Go to any eCommerce or retail conference and look at the premium sponsors: chances are they have something to do with payment.
Those guys have a lot of cash and use it to blow up the importance of payment to a point where they claim that it is the single most important thing in eCommerce.
It is not.
Payment is but one link in the value chain. What is more important is of course your business model, your offer – the reason why someone would buy from you.
You can even say that payment is a mere hygiene factor. You just want to get paid, right? If you have all relevant payment methods in your checkout you are probably just fine.
So am I saying that there is no potential for optimization? No. There is. Big, cash-relevant potential.
But it is no rocket science and there is certainly nothing mysterious about it.
From an eCommerce merchant perspective there are a few things that you need to be able to receive and send (yes, sadly there are return shipments and other reasons) money:
· An Acquirer – a special kind of bank who can handle credit card transactions
· Optionally a payment service provider (PSP) that basically gives you access to various payment methods such as Paypal, Credit Card, Direct Debit etc. The PSP itself does not do anything else but putting through your transactional data by providing standard interfaces to common shop systems, APIs etc. The PSP makes money off of every transaction and can be cancelled out of the equation by connecting to payment methods directly.
· Payment services such as Paypal, Giropay, Softortüberweisung etc.
· Risk management
Risk management simply explained
A merchant wants to have money upfront before shipping the goods, the customer wants to receive the goods before paying. If you do what the customer wants you will increase conversion but you also risk losing money (fraud etc.).
There are many ways to mitigate this risk
· By selecting secure payment methods (cash on delivery, payment in advance etc.) or at least one with an intermediary in between (e.g. Paypal) that helps to resolve conflicts
· By performing credit checks, scoring etc.
· By implementing claims and reminders management, dunning, claims recovery, factoring, dispute management and enforcement
So what is important in payment?
For you, the merchant, it’s three things: Conversion, payment cost and costs of payment defaults.
Every change that you make to your payment-setup will affect conversion (and thus revenue) and costs.
If you want a risk-free payment setup, you will probably lose conversion and therefor revenue.
If you are too customer centric (yes, there is such a thing as being too customer-centric. Mind-blowing, isn’t it?) you will lose money to all your payment-related services and you will have additional losses because of some payment defaults and probably increased returns.
So you just have to balance it out
Here is some thoughts on how to balance: maybe there is an optimum for your business in the triangle of conversion, payment costs and payment-related losses.
Once you find that point, you can optimize further and try to reduce cost by cutting out your PSP, negotiate better deals with every payment service directly and doing a part of the claims and reminders management yourself.
That’s basically it.
Next time you go to a conference, you will know the agenda of each payment-related sales person. And you know it is nothing mysterious.