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A low-cost option
In the U.S., directly debiting a shopper’s checking account through the automated clearing house (ACH), an interbank network for settling payment transactions, is another way retailers can cater to consumers who prefer to pay in cash, while lowering their acceptance costs.
“As one of the lowest-cost payment options available to merchants, ACH transactions should be used whenever possible for low-ticket items such as the sale of digital music or recurring transactions/ subscription fees that retailers know they will be capturing each month,” says Kamila Kibilda, vice president, Risk Management and Analytics for FIS, provider of banking and payments technologies.
However, just because retailers like a low-cost option, that doesn’t mean their customers will embrace it. Retailers need to do their homework about consumer payment preferences by analyzing the wallet and demographic share of each payment type they plan to offer, especially when entering a new geographic market.
“Until retailers know what percentage of transactions a payment option will capture and compare that data to the total cost of acceptance they can’t determine whether it makes sense to add a payment option,” says Litle & Co.’s Pavona. “Just adding a payment option to the mix will cost retailers money to put acceptance processes in place.”
Nor can retailers assume that credit cards will automatically capture a high percentage of sales just because U.S. consumers use them heavily for online purchases. In China, only 3% of repeat online shoppers pay for purchases using credit cards, according to ReD.
“Visa and MasterCard are well known to consumers globally, but if retailers want to reach a larger audience in China, they have to offer local debit options rather than credit cards or they will miss out on capturing business from 97% of repeat online shoppers,” says ReD’s Clump. “We have seen local payments increase sales by as much as 35% in some cases and increase conversions among browsers.”
Once retailers determine which payment options offer the lowest cost of acceptance they need to incent consumers to use it, such as offering free shipping when using that payment method. Retailers can promote the incentive throughout their site and alternative marketing channels. “In some cases, in order for consumers to switch their payment behavior there has to be an incentive to switch,” says Pavona.
The fear factor
Increased security is an incentive that can convince more consumers to shop online. A 2009 survey conducted by the NYCE ATM and debit network showed that 43.5% of consumers who have never shopped online cited security concerns as the primary reason.
Offering alternative payments that carry a lower risk of fraud is a way retailers can reach consumers that avoid making online purchases out of fear their account and personal data will be intercepted by hackers.
“Consumers’ concern about making a transaction in a secure environment is something that merchants need to address, because security can be as much of an incentive for consumers to shop online as offering localized payment options,” Manten says.
In addition to real-time bank transfers, GlobalCollect, which services merchants in more than 200 countries, offers such payment options as credit, debit and prepaid cards, direct debits, cash, bank transfers and electronic wallets, like PayPal, WebMoney, cashU and Moneybookers. Consumers can upload funds to those electronic wallets to make online purchases. To maximize transaction safety prior to payment authorization, GlobalCollect offers a scalable Fraud Screening Service that features a range of integrated fraud reduction tools in collaboration with well-established partners.
Good from bad
One of the overlooked benefits of accepting local payment options is they are less prone to fraud than international payment methods because usage is concentrated in a single country. That makes it easier for merchants to spot fraud patterns.
In comparison, globally accepted payment products, such as credit cards, can be obtained in one country and used in another, which allows criminals to spread out their fraudulent activity over a wider geographic base to avoid detection.
“Purchases made using international payment products are 10 times more likely to be fraudulent than a domestic payment product,” says ReD’s Clump. “The ability to use a globally accepted payment product anywhere in the world and the anonymity of the Internet make it harder to track fraud on those types of transactions.”
Successfully identifying fraud requires a vast amount of transaction data to spot patterns, not just from the retailer’s own sales channels, but retailers in the same merchant category and other merchant categories. Analyzing transaction data across the broadest possible base of merchants and payment types provides deep insights into fraud patterns. Those insights not only help merchants detect fraud sooner, but indentify the characteristics of good transactions that might otherwise be flagged as fraudulent.
Avoiding the rejection of a good transaction flagged as fraudulent is critical because it can cost the retailer that consumer’s business. It can also prompt the consumer to tell friends and family members of a negative experience, which can further damage the retailer’s reputation.
“Part of risk management is making sure that the good transactions clear and do not result in a false positive situation,” says ClearCommerce’s Kuzio. “Having broad access to transaction data makes it easier to spot the difference between legitimate fraud patterns and characteristics of a legitimate transaction the merchant may not have seen before, such as a customer travelling internationally that logs on to their site from a country that does not sync up with the country where their credit card was issued.”
To prevent fraud without blocking legitimate transactions, ClearCommerce assigns a dedicated risk analyst to each merchant client to monitor such factors as suspicious transaction patterns on a daily basis. Analysts make their recommendation about what actions to take on suspect transactions, such as a manual review of the transaction or rejection, based on guidelines set by the retailer.