Digital River World Payments Survey Report The Hurdles Facing Today s Online Merchants BlueHornet.com Background At the 2011 E-Commerce Payments & Risk Conference hosted by the Merchant Risk Council (MRC) in Las Vegas, Digital River World Payments conducted a voluntary online survey. Numerous online merchants answered questions about their biggest challenges and how they are responding. This report presents the survey results combined with related industry research, expert analysis and practical takeaways. Summary of Findings Fighting fraud is a top priority. While many want to improve the payment experience, few merchants test how their checkout optimization activities perform. Many cite international expansion as a top goal for the next 12 months. While many perceive that payment programs positively Page 1 impact ROI, few measure this. 2011 Digital River World Payments DigitalRiverPayments.com Page 1 2007 BlueHornet Networks, Inc. A wholly owned subsidiary of Digital River, Inc. (619) 295-1856 www.bluehornet.com
Digital River World Payments Survey Report The Hurdles Facing Today s Online Merchants TABLE OF CONTENTS Section 1: Fighting Fraud as a Top Priority................................................ Page 4 Section 2: The Payment Experience Challenge: Local Payments & the Checkout Process........... Page 5 Section 3: Improving the Payment Experience............................................. Page 6 Section 4: The Challenges of International Expansion....................................... Page 8 Section 5: Top e-business Priorities.................................................... Page 10 Section 6: ROI Impact of Payment Strategy.............................................. Page 12 About Digital River World Payments.................................................... Page 13 Page 3 2011 Digital River World Payments DigitalRiverPayments.com
Fighting Fraud as a Top Priority Summary: A majority of survey participants selected keeping fraud levels down as their main payment challenge (as opposed to answers concerning revenue generation). Situation: At the MRC conference, international fraud was a hot topic. And with good reason. Industry data shows that global fraud losses continue to rise, as does the cost to fight fraud. At current growth rates, fraud losses will total $10 billion annually by 2015 1. Making fighting fraud even more difficult is the fact that as merchants expand into new international markets and add local payment options proven ways to increase sales and conversion rates they expose themselves to more risk. Conclusion: Merchants need to implement a cost-effective yet robust fraud prevention system that can respond globally on a local level. Takeaways: As globalization increases, fraud solutions must be able to identify fraudulent activities when multiple local payment options are supported. Merchants must make sure their payment and fraud partners 1) can support their businesses on a global scale, and 2) have the local knowledge and experience needed to support increasingly sophisticated fraud schemes. 1 Source: The Nilson Report, June 2010
The Payment Experience Challenge: Local Payments & the Checkout Process Summary: While 44% of participants cited fraud as their main concern, almost as many 40% selected issues related to improving conversion rates. Interestingly, they were divided about how to do this: improving the checkout process (20.6) or adopting local payment options (19.6). Situation: Customers abandon their carts for a host of reasons. Research and experience, however, highlight two: 1) confusing checkout processes, and 2) not seeing a preferred payment method. Data shows that small changes in these areas can increase conversion rates and revenue. Each, however, calls for a different approach. Improving checkout processes, a more technical and analytical endeavor, requires the correct tools and an awareness of best practices. Selecting local payments, on the other hand, relies on a precise understanding of local preferences on a worldwide scale a shifting knowledge base that can be difficult to maintain in house. Both tactics also can conflict with merchants need to combat fraud. As merchants add local payment options, their fraud risk can increase. And they must make sure anti-fraud systems do not insult good customers at checkout. Five Lifecycle Phases The payment lifecycle, as defined by Digital River World Payments, contains five phases: 1) Payment Experience 2) Payment Options 3) Risk Management 4) Back Office Services 5) Payouts Conclusion: A positive checkout experience can increase conversion rates, but creating this requires a careful interplay of checkout flow, payments and security. Takeaways: Managing an effective payment program goes beyond the payment itself and includes tactics optimizing the overall payment experience. Merchants can increase conversion rates and overall payment program profitability by taking a holistic approach that focuses on every step of the payment lifecycle. Page 5 2011 Digital River World Payments DigitalRiverPayments.com
Improving the Payment Experience Summary: When asked what actions they take to improve the payment experience, merchants answers are scattered: Providing multiple payment options (50%) was followed by clearly displaying the steps of the checkout process (37%), and explaining the security codes for card payments (27%). Interestingly, only 13% say they have measured and refined the payment experience on their checkout pages using A/B testing. Best Practices There is no one-size-fits-all approach to checkout optimization. While there are best practices to learn from, Digital River has found that a customized approach that considers market, industry, business model, product and customer base best determines the right strategy for each merchant.
