The real value of optimizing your payments
5 min read
Why you're not as optimized as you think and how the most progressive companies are closing that optimization gap.
Improving acceptance rates is the one KPI generally agreed within the industry to demonstrate a strategic approach to evolving a payments operation from the pedestrian into the phenomenal.
Super high growth (41%+ YoY) companies are more likely to have an authorization rate of 96-100% than other businesses we surveyed for our report Black Boxes and Paradoxes: The Costs of Disconnected Payments
As progressive companies have evolved over the last decade, they have recognized that payments have shifted from a necessary cost center within a business to a strategic function.
A function that can:
- drive better customer experiences
- provide businesses a deeper understanding of their revenue streams
- unlock new product lines and drive growth in new markets
This shift is what we refer to as Connected Payments. But the triumph of Connected Payments is deeply dependent on ensuring that your payments can perform as strongly as possible.
Succeed in making this shift and you’ll be a payments star. As a Head of Payments, you’ll know this is easier said than done.
What is the payments optimization gap?
Knowing where to start is the most difficult part when process complexity and lack of insights can hinder you from striving for change. But start you must.
We recommend taking the top five areas you think will make the most difference whether that’s by country, then payment method, or whichever areas that are relevant for your vertical. Start at the top and peel back the layers as if peeling an onion. It’s what I did at Expedia and these days we have much more advanced analytic tools to help you identify areas ripe for optimization.
That said, there’s no one failsafe recipe because you won’t know until you devise a holistic approach to connect up your payments processes.
If you want to improve your approval rates by one percent, think about where you can find at least half a percent of that. Go after that first. That could be in an area relevant to you whether that’s global expansion and localization or it could be processing cost.
Analyzing data trends to take action
41% of the merchants we surveyed for our report Black Boxes and Paradoxes: The Costs of Disconnected Payments do not receive any actionable analytics with their payments data.
When I worked on the merchant-side, good data to me was always actionable data. A spreadsheet listing authorization rates is not actionable. Whereas a dashboard that can highlight trends, spikes, and benchmarks for your vertical will help you make informed decisions.
Benchmarking to optimize
From a merchant perspective we think that benchmarking is one of the greatest assets that a solution provider can provide. Otherwise you only have your own internal metrics to benchmark yourself against.
That’s why we’ve built our benchmarking tool to give you insights on how your authorization and chargeback rates compare to the rest of your industry.
Spot adverse trends to change your processes
Don’t be afraid to use trends insights to make significant changes to your processes. When I was at Dropbox we noticed a ton of our transactions were failing at 1am. We quickly realized that’s when banks generally shut down for maintenance. So we worked out that our most successful time was 7am and processed then instead. It was that simple to optimize.
Similarly, we knew that payday in the UK is typically on the last day of the month and success rates on payday were usually 20% higher than the middle of the month. So we moved one of our rebill times to payday, in the hope of recapturing the funds.
Localize to optimize
Global expansion, local payment methods, and local currency are all part of a localization theme that’s well worth merchants evaluating.
More than half of the US merchants we surveyed agreed with the statement “Payments localization is key to our future growth potential,” with German and French merchants following closely behind.
Yet only 37% of the merchants we surveyed currently offer a full range of alternative payment methods.
Local payment methods
Today, accepting local payment methods is a given expectation of customers in every market. In fact, across the US, UK, France and Germany, 35% of consumers use alternative, local methods of payment. In Germany alone, 65% of customers use local payment methods.
When you expand and offer local payment methods you’re often able to reach untapped markets. As you no doubt know, in India, Brazil, Japan and most Latin American countries you perform significantly better if you are a domestic entity operating in those markets. In Southeast Asia, for instance, direct carrier billing is huge for small ticket items which are added to your mobile phone bill.
Having that local method of payment available to a customer also gives them a sense of you being local to their area. Our research found that 56% of consumers would go elsewhere if a merchant did not offer their preferred payment option.
If you're offering Boku in Indonesia, then there’s the perception that you understand them and their needs. It’s also a way of improving acceptance rates, and much of that has to do with the risk threshold.
When you think of localization, if you’re going to offer direct carrier billing for instance in Indonesia and you're not able to offer the rupiah, then you can’t connect with potential customers there. They might wonder why they need to pay in US dollars and abandon the transaction altogether.
At Dropbox for example, we used a local partner, so that we could process locally in Brazil, but we charged them in US dollars. We did that because we didn't want to have to manage the pricing when dealing with the FX fluctuations. The customer then had to accept the fluctuation instead of us. However, it alienated some customers because they didn’t like their subscription cost fluctuating each month.
Of course now, payment providers like Checkout.com offer local acquiring worldwide, which alleviates the need for this level of complexity, but it’s worth noting that these little subtleties can be a big player in your ability to drive improved payments optimization over time. Of those merchants we surveyed, 32% offer local currency options to customers in each region they had a presence.
Evolving your business model
Taking control of complex payments processes and harnessing insights to make the best decisions for your company is how payments can elevate a business.
I think as a solution provider it’s our role to provide those insights and strategic recommendations behind the analytics. Otherwise you receive the data as a merchant and you don’t know what to do with it. You could be missing an opportunity for global expansion, for instance, or to examine your fraud rates in a certain market as they’re impacting your acceptance rates.
Whereas if you make decisions based on a comprehensive overview of actionable insights you’re much more likely to close that gap to achieve lower chargebacks and higher acceptance rates.
As all payments professionals know, the Payments Optimization Gap is a never ending challenge. Once you’ve pushed your optimization efforts to the limits, you’re asked to find even more value and more performance. The two things that can keep you finding these new gears are a clean, unified payments platform and the most granular payments data you can get. For us here at Checkout.com that has been at the forefront of how we have built our solution. But more innovation is around the corner.
Explore the findings in our new report Black Boxes and Paradoxes: The Costs of Disconnected Payments
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