Online commerce is booming, and merchants are driving digital-payments volumes as never before. At Checkout.com, we saw a 250-percent increase in online transaction volume in the year from May 2019 to May 2020 alone. But for merchants turning this growth into profit, it is not as simple as it looks—even for the largest brands. With $20 billion lost annually to holes in the global online-payments system[i], making sure your e-commerce function is efficient is crucial. There is a lot that chief financial officers (CFOs) can and should be doing to steer digital pay-in on to a path of leading-edge business performance. There’s also a lot to lose if they don’t.
Getting out in front
When the C-suite sits up and takes notice of how payments can work for them, businesses move beyond boosting their bottom lines to harnessing powerful growth and unlocking value. Our research suggests that all too often, C-level leaders do not pay sufficient attention to the opportunities and costs at stake. Interviews with more than 1,500 merchants across the payment, finance and C-level functions showed considerable discrepancies between those on the ground and those in the boardroom. For instance, 43 percent of executive leaders believed that their teams were receiving fraud and chargeback analyses from their payment-solutions providers, but after speaking to payments teams in the same companies, we found that only a third actually were.
There are four key areas on which I would like to focus to demonstrate where CFOs can unlock significant value from their pay-in function: competitive advantage and business model innovation; optimization and streamlining costs; localization return on investment (ROI) and new market growth strategies; and connected finance, cash flow and treasury management.
Competitive advantage and business model innovation
Our recent research report Black Boxes and Paradoxes[i] looked at the value consumers place on the payment process through a conjoint “willingness to pay” analysis. Willingness to pay is implicit in the payment experience. While it may not resonate in a merchant’s payments department, for CFOs this willingness to pay is a potent metric around which to strategize. Consumers’ experiences at checkouts can define trust in a business, depending on how secure they feel the transaction to have been as well as if the website has been optimized for their devices. For example, over half of the customers surveyed were put off from shopping on a site due to the complexity of the payment process.
Businesses such as Amazon, Netflix and Uber Technologies have shown what can happen when the payments strategy complements the business strategy. Slick and seamless processing of huge volumes of digital payments has helped these businesses boom and is the foundation of innovative new customer experiences that allow merchants to thrive and adapt at times of uncertainty, which is ever more important against the current macroeconomic backdrop. They show us that payments need not be clunky nor one-size-fits-all but rather can underpin entirely new buying experiences that become quietly, yet powerfully, synonymous with their brands.
In fact, many of these leading companies have begun to apply for financial licenses themselves to engrain these services even deeper into their product offerings. On that basis, ask yourself two questions: Is this a path of business-model innovation that will pay off for my business in the long run? How can I make sure this remains an option for me?
Some companies know that their research-and-development (R&D) investment is always better spent on their core product or service. Andrew Row, managing director at Uber Payments, told us in the report that taking on the kind of responsibility that comes with financial-services licensing is not for all businesses. Deliveroo’s staff, with whom we also spoke, were clear that as long as their payments solution was innovating at pace, they would be able to stay ahead with a maniacal focus on food delivery.
Our data showed how payments have been on a fast-evolving journey and how they have moved from being historically a cost in the profit and loss (P&L) of merchants to becoming a fundamental driver of value and a vector to eliminate inefficiencies. The data indicated a significant correlation between companies that have streamlined their payment operations (by working solely with the few unified providers) and deriving better performance outcomes. The ability for a payment solution to deliver a unified experience—holistically encapsulating one API (application programming interface), reconciliation, all relevant payment methods, on a global basis—is driving enormous incremental levels of value for progressive merchants.
Optimization and streamlining costs
Very often, too little is known when it comes to breaking down hidden costs in payments. Our research showed that 48 percent of businesses are not receiving clear cost breakdowns or visibility for their payments. Some merchants to whom we spoke said that even this number looks optimistic, given the entrenched complexities with which they contend.
Our research also uncovered the costs associated with failing to invest in the technology that “carries your money”. Each inefficiency in a payments system is another small hole in the bucket. Most companies are not even aware that the leaks exist. But the problem is significant. Our research found that in the United States, France, Germany and the United Kingdom, $20 billion in transactions are lost annually just to false declines. The lion’s share of $12.7 billion is lost by consumers’ first choices of merchants to their competitors, while $7.8 billion is lost altogether—meaning consumers simply abandon their purchases altogether—and so the money fails to make its way into the global economy.
The cost of not being in tune with payments to this level of granularity can be huge. Andrew Row from Uber Payments explained in our report that losing a customer at the point of payment is the most expensive mistake a global merchant can make because you’ve spent so much on customer acquisition. The cash you’ve spent in marketing dollars makes the $12.7 billion handed to competitors an expensive gift in that sense.
The wires and rails of legacy payments systems have been a fact of life, even as individual providers push the envelope to show how much better optimized payments can be. It is our view at Checkout.com that merchants really deserve better, and that “better” future is one that demands genuine and creative partnerships between the payments ecosystem and the merchants we serve.
Localization ROI and new market growth strategies
Payments, growth and localization should be hand-in-glove. All too often, they are not.
When decision-makers don’t understand regional payment blockers and nuances, more money can be seen leaking out of the bucket. One head of payments told us how a gung-ho approach from the top drove them into a new market in which the payments acceptance rate stood at only 60 percent due to a payment infrastructure that wasn’t able to adapt or scale to that region. Without having understood or set in motion the necessary groundwork, a supposedly great business opportunity saw 40 percent of the investment immediately wasted.
Conversely, when done right, knowing the payments landscape well, setting up the correct local currencies, payment methods and partnerships will not only allow a concrete understanding of ROI in advance—which is, in turn, great for budget planning—but will actually be the key to really penetrating those new markets. Nothing can be more painful than seeing buyer intent through an online sign-up and being unable to offer currency or methodology for taking the payments and converting that demand.
Payments are global, whilst consumer payment preferences remain rigorously regional, and the ability to bridge that gap seamlessly for merchants is an intrinsic driver of value. This allows them to then focus on their core businesses.
Connected finance, cash flow and treasury management
Finally, as CFOs, we (and our treasury teams) are all too aware of the constant need for cash-flow management and forecasting during these extra-turbulent times. I would like to end my quartet of CFO pay-in priorities on this note because I think it’s crucial and also believe that it’s an area in which we expect to see huge leaps of improvement: If silos are blocking good payments knowledge from reaching the C-suite, then they are even more so blocking efficient flows of money and data from pay-in through to other core finance functions, such as treasury—liquidity, FX (foreign exchange) management and pay-out.
Many of those with whom we spoke for the report agreed that their businesses suffer huge disconnects between where the money is paid in and the treasury function. Yet treasury ought to be considered a key stakeholder in pay-in, which means they need far greater data visibility as well as a voice at the table when it comes to how the pay-in process is managed. For instance, only 28 percent of merchants surveyed are receiving their preferred settlement speed and currency—with significant ramifications deeper into the finance functions. Indeed, where cross-border payments are rife, there should be a far greater join-up to really optimize the merchant’s FX-hedging strategies.
As Logan Vander Linden, who has held senior payment roles at some of Silicon Valley’s leading companies, added in the report: We need to start to get imaginative and more efficient on how merchants are supported with new financial regulations. Indeed, 72 percent of merchants are not currently receiving regulatory support, yet often what impacts the payments department impacts treasury, too. As such, imagine a world in which merchants receive that support in one holistic, joined-up way.
CFOs can break down silos.
CFOs can play a defining role in making their business “payments-progressive” by breaking the siloed nature of business leadership and payments in order to unlock the potential of payments. A crucial part of this is ensuring that the leadership across the business understands its value.
The fact that usually piques the interest of chief executive officers is that super high-growth companies, defined as those achieving 41-percent growth year-on-year, are 6.5 percent more likely to have a payment authorization rate of 96 to 100 percent than other businesses. An actionable next step is to forge better alignment between your pay-in and fraud teams. When aggressive and inaccurate fraud algorithms contribute to the billion-dollar hole in the bucket, a comprehensive join-up in data and objectives would be a smart first step to improving security, revenue and performance.
For those with strategy and growth responsibilities, minimizing the impact of foreign-exchange rates and more easily evaluating the financial risk of market expansion is a key benefit of a better global payment system.
The inefficiency in hours spent firefighting issues with antiquated payment structures will also be directly relevant for chief operating officers seeking to make their resourcing leaner. Developing great chief technology officer buy-in for bullet-proof new payment systems that eliminate tech headaches and can feed in high-quality data will be a win across both functions. Meanwhile, chief commercial officers and chief marketing officers could use the increased transparency of their payments data to make marginal adjustments within sales teams with far-reaching consequences.[ii]
The entire C-suite has a vested interest in ensuring that the leaking bucket is replaced with something entirely new, something that can work with your business instead of in spite of it. Payments can begin to be seen as greater than the sum of its parts, and CFOs have a natural role in leading the way here.
Consider fast, act quickly.
Some assume that to be able to see returns on these improvements, a business must already be in a strong financial position. As has been seen, payments are not solely about fighting fires but about improving your business’s ability to be strategic.
It’s clear that, as digital payments boom, this is an opportunity to go with the wave or be left behind. Many companies have high-growth potential but lack the means or the moment to make it happen quickly. To make the most of this, taking your business from reactive to proactive, lumbering to agile, requires getting into the details of your operations and using that knowledge to fine-tune your payments engine. It’s the edge for which you’ve been looking.