Are You Getting The Best From Your Payments Solution?
Table Of Contents What are the hidden costs of e-commerce?... 3 Cart and sales conversion improving revenue streams... 4 The cost of compliance the need for tokenisation.... 4 CNP payment automation.... 5 What are the implications of downtime?.... 6 Counting the cost of fraud.... 7 Deploying a hidden cost model to deliver merchant benefits.. 7 Reducing hidden costs... 8 Choosing a partner... 8 How Chase Paymentech can help... 8 About Chase Paymentech... 9 chasepaymentech.co.uk 2
In 2010, Chase Paymentech asked in its white paper What are the hidden costs of e-commerce? whether e-commerce strategies really did add up. What are the hidden costs of e-commerce? Consumers increasingly want to shop online on 6th December 2010 (Mega Monday), UK consumers spent 831,000 online in just one minute 1. It seems that while much has changed in just 12 months, perhaps as a result of the economic climate, the consumer appetite for online shopping is undiminished. As a retailer, this means that it has never been more important to work with your payments provider to get the best from your payments solution. Predictions suggest that there will be an 18% growth in online sales in the UK across 2011 with total e-retail sales reaching 69 billion 2. Clearly e-commerce is becoming one of the most profitable channels for retailers, but there are a number of hidden costs that can easily damage your profitability unless contained. Thus to take advantage of the booming e-commerce market, merchants need to address those hidden costs and how they affect business. A growth market Let s first look in a little more detail at the market predictions for e-commerce. In its most recent five-year forecast, analyst firm Forrester predicts that European online sales will increase at a compound annual growth rate of 10% through to 2015 3. Merchants looking to seize a share of this growing consumer hunger for online shopping may find it relatively easy to expand into new markets or secure new customers anywhere in the world. The introduction of the internet and the widespread deployment of broadband, means that with the right Customer-Not-Present (CNP) payment system in place a merchant can sell to almost anyone, anywhere in the world. Automation should play a key role in this, but interestingly our 2011 research found that many merchants still depend on manual reconciliation processes that are not only inefficient and slow, but ultimately have an effect on a company s competitiveness. To remain competitive in today s difficult economic times, it is vital to keep Operating Expenditure (OPEX) low and avoid tying up key resources on manual reconciliation. Furthermore, many retailers have yet to invest in the tools they need, such as delimited file reporting, to manage and manipulate the online trading data that forms the bedrock of business intelligence and trending analysis. With increased online spending predicted by merchants and analysts alike, deploying the correct payment system will be critical for merchants as the e-commerce market becomes even more competitive. So what are the hidden costs and how do they affect merchants? In our 2010 paper, we asked whether CFOs believed their organisations could really afford higher operating costs than their competition. Of course, the answer was clearly no and the four key issues that added to the hidden cost of e-commerce a year ago remain today: Poor cart and sales conversion The cost of compliance Lack of CNP payment automation e.g. reporting, business intelligence etc System downtime If internal finance departments cannot address these issues, their business is unlikely to compete more successfully both domestically and internationally. chasepaymentech.co.uk 3
Cart and sales conversion improving revenue streams In last year s report we noted that global online cart abandonment rates were estimated to be approximately 75% 4. More recent desk research shows that this has risen to 88% a significant jump 5. With a total of 58.8 billion spent online in 2010, this figure is predicted to see a further 18% increase this year 2. Merchants suffering this level of cart abandonment maybe missing out on valuable revenue potential. In our last paper, we identified a number of common causes that may not only damage your brand and reputation but may also cause you a loss in revenue. A year on, these causes remain the same and include: Your site not allowing a customer to pay in the currency or method of payment they want to use A cumbersome payment process that ultimately frustrates your customer Your site does not offer the security protection your customer requires Because some of the team at Chase Paymentech were once merchants themselves and are all frequent e-commerce shoppers, we understand these issues from both perspectives. That s why we leveraged our strong relationship with MasterCard to work on behalf of our clients in relation to the Maestro Advanced Registration Program (MARP). Feedback from the market told us that the additional step in the check-out process was seen by many merchants as a barrier to cart conversion. Working with MasterCard, a process was developed whereby a repeat customer only went through 3D Secure once. All subsequent purchases miss this step because the initial stage registers customers on MARP via Chase Paymentech. It must also be recognised that high authorisation declines lead to high back-office costs being incurred in the recovery of funds. Our experience shows that this is of particular concern to merchants with a continuous authority business model such as subscription payments, insurance renewals and monthly utility billing. Once again, our experience leads us to believe that the average decline rate is around 40% for these types of merchants. Merchants need data intelligence on declines to ensure that as many transactions as possible can be retrieved. Chase