Situation: Some of the most surprising data from the survey concerned how merchants approach the payment experience. While many merchants appear to recognize that optimizing this area is valuable, few implement more than one tactic. Even fewer seem to test how these changes affect sales and conversion rates. Looking deeper, we see that the respondents who do conduct A/B testing have implemented three or more of the suggested actions. This leads to the conclusion that merchants start measuring and testing only after they have launched a larger checkout optimization strategy. Looking Deeper On average, respondents selected 1.5 choices, indicating that many merchants have only implemented one of the listed checkout optimization activities. Our experience working with online businesses large and small shows that checkout optimization can increase conversion rates. Regular testing is a crucial step in this process. During the MRC conference there were numerous discussions about measuring success for business in general and payments specifically. Clearly, merchants want more metrics to monitor and benchmark their performance against their peers. So, why are so few businesses undertaking more than one optimization activity? They may be unaware of what options are available to them. They may not understand the impact such changes can have on revenue. They may not have the necessary tools. After all, keeping up with best practices and new technologies can be a very budget- and time-intensive activity. Conclusion: Merchants may need more resources including knowledge and tools to help them optimize the payment experience. Takeaways: There is a need for education about tactics and strategies for improving the customer payment experience. Merchants need access to cost-effective tools for testing the effectiveness of their optimization activities. Page 7 2011 Digital River World Payments DigitalRiverPayments.com
The Challenges of International Expansion Summary: Merchants gave equal weight to numerous challenges related to entering new international markets. Finding and implementing local payment options, monitoring and measuring local payment performance and localizing the checkout process were each chosen by about 20%. Situation: According to recent data, merchants are on target when they focus on the importance of localized payments. A few examples demonstrate this (and, at the same time, the inherent complexity involved in doing business in multiple countries). The majority of all credit cards issued in Brazil cannot be used for cross-border shopping. Digital River clients who partnered with a local card acquirer saw a 30% lift in authorization rates. Chinese consumers use Alipay for 50% of all online purchases. Its rapidly growing user base already tops 150 million. 2 Shoppers in many European countries prefer Internet bank payments: market share tops 22% in the Netherlands, 30% in Sweden and 55% in Finland. 3 Digital River clients have seen sales increase as much as 35% in Taiwan and 40% in Japan after adding local payment options. Industry analysts forecast that non-card-based online payments will increase their market share from 9.3% in 2009 to 12.4% in 2012 4, a sustained year-over-year growth rate of 29.3%. As these examples demonstrate, merchants need more than just global credit cards to support true global expansion, and, by extension, their customers expectations. Another interesting insight from the survey concerns localization. While 44% of participants recognize the value of offering local payments even though this is perceived as a challenge only 18% selected localizing the checkout process as a challenge. While not explored further in this survey, real world experience shows that a localized checkout contributes to gaining the consumer s trust, improves the payment experience and ultimately increases sales. 2 Source: China Internet Network Information Center (CNNIC) 3 Source: Datamonitor, 2009; Computerworld, 2010 4 Source: Global Payments Report 2010, Capgemini, RBS & EFMA
Conclusion: Merchants who want to move their businesses into new, global markets need an experienced global partner who can support a localized payment program. This should include selecting relevant local payment methods and creating a localized customer checkout experience. Takeaways: Going international involves more than simple credit card acceptance. Understanding the payment landscape and local payment habits in new markets is key to a successful expansion. A localized checkout process strengthens the revenue value of local payment offerings. Page 9 2011 Digital River World Payments DigitalRiverPayments.com
Top e-business Priorities Summary: Merchants are looking for new markets and sales channels as a way to attract new customers, including international expansion, mobile sales and social media. Situation: Because the US e-commerce space is in many ways a mature market, online merchants must look outside their home markets for big growth opportunities. In the near past, international expansion for US-based retailers meant shipping to Canada. Today, however, the majority of the top 50 online retailers in the US have a presence outside the US 5, and the number of global initiatives increases every year. While North America and Europe have been primary target markets to date, an analysis of online retailers global initiatives conducted by Forrester Research suggests attractive opportunities exist in Asia and Latin America. Companies willing to look beyond the typical US/Europe global expansion path could enter these markets earlier in the global e-commerce adoption cycle 6 and get