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Retailers face many decisions in every step of the payment process, and successful navigation requires a lot of savvy on their part, since one mistake in any area can have serious consequences.
Selecting a payment processor can be mind-boggling for retailers as there is more to the equation than cost per transaction. Retailers also need to consider how a processor can help them grow cross-border sales through local payment options, reduce currency conversion costs and risk of fraud, lower chargebacks, and provide the security around transaction data that online shoppers demand.
With more retailers expanding internationally, failing to select a processor that can help them successfully navigate these issues can result in higher operating expenses and cost retailers sales and customer relationships.
Choosing a processor that can help them navigate these issues can result in higher sales, lower operating expenses and improved customer relationships.
“Retailers need to look at payment processing more strategically,” says Greg Worch, senior vice president, national accounts, for processor Chase Paymentech Solutions LLC. “The goal is to select a processor that can help retailers optimize the value of the payment types they accept, while reducing their overall cost of accepting payments.”
Indeed, payment strategies need to be tailored to international markets as consumer preferences about the types of payment and the rules and regulations governing acceptance and transaction costs vary by market.
“The global payment landscape is very fragmented when it comes to cost structure, compliance, payment options and associated risks,” says Jan Manten, CEO of payment service provider GlobalCollect. “The key to a successful payment strategy is reliability and gaining the trust of the customer. If the consumer does not have confidence in a retailer’s payment strategy they will shop someplace else.”
Some of the criteria retailers need to consider when formulating a payment strategy is compatibility with the processor’s platform. Retailers should take into consideration whether the processor’s platform is compliant with all payment security standards in the geographic markets in which they do business, whether the processor has worked with similar types of businesses, and the processor’s financial strength.
“The cost of the transaction is important, but there are a lot of factors about the payment provider that retailers need to consider before entering into a contract,” says Klas Bäck, president of U.S. operations for Netgiro, a Digital River company. “It’s important to be sure the payment provider can contractually back up their sales talk.”
Manten cautions that while new alternatives to credit and debit cards are emerging, retailers need to do their homework on the viability of these payment options and the reliability of the technology behind it and its appeal to consumers. “Some of the recent launches have failed,” he adds. “Plus, retailers need to be sure the type of method appeals to their customer base and has a substantial penetration to justify the cost.”
The risk associated with new payment types is also a consideration. Questions to consider include does the provider of the payment option heavily favor the customer in the event of a dispute and what is the cost to the retailer to defend itself in the event of a customer dispute? “The rules around a dispute can be so favorable to the customer that the retailer may end up having to go to court to win a dispute that is friendly fraud for some payment methods,” says Netgiro’s Bäck.
Friendly fraud occurs when a consumer legitimately orders an item but claims after receiving the item he did not place the order or receive it, thereby initiating a chargeback.
Nor does a retailer necessarily want to be an early adopter of new and unproven payment types. “The provider may suddenly go out of business or the payment option can prove to be high risk,” says Bäck. “Retailers want payment options that fit their level of risk and guarantee payment. Partnering with gateways and processors can help them choose the right payment option.”
Although fraud prevention remains a top-of-mind concern for retailers, they don’t always pay close attention to the fraud prevention tools available to them. “Fraud control is a very specialized service. Processors need to show that they not only have their own tools, but can connect retailers with third parties that meet their fraud prevention needs,” says Chase Paymentech’s Worch.
While Chase Payementech has integrated a variety of fraud management tools into their solution set, their aim is to provide connections into best-of-class fraud management providers. “The aim is to tailor options to the needs of the retailer rather than provide a one-size-fits-all approach,” says Worch.
While retailers understand that access to fraud detection and prevention tools through payment service providers is important, their knowledge of the types of tools available is not as deep. As a result, their inclination is to implement stricter rules around transaction authentication as fraud volumes rise, which can lead to the denial of legitimate transactions, rather than applying the appropriate tools.
Among the clues that can indicate a fraudulent transaction is the use of free e-mail addresses by the customer, Internet Protocol (IP) addresses that do not match the billing address of the country to which the item is being shipped, purchase of goods and services that ship within 24 hours, and order sizes substantially larger than average.
“The better retailers organize their fraud prevention tools, the more they will sell,” says GlobalCollect’s Manten. “It sounds obvious, but that’s a fact of the business that does get overlooked at times by retailers.”
Velocity rules that prevent fraud by limiting the number of transactions from the same account on a daily basis are one way to curtail fraud.
Blacklists of suspect credit and debit cards or account numbers are another fraud detection tool. GlobalCollect uses its own blacklist that screens transactions against a combination of such data as account numbers, bank identification codes and branch codes. Suspect transactions are flagged and can be sent for manual review or denied, per the retailer’s instructions. Another fraud tool enables GlobalCollect to retrieve the geographic location for any given IP address and break down card holder details to country, state or city level.