Paymentech provides this intelligence in the form of over 100 issuer approved decline codes. This intelligence coupled with our re-try logic can, in certain cases, allow all merchants to successfully authorise an additional 35% of declines received. For all merchants who retain customer card on-file data, or indeed transact in a recurring market, we have seen that Chase Paymentech s Account Updater product can assist to smoothen the checkout flow and provides a seamless customer experience. Account Updater provides merchants with updated Visa and MasterCard cardholder account information when issuing banks make changes to the card data. The system ensures that merchants reduce the number of expired cards stored on customer profiles and is a real value-add in the drive to improving cart conversion rates. The cost of compliance the need for tokenisation Storing customer data also helps improve checkout conversion rates, especially if a merchant has a large loyal customer base. For many retailers, however, the downside to holding data is the cost associated with putting a PCI DSS compliant payment system in place. As this cost may be deemed prohibitive, one solution could be the use of tokenisation. As we pointed out in last year s paper, non compliance with PCI DSS standards can result in financial penalties imposed by the Payment Brands. Merchants recognise that extra security measures are valid, but there is also a concern about them slowing down the checkout flow. Tokenisation may help with this. How? Rather than adding additional steps to the payment process that affect cart conversion figures (such as authentication checks, which require consumers to enter card information), tokenisation stores customer details in the CNP providers system and generates a token. Deploying this technology makes data theft extremely difficult and can assist in your PCI DSS compliance. Chase Paymentech estimates that its tokenisation solution takes away 90% of the PCI DSS work. chasepaymentech.co.uk 4
CNP payment automation - updated figures New research commissioned by Chase Paymentech in early 2011 turns the spotlight on the next step in the journey to overcoming hidden costs the need to address the efficiency of your back office. For example, how does your business reconcile payments is it a manual or an automatic process? Automating the process can save time and money, however, most merchants still rely on manual reconciliation and data analysis around chargebacks, decline rates, fraud rates and funding. In fact, the latest 2011 market research undertaken for Chase Paymentech found that 79% (up from 68% in 2010) of financial directors still rely on staff to process and reconcile CNP data manually, putting a huge strain on finance departments. Our 2011 survey findings reflect the knock-on effect manual reconciliation has on the customer experience. In 2010 we learnt that for many merchants (42%) the manual process included all the data relating to chargebacks, decline rates, fraud rates and when they will be funded. Only 25% of merchants had a completely automated reporting system. Interestingly, 36% of those with apparently fully automated reporting were unable to tell a customer why their card had been declined and advise them on their next step. Clearly, the functionality of some reporting systems does not extend to delivering the response codes that enable a higher level of customer interaction. According to our 2011 survey, this represents a hidden cost in terms of the impact on customer perception a 78% negative reaction. The latest survey also found that the most common concern of customers who have unexpectedly had a card declined (43%) is about fraud, with 20% worrying that they have overspent. One in three (32%) online shoppers assume there is something wrong with the company s website when their card is declined. Can merchants really afford to be complacent in this % of Finance Directors 35 30 25 20 15 10 5 0 Man-days taken per month to manually reconcile CNP Payments Zero One Two Three Four Five or more Don't know Number of days regard when ultimately their brand, and therefore bottom line, are suffering? Merchants must avoid tying up resources on payment reconciliation or manual data processing. Chase Paymentech offers easy to use web-based reporting systems that leverage powerful data processing tools. This means that you release valuable resources from reconciling and reporting to focus on more strategic projects. By reducing the processing cost of each transaction you can significantly reduce your OPEX while improving revenue streams. Using manual resources to carry out essential CNP reconciliation represents a significant hidden cost. Our 2011 proprietary research showed that the average number of man-days per month involved in CNP payment reconciliation is 6.75 (87.75 days a year) and in fact this figure could be even greater with 16% of financial directors unable to calculate how much time is spent by their company carrying out manual work associated with CNP payment reconciliation. Interestingly, this is a decrease over last year s 21%, reflecting that more senior executives are aware of this as a potential problem and are implementing the appropriate solutions. Leveraging our experience again, we see that one universally recognised aspect is the negative effect that additional manual processing has on the efficiency of a finance department especially for larger merchants. Apart from having a detrimental impact on cash flow it can become a major burden as CNP sales increase, particularly when a company is expanding internationally. These findings suggest that, even if such hidden costs are low initially, as sales grow the hidden costs spiral in parallel, eating directly into your profit margin. chasepaymentech.co.uk 5