a healthy jump on their competition. Social media as a marketing channel and mobile as a sales channel were both hot topics at the recent MRC conference. Several sessions focused on related payment challenges and risks involved with mobile e-business and payments within the social media landscape. Industry data also supports investment in these new channels. A study conducted in Q1 2011 shows that mobile commerce has grown dramatically among US consumers in the recent years: 29% percent of US respondents have made at least one purchase using their mobile phones in Q1 2011, more than double the number in 2009 7. Going mobile also supports international expansion plans since mobile penetration is high in many young e-commerce markets, often even higher than the internet usage rate (India being just one example). While social media as a sales and marketing tool can be considered in its infancy, no one can ignore its incredible reach and popularity. The challenge for merchants will be determining which activities a payments program must support: local payment methods, discounts, micro-transactions, coupons, daily deals and more. 5 Source: Establishing A Global Online Retail Footprint, Forrester Research, 2010 6 Source: Establishing A Global Online Retail Footprint, Forrester Research, 2010 7 Source: Mobile Trends: Consumer Views of Mobile Shopping and Mobile Service Providers, Oracle and ATG, March 2011
Conclusion: When developing growth initiatives, businesses need resources and partners that can support activities in emerging global markets as well new sales channels. Takeaways: Emerging online economies are creating new expansion paths for businesses that have a partner with the necessary localized systems in place. Mobile sales may increase penetration in some markets faster than traditional internet sales. Social media may have high earning potential, but merchants will require a partner who can support numerous payment situations. Page 11 2011 Digital River World Payments DigitalRiverPayments.com
ROI Impact of Payment Strategy Summary: A majority of respondents (61%) experienced a positive ROI impact from their current payment strategies. Interestingly, 34% of respondents do not know what ROI impact their payment strategy currently has on their overall businesses. Situation: As previous data has shown and as survey participants indicated making simple changes to a payments program (adding a local payments option or localizing the checkout process) can create a significant revenue lift. However, testing seems to be the missing element. In a previous question, only 20% indicated that testing payment program ROI is a challenge. And less than 13% conduct simple A/B testing to determine the effectiveness of their payment strategies. As already noted, merchants at the MRC conference continue to express a desire for metrics and benchmarking data. This seems to indicate that merchants certainly understand the importance of testing but do not have the necessary tools at their disposal. Conclusion: While payment strategy positively impacts revenue, merchants need an effective way to collect benchmarking data and measure payment program performance. Takeaways: A well-crafted payment strategy positively impacts ROI. Merchants need a payments partner who can provide testing data or supply the necessary testing tools. Benchmarking and Payment Lifecycle Management The large number of merchants who do not measure ROI is why Digital River developed the payment lifecycle management framework. This methodology helps online merchants navigate the increasingly complex world of online payments. When used effectively, payment lifecycle management helps merchants reach their payment program goals whether they are focused on expanding into new markets or optimizing their current programs. We have seen that when merchants manage the full lifecycle of each payment transaction, they can quantify the ROI that payments have on their overall businesses.
About Digital River World Payments Digital River World Payments is a full-service payment services solution. We design and develop trusted global payment programs for e-retail, online travel and entertainment, direct selling, and online services verticals. Successful merchants rely on Digital River World Payments to remove the complexity of selling globally and deliver optimized payment programs that are 100% tied to ROI measurement. We help maximize authorization rates, reduce cart abandonment, protect transactions from fraud, and add new sales channels around the world. We are part of the Digital River family of companies a group of e-commerce, e-payment, and e-marketing experts committed to providing companies big and small with everything they need to successfully build, manage and grow profitable online businesses on a worldwide basis. Some of the world s leading multi-national companies use Digital River s portfolio of comprehensive e-commerce technology, tools and services to drive online results for the Internet s biggest brands. Founded in 1994, Digital River (NASDAQ: DRIV) is headquartered in Minneapolis, Minnesota, with offices located across the United States, Asia, Europe and South America. To learn more, visit www.digitalriverpayments.com and follow us @DigitalRiverPay on Twitter. Contact information Contact us today to learn how Digital River World Payments can help optimize your payments program to drive incremental revenue. US: +1 310 406 8481 UK: +44 (0) 845 603 5070 Sweden: +46 (0) 8 52 72 10 00 info@digitalriverpayments.com www.digitalriverpayments.com Page 13 2011 Digital River World Payments DigitalRiverPayments.com