesses are the ones that know there is latent opportunity in their payments and other businesses will be wise to emulate.

However, seizing this opportunity requires a shift in mindset. Payments, traditionally seen as a mere cost-center, can be transformed into a revenue and value driver with the correct approach. To achieve this, every stage of the payments process needs to be optimized. For example, appropriate APMs, access to local acquiring banks, and a dynamic response to SCA and Network Token requirements can all result in lower costs, lower fraud, fewer false declines, and happier customers. 

And, when these optimizations have been successfully carried out, each transaction will yield more return, cumulatively leading to a substantial boost in revenue.. Payment performance should align with business strategy to prevent the unnecessary revenue leak and to win back business from competitors. 

The quest for high performance payments 

The objective, therefore, is to close the strategy-performance gap in payments. This requires understanding the scale of the revenue opportunity linked to optimized acceptance rates, being aware of how much is lost to rivals with superior acceptance rates, and monitoring these metrics over time.

The potential for businesses to transform their payments performance and significantly boost their performance is considerable. As the digital payments landscape evolves, those who recognize the strategic potential of payments will be in a prime position to seize these opportunities and gain a competitive advantage. 

Among CFOs, 60%  count upcoming payments regulation as a primary concern, 68% are apprehensive about improving their payments acceptance rates, and 51% are worried about how adverse macroeconomic trends might affect their operations. Interestingly 67% of Heads of Payments have board-level backing for the strategic importance of payments.

With this in mind, the strategic potential of payments can't be overlooked in today's highly competitive market with razor-thin margins.

To gain further insights into how false declines might be impacting your profit margins, we encourage you to download our latest report, created in collaboration with Oxford Economics. The data, sourced from surveys of over 1,500 medium to large enterprise merchants and 8,000 consumers, delves into the underlying dynamics behind the costly rise in false declines.