eCommerce Profitability: Offer More Consumers More Ways to Pay

Payment options can be a key factor in where a consumer decides to shop online. How do online shoppers pay at checkout?  What changes are occurring in their payment preferences? Answers to these questions offer new opportunities for expanded services that improve the consumer’s shopping experience, prompt more frequent visits, increase average order value and boost sales. By offering more payment options at checkout, online merchants can expect to see fewer cart abandonments and more sales.

As online merchants expand their checkout payment options beyond debit and credit cards, other payment types, including general purpose prepaid cards, gift cards and alternative payments (e.g., Bill Me Later®,  Google™ Checkout®, PayPal®), are gaining an increasing share of online purchases.

Some online merchants also offer another payment alternative: electronic checks, or e-checks. With an e-check option, a consumer can pay through his or her checking account. The consumer submits the checking account number and the bank routing number. Funds are then transferred by routing the transaction through the Automated Clearing House (ACH) network.

With Javelin Research and Strategy predicting that alternative payments will account for 20% of online retail and travel purchases by 2017, ecommerce merchants should consider enhancing their payment options to take advantage of this consumer trend.

More Payment Options Mean More Sales

Research indicates that a significant portion of these “other” payments represent incremental sales. In other words, the transactions probably would not have occurred if the payment type used had not been available.

By understanding why many shoppers prefer not to pay with traditional debit and credit cards, online merchants are better positioned to select and offer new payment options that can satisfy their customers’ needs and contribute to revenue growth.

Why are online shoppers gravitating to other payment types? A significant portion of consumers do not have credit or debit cards, while others don’t want to increase credit card balances or expose their card information online. In addition, many consumers have security concerns about using the credit or debit card online.

In every shopping environment, consumers place a high value on choice, convenience  and security. The Internet is no exception. Online shoppers want the flexibility to decide how to pay at checkout, just as they do in their off-line transactions. If a shopper’s credit card is near its limit, she might choose a non-credit option. But if she is also faced with a low checking account balance, she could choose to initiate a new credit line through a service like Bill Me Later.

Providing alternative payment options has also been shown to increase average order value, as they can offer customers access to additional sources of credit. Moreover, in addition to improving sales and customer satisfaction, offering extra payment options may provide new opportunities for merchants to reduce their total cost of payments. Some payment options incur lower transaction fees than debit and credit, and many merchants seek to optimize their payment mix by encouraging shoppers to use lower cost payment mechanisms.

It is important to note that each new payment option a merchant decides to offer comes with its own fees, settlement and funding time frames, authorization requirements, risk management features and chargeback handing processes. Be sure to work with a payment processor that offers the expertise and services to help you manage these considerations and reduce your total cost of payment.

This is the third article in a First Data series about payment-related strategies that can enhance a merchant’s online services, open new markets and help increase profits.