Merchant innovation: driving success for retailers in 2023
By Amal Ahmed, Director, Financial Services & EMEA Marketing at Signifyd
The retail sector has gone through an extraordinary transformation over the last few years. From changing consumer behaviour to inflation, energy prices, and supply chain crises, retailers have dealt with numerous challenges.
While 2023 is looking just as turbulent as the years before, there are a few things retailers can do to get ahead of the game by investing in themselves as drivers of innovation.
Addressing changing consumer behaviour
The UK is one of the most advanced ecommerce markets in Europe with almost 60 million e-commerce users. This trend has been accelerated by the pandemic when even consumers who preferred shopping in store had to move their shopping online. In fact, when compared with 2019, 2021 retail sales grew by 81%.
However, the current macroeconomic situation has impacted consumers who have started becoming increasingly cautious with their money. According to the Office for National Statistics (ONS), 87% of adults in Great Britain reported an increase in their cost of living in August-September 2022.
This crunch in people’s pocketbooks has meant that consumer motivations are quickly changing – focusing on buying more items that cost less and no longer remaining loyