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481 - Finance Digest │ Financial Literacy │ Financial PlanningBy Jon Horddal, Group Chief Product Officer at emerchantpay

The economic climate is in massive flux. With inflation in September hitting 10.1% and a soaring cost-of-living and energy crisis, it’s projected that the UK economy will contract in 2023. This has resulted in both businesses and consumers tightening their wallets and becoming more modest in their spending. The impact on merchants has been felt already; retail sales in the UK dropped 1.4% month-over-month in September of 2022 while consumer confidence reached a record low in September, with only a slight improvement seen in October.

The pandemic upended traditional customer loyalty conventions and we saw an effort by brands to build loyalty through the customer experience, expanding the net beyond conventional loyalty points and reward schemes. One way to win customers’ trust is by aligning with their needs and understanding their concerns. With money tight for many during the cost-of-living crisis, payments can – and should – play a big part in a company’s strategy to reassure its customers.

Merchants and businesses that succeed in retaining customers and even see growth will adapt their payment experiences, to demonstrate to their consumers they respect their money and offer secure, convenient ways to pay. To ensure conversions are optimised amid economic volatility, businesses must provide a frictionless experience at checkout as the last step of an overall smooth customer journey. Equally, merchants need to ensure that they’re not losing money by missing sales due to unoptimised payment flows and fraud and risk strategies.

Great shifts in consumer behaviour

First and foremost, it is important to understand the behavioural shifts of consumers. It’s no surprise that we are likely to see consumers tracking their funds more closely during times of financial uncertainty. Acknowledging this and adapting payments to be more transparent is paramount.

To provide an optimal experience, billing descriptors need to be crystal clear to any customer making a purchase. This will allow consumers to recognise a transaction when they see it in their card statement or digital wallets. Having a holding company name, or a name that the consumer wouldn’t recognise – especially for one off payments – may lead to the consumer disputing the payment, even if it is legitimate. This in turn it puts additional strain on the merchant to process a refund request or manage a potential chargeback. This simple update may not only help avoid a negative customer experience, but also save merchants times and costs.

Related to feeling secure that a payment is legitimate, consumers are more likely to prefer paying for goods and services in a familiar way. Providing a choice of payment methods and displaying recognised logos and brand names can reassure customers that their transaction and sensitive payment details are being processed securely.

For example, emerchantpay’s research, New World One Market Report found that younger generations are not only using new technologies more, but actually favour new payment methods. According to the research, Gen-Z and Millennials predicted they will use digital wallets more in the future than their older counterparts. This group are also much more likely to favour buy now pay later (BNPL) schemes, with 45% of Gen-Z and 46% of Millennials saying they would be encouraged to purchase if a BNPL option was available.

By contrast, only 31% Gen X were encouraged to buy and 12% Baby Boomers if BNPL was an available payment method. This suggests that preferred payment methods differ among demographics.

Interestingly, when looking at BNPL, 50% of those who said they were more likely to return to the high street to shop following the pandemic, said that BNPL would encourage them to buy. This highlights the importance of offering a broad range of payment options both online and in-store. In times of financial instability, consumers may be more open to solutions that facilitate a way to pay for larger ticket items in a manageable way.

By knowing who your customers are and understanding their payment preferences, payments professionals can assist merchants in offering a payment journey that meets their expectations and, in turn, facilitates a positive experience.

Providing value without losing revenue

While it is important to meet customer expectations, payments professionals need to ensure their strategy is optimised to avoid unnecessary loss. For example, merchants processing higher value payments could witness falsely declined transactions, essentially declining legitimate transactions due to unoptimised fraud rules. As a result, this can put the experience of loyal customers on the line, too. At a time when margins for merchants are thin, these errors can be make-or-break for retailers. According to the BRC, UK merchants lost almost €3.1 billion in 2021 to incorrectly declined transactions alone in 2021, following the introduction of Strong Customer Authentication.

Further to losses incurred by unoptimised risk rules, emerchantpay’s Great Payments Transformation Report research found that merchants across industries are experiencing overall revenue losses due to shortcomings in their payment gateway.

When surveyed, 91% UK and German businesses estimated they could be losing up to 25% of sales / revenue due to shortcomings in their payment gateway. The losses aren’t insignificant. Over a third (36%) said that 11-25% of their revenue is being lost and over half (55%) predicted losing up to 10% of turnover. This is having a massive impact on profitability. 39% of the largest businesses surveyed (£100m+ turnover) estimated losing 11-25% of their revenue, while 54% said up to 10% is being lost due to a lack of optimisation in payments. To put that into context, at £100m + turnover, this means 54% of large businesses could be losing a minimum of £1m (1% lost revenue) and 39% could be losing a minimum of £11million (11% lost revenue) a year.

In the same research, the 40% of payments leaders said that they would need to make improvements to their payments strategy by the end of 2022 to avoid losing customers and revenue. A further 29% said they would need to take similar action into 2023. It’s evident that organisations acknowledge the need for change to keep up with demand – driven by consumers and the industry alike. It is therefore vital that payment professionals identify the gaps in their payment flow, not only to address consumer sentiment but also to safeguard their revenue.

Despite compelling evidence to transform payments, many merchants struggle with the practicalities of change. Other distractions, such as understanding and adhering to regulation and compliance take focus away to addressing some of these simple fixes. In addition, more than a third (36%) of participants said a lack of data or access only to poor quality data was an issue.

To safeguard profitability and meet consumer demand during the incoming cost of living crisis, merchants need to ensure they have the right payments partner to provide strategic advisory and address the pressing issues they are likely to face with their payments into 2023.

Investing now for ongoing customer satisfaction

It is a crucial time for merchants across industries and regions to build trust and maximise sales. Brands need to demonstrate a commitment to understanding customer friction points and adapting their customer journeys to extinguish consumer concerns. Payments need to become a simple, transparent, and frictionless journey.

Key to 2023 will be optimising payment strategies to provide a multi-channel, frictionless and secure payments experience for customers – both when making purchases and when receiving refunds. With a payment partner that can provide payments data for informed business decisions and provide dedicated, bespoke support could ensure that a merchant’s investment made now in restructuring their payments strategy, will have long term benefits for customer loyalty.

By providing a streamlined payments experience, customers are all the more likely remember their engagement with your brand as a positive experience long after the cost-of-living crunch eases. With the right payments partner, staying on top of emerging payment methods, fraud and risk strategies, industry trends and eCommerce growth can generate opportunities and remove blockers for merchants’ success.

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Adapting payments to reassure consumers and safeguard profitability during times of uncertainty

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