By Jim Magats, Senior Vice Presidents, Payments, PayPal
We are living in a time where the e-commerce landscape is growing multifold, with tailwinds from evolved customer preferences leaning toward convenience and frictionless experiences.
Businesses, especially small businesses have pivoted to digital and established online shopfloors to take advantage of this growing demand. According to the Global Payment Report 20211 by Wordplay FIS, India’s e-commerce industry will grow 84% to US $111 billion by 2024 as an effect to the demand created by the global pandemic. In Singapore, e-commerce sales are expected to grow to US $10 billion by end of 20262. Small and medium businesses are riding this wave, with 48% small and medium businesses citing a move to online shopfloors in lieu of traditional brick-and-mortar operations during the pandemic, according to PayPal’s Online SMB Survey in 20213. Similarly in Hong Kong, the e-commerce market grew significantly in 2020 amid the pandemic and is expected to continue to expand. Hong Kong’s e-commerce market, which has predominantly been driven by mobile-based purchases, is projected to grow by 41% to US $29 billion by 20244. Japan saw an estimated 10-20% growth in online retail across most categories and consumers intend to continue shopping online after the pandemic subsides5.
The competitiveness within the space calls for focused efforts from SMB’s in improving customer journey to be at par with other e-commerce platforms and be part of the dynamic sector. It is about turning that consumer into a customer and this journey is all about the user experience, and it is not limited to sleek websites and marketing campaigns. Businesses have a better chance of retaining customers when the end-to-end user experience is taken care of, right from surfing on the website to the checkout experience. Cart abandonment in the final stage of purchase is seen quite often. APAC has witnessed a cart abandonment rate of 73.2%, higher than the global average.6 A customer may reach the payment section and get stuck – it can be due to lack of convenient payment methods or because of transaction failure. From my experience in the sector, payment failure has been among the biggest hindrance in online customer sales.
Addressing the problem
To be recognized as a credible business, it is important to solve transaction obstacles. Offering choice in check-out options solves only a part of the problem. It is critical to address the failed transactions to avoid revenue losses.
In order to be a top performing business online, it is important to focus on the bottom line and refine the end-to-end payment ecosystem, ultimately prioritizing customer experience. Improving the authorization rate can be the key to improving the chances of conversion of the transaction and prove to be vital in simplifying the payment process. This means the percentage of transactions that successfully pass through the authorization process to complete a payment.
Most small businesses will come across many failed transactions and declined payments; it is part of doing business online. However, each incomplete transaction needs to be addressed. At the end of the day, better authorization rates convert into better business and eventually, increased revenue.
After thoroughly analyzing the issue, businesses can use the following strategies to align their payment process to increase customer retention.
Know the process
Once the low authorization rate has been flagged, it is important to understand the reason behind failed transactions. There can be several reasons behind this – suspicion of fraud, insufficient funds, or outdated card information.
With the rise in online shopping and businesses taking to online selling, fraudsters have found new ways to steal customers’ personal information. It is important for businesses to be careful of authorizing bad or fraudulent payments.
Small businesses dealing with luxury goods and experiences face more authorization failures as customers have likely surpassed their credit limit or merchants are wary of fraud.
It is this understanding of what is leading to transaction failure that can help businesses work towards a solution.
Easy and efficient transactions
A good payment partner can be the key that unlocks payment efficiencies for a business to create the perfect end-to-end user experience. Beyond higher approval rates, a good payments partner allows your business to monitor for fraud by studying the users card behavior and identifying potential areas of concern. Advancements in technology such as machine learning and artificial intelligence helps businesses determine the legitimacy of a transaction, reducing fraudulent transactions.
Having secured methods like network tokenization can also help push authorization rates and help with smooth customer experience. Network tokenization creates a unique credential for the customer’s card to make transactions. The tokenization helps improve security by making customer credentials more fraud resistant and as a result build brand recognition and trust.
Business can also enable digital wallets to help reduce failed transactions. By 2025, digital wallets are projected to overtake credit cards as the most popular online payment method in Hong Kong, accounting for 40% of all online transaction value.7 In Japan, digital wallets are predicted to be the fastest-growing payment method to 2023 backed by rising 5G penetration. These come in handy when a customer’s first form of payment is declined. Tools like this help companies understand the root cause of failed transactions and enable a solution led approach and streamline processes.
Website enhancement and offering product varieties are important for businesses looking to expand, however, backend enhancements should not be overlooked. While delivering a good user experience is crucial for checkout, businesses need to look at partnering with a good payments company. The focus should be on increasing the authorization rates while building credibility with customers, and ultimately leading to growth in revenue.
1 Indian e-commerce to grow 84% in 4 years, helped by Covid-19 impact: Study | Business Standard News (business-standard.com)
2 E-commerce sales in Singapore forecast to hit $13.4 billion by 2026: Report | The Straits Times (straitstimes.com)
3 PayPal Survey Shows Adaptability of SMBs in Singapore to Survive and Thrive during Pandemic. | PayPal APAC Newsroom, (newsroom.apac.paypal-corp.com)
4 FIS: Hong Kongers are abandoning cash in droves | DigFin Group
5 McKinsey & Co, Survey: Japanese consumer sentiment during the coronavirus crisis, research conducted from November 9th – 15th 2020 amongst 1,000 Japanese adults (aged 18+)
6 Cart abandonment rate statistics, Dynamic Yield
7 Hong Kong’s use of digital wallets for online payments to overtake credit cards by 2025, report says | South China Morning Post