A lack of automation also has the potential to thwart international trading objectives whether they are to expand existing global strategies or enter overseas markets for the first time. Moving into new markets can bring complex challenges to merchants as they struggle to understand local payment methods and find the right payment partner. As international expansion grows, a merchant can find itself with multiple payment solutions servicing each specific market. Such a piecemeal solution can cause issues when it comes to reporting on and planning your business. Chase Paymentech offers merchants a single source solution for international payments, allowing you to trade in over 130 currencies and settle in up to 12. The single source platform provides the products, solutions and reporting tools you need to successfully trade in multiple markets and provides consistency of reporting (including 55 web-based reports offering fully integrated Delimited File Reporting (DLR)), reducing your back office costs. What are the implications of downtime? Little has changed in the past twelve months. Reliability remains key to a successful e-commerce business. An unreliable payment system causes problems for a merchant on three fronts by: Eroding the customer opinion of the merchant Increasing OPEX spent managing frailties Reducing merchant revenue New figures reveal that despite so much being at stake, downtime is commonplace among e-commerce merchants. 64% of the merchants interviewed (an increase of 9% over last year) admitted to having payment downtime, which on average costs merchants 68.9 hours (almost three full days) of 24/7 trading time each year. With downtime regarded as a significant threat, it is notable that 40% of merchants (up from 35% last year) could not even calculate how much downtime a month their payment system experienced 6. According to our 2011 research conducted by Dynamic Markets, one reason for downtime can be a poorly structured payment system. More than eight out of ten (87%) financial directors thought that their payment capability had developed in a potentially less than ideal way. So why is this? Traditionally many merchants have grown their payment systems in an ad-hoc and piecemeal fashion, leading to difficulties in predicting or managing their CNP payments. Almost one in two (47%) says their CNP capability started as a low-priority or additional function within the finance department, but now has a greater status. Unsurprisingly, 86% of financial directors we spoke to in 2010, whose companies have grown through mergers and acquisitions, thought that their CNP process was fragmented and would benefit from CNP automation to help effectively process collected data. As well as putting a strain on a merchant s financial personnel, downtime can have a direct impact on revenue streams, with key IT personnel being deployed from strategic projects to tackle the issue and customers likely to turn to more reliable competitors. In the UK, planned outages are accepted practice for system upgrades and the figure in our research includes the downtime stemming from these planned outages. Whether planned or not, however, any downtime equates to loss of trading time. chasepaymentech.co.uk 6
Counting the cost of fraud There is, of course, another significant hidden cost of e-commerce that cannot be ignored: online fraud. The Dynamic Markets 2011 survey revealed that 62% of companies had lost on average 1.2 million each through fraudulent CNP transactions during the last 12 months. In addition, over the same period, 32% of these victims had seen the volume of fraudulent transactions and attempts increase. While 92% of those surveyed said they took some measures to counter fraudulent CNP transactions, closer examination showed that 69% of companies carried out manual checks and 28% of companies only did a basic method of checking. This can cost a merchant on two fronts from a reputational and a practical point of view. The challenge is to make life as difficult as possible for fraudsters, while maintaining a positive shopping experience for the customer a difficult balancing act. Unfortunately, there is no silver bullet that will entirely safeguard merchants. The answer represents a combination of parts and, once again, merchants are advised to work closely with their payment acquirer to ensure the best solutions are in place to suit the merchant s business needs. Deploying a hidden cost model to deliver merchant benefits To address these needs, Chase Paymentech has created a specialised value-add model that highlights where savings can be made in relation to hidden costs. For example, this model can highlight how to: Lower complexities for the back office Reduce the time spent handling payments Increase consumer satisfaction and revenue levels In order to gain a complete understanding of each merchant s business, a representative from Chase Paymentech conducts an indepth consultation before showing how these costs may be countered by working with Chase Paymentech and also highlighting the potential increase revenue that could be achieved. chasepaymentech.co.uk 7
Reducing hidden costs Today s merchants cannot afford to ignore the hidden costs of e-commerce. Doing so could mean getting left behind as competitors may lower their OPEX, improve their customer experience and move successfully into profitable international markets all at your expense. Chase Paymentech can help. We have a long legacy of partnership with some of the world s largest e-commerce merchants which provides us with the background needed to address the issues discussed in this report and we are ideally placed to help you find the right solution to upscale and seize new opportuities. Our clients are already benefiting from the Chase Paymentech solution, which in 2010 processed an estimated half of all global internet transactions. With e-commerce growing globally and international markets offering profitable revenue streams, the question is not whether to address the hidden costs but how quickly can you implement the required changes? Choosing a partner Chase Paymentech strongly advocates choosing a payment acquirer that will work with you and not just for you. Understanding your business model and your growth plans is key to providing the consultation you need to develop a payments strategy that will grow in-line with your business. Another key decision, especially for merchants looking to expand into new markets, is whether to deploy a single source solution or turn to multiple vendors. As is often the case, as the potential of new markets open up, merchants look to work with bespoke payment acquirers, or PSPs, to fulfil a specific customer need or support a new vertical or region. This is an expensive strategy that can cause running costs to soar and add huge pressure on internal payment processes. By taking a holistic approach and deploying a single solution you can avoid these pitfalls and have the confidence that your CNP system will support you in the future. Does your prospective partner have this single source solution capability? manage risk through our services including fraud filters and managed billing for PCI DSS compliance. Furthermore, we have a strong focus on fraud prevention. Chase Paymentech s Europe President and Managing Director Shane Fitzpatrick recently said: As a global leader in payment processing and merchant acquiring, as well as a specialist in CNP transactions, we invest a great deal of time and resource in looking for solutions to help prevent fraudulent activity. We recognise that the fraudsters are always looking for new and more sophisticated ways to breach security and we must respond in kind. There are some great products out there, such as fraud filters and managed billing for PCI compliance with others on the horizon all designed to help merchants mitigate the risk. We also understand how payments can improve cart conversion rates and enable revenue growth. That s why we take care of the basics by ensuring that you get paid on time, every time and without error it s a basic requirement. We can then turn our focus to giving you the technology, analysis and cost-saving recommendations you need to successfully grow your e-commerce business. At Chase Paymentech we work on aligning our flexible CNP payment solutions to your individual business model, rather than the other way around as often happens when a solution is developed in a piecemeal fashion through multiple providers. Our offering can also provide you with a range of savings, from the ability to prevent and manage chargebacks through automation (reducing processing costs) to improving checkout conversions rates through the use of additional authorisation codes. You also benefit from the peace of mind that downtime is a thing of the past. How Chase Paymentech can help Chase Paymentech fits the partner criteria at every level. Led by a team of former merchants we are a strong merchant advocate, regularly advising on best practices, policy and payment operations. We determine how best to leverage our strong relationships with the card associations for dispute management, issue resolution and to influence card scheme rules and regulations. We help merchants chasepaymentech.co.uk 8
About Chase Paymentech Chase Paymentech, a subsidiary of JPMorgan Chase (JPMC), is a leading provider of payment processing and merchant acquiring. The company s proprietary platforms enable integrated solutions for all payment types, including credit, debit, alternative and mobile payment options. Chase Paymentech has uniquely combined proven payment technology with a long legacy of merchant advocacy that creates quantifiable value for companies of all sizes. In 2010, Chase Paymentech processed more than 20.5 billion transactions with a value exceeding $469.3 billion, including an estimated half of all global Internet transactions. In addition to the ability to authorise transactions in more than 130 currencies, the company provides business analytics and information services, fraud detection and data security solutions. Further information can be found on www.chasepaymentech.co.uk. REFERENCES 1 Internet Retailing: December 2010 2 IMRG Capgemini: e-retail Sales Index: January 2011 3 Forrester Research: European Online Retail Forecast, 2010 To 2015 (February 2011) 4 Core Metrics (US): 2008 5 Digital Trends: Shopping cart abandonment rate (March 2011) 6 CNP Payments at Risk?: Independent market research conducted by Dynamic Markets on behalf of Chase Paymentech, (April 2011) Disclaimer Some information used in this report has been obtained from third parties, including research providers, believed to be reliable but Chase Paymentech or its affiliates do not warrant its completeness or accuracy. Opinions and estimates constitute our judgment as of the date of this material and are subject to change without notice. Past performance is not indicative of future results. This material is not intended as an offer or solicitation for the purchase or sale of any Chase Paymentech products. The opinions and recommendations herein do not take into account individual client circumstances, objectives, or needs and are not intended as recommendations of particular products or strategies to particular clients. The recipient of this report must make its own independent decisions regarding any products mentioned herein. This document and the information provided herein may not be copied, published, or used, in whole or in part, for any purpose other than expressly authorised by Chase Paymentech Europe Limited. For more information, contact: UK: 0845 399 1120 or Rest of Europe: +353 1 726 2950, or visit www.chasepaymentech.co.uk Chase Paymentech Europe Limited, trading as Chase Paymentech, is a subsidiary of JPMorgan Chase Bank, N.A. (JPMC) and is regulated by the Central Bank of Ireland. 2011, Chase Paymentech Europe Limited. All rights reserved. chasepaymentech.co.uk 9