Using AI to fight fraud and protect the bottom line
How to benchmark, measure and improve payment performance
Businesses have a growing appreciation for the complexity involved in achieving a world-class payments operation. Real challenges range from navigating distinctions in customer preferences and local regulations to mastering the delicate interplay of authorization rates and fraud management. Understanding the many nuances required to optimize payments performance takes in-depth knowledge and localized experience.
And, with new technologies emerging, businesses need to understand the ways that their strategies should adapt to keep ahead of the competition.
I was joined by Lily Varon, Senior Analyst at Forrester and Melissa Pottenger, Head of Key Partnerships at Reach to explore how businesses should benchmark, measure, and improve payments performance so that they can maximize revenue growth and profitability.
Leverage available capabilities based on your needs
Merchants must determine the optimal balance between in-house and partner-based expertise for their payments operation. Building an orchestration layer can be complex and resource-intensive, but some businesses do this very successfully. On the other hand, payment partners now offer sophisticated tools that were previously inaccessible to many businesses, enabling merchants to easily adopt advanced solutions such as Machine Learning.
"Merchants must identify their goals and customers, then select partners based on their needs: buy or build, strategic guidance, implementation assistance, or full control," says Melissa Pottenger, Head of Key Partnerships at Reach.
Ultimately, it's not a binary choice between buy or build. Instead, merchants need to carefully evaluate their capabilities, requirements, and objectives and build a bespoke ecosystem to meet those objectives. They can do this by examining different aspects of payments within their business and tailoring their approach accordingly. For instance, they might already have advanced cost control tools but still need a more consultative strategy for enhancing payment experiences at the customer end. As innovation focuses on this 'upstream' area of payments, merchants will likely find at least some third-party guidance and implementation to be necessary.
Quantifiable achievements first but don’t stop there
There are clear and measurable impacts that merchants can achieve through some of the latest innovations, such as account updaters, smart retries and tokenization solutions. Applying these solutions, Checkout.com’s merchants have seen as much as 6% uplift in acceptance rates. Then there are broader orchestration strategies, where multiple levers and algorithms work in unison (such as smart routing). These require a more iterative approach but can also drive benefits.
According to Lily Varon, Senior Analyst at Forrester, sophisticated merchants are—and should be—digging into the true potential for optimizing their payments in as many ways as possible and this includes those broader orchestrations. And, when it comes to partnerships, merchants should have more focused, insight-driven conversations with their providers.
"Increasingly, merchants desire visibility into their data for comfort in their partnerships, even if not handling optimization themselves. Concurrently, vendors are investing in offering more actionable insights to their merchants.”
Consequently testing and benchmarks are becoming core features of payments dashboards and reporting tools. Beyond this, payments partners should be offering insights into payment trends and issuer behaviors. But merchants also want to avoid analysis paralysis! Their priority should be to switch on the easy-wins, based on what the data tells them about their customers’ frustrations.
Operating cross-border requires true localization
Operating in a global digital economy adds complexity. Take almost any payment challenge, and it becomes more complex when dealing with cross-border transactions. Merchants are faced with standards, regulations, and consumer preferences that vary from region to region. Today, the challenge is not only how to process cross-border payments, but also how to do it better than the competition—including local brands.
Merchants need to be able to get established in new regions and do so without being faced with exorbitant fees. “Entering each new market comes with challenges. Without a local entity, it would be very difficult for merchants to get established, get higher authorization rates, and get more predictable costs without crazy FX fees. But moreover, merchants want to understand how to excel in those markets, how do you win with those customers? And this is going to require a different balance everywhere you go,” explains Melissa.
Here, localization is all-important. What works in Latin America will not be appropriate for Europe. Ambitious merchants should look to be even more granular and set country-specific payment strategies that offer customers their most popular payment methods and domestic currencies, and also factor in linguistics and cultural nuances to the checkout experience.
Ultimately localization is a route to personalization, and therefore a never-ending challenge. Merchants should have a clear cost-benefit position on how local they want to go.
“Localization, in an ideal world, is personalizing to a segment of one—that is the hyper-local experience. But merchants can only do what they can do depending on costs and where they are on the maturity curve. So, what are those big-stroke things that they can do? Currency, FX controls, settlement timeframes, taxes, and disclosures are some things. And then you get beyond that into linguistic nuance or translation,” says Lily.
Strike your balance
What is clear from the discussion is that payments performance and innovation are both ultimately balancing acts.
Developments in the last few years have given merchants lots of opportunities to improve their payments operations, from easy-to-implement basics to more sophisticated optimization programs. But, of course, merchants need to decide in what order to address these.
Merchants need to consider where to invest their efforts first. In embracing innovation, merchants must balance a number of factors: adopting cutting-edge technologies vs managing existing blind spots; achieving localization vs scaling to critical mass; prioritizing fraud prevention vs reducing customer friction; and how much of this can be solved internally versus leveraging the expertize and reach of a partner.
Making these choices on how best to balance, though, can only happen with a full picture of the business.
Lily’s advice, “A lot of the optimization that we're talking about happens in the broader customer experience. Merchants should think about their payments optimization team as an intersectional, cross-functional team within the organization so that they can have a more holistic approach, to payments optimization. And I think that helps with balance because then they have to start talking about what are those north star KPIs that can unify the teams across the organization.”
To make sure that merchants are kept abreast of the developments, Checkout.com is conducting market research to uncover the latest trends. Keep an eye out for our upcoming report on Revenue Optimization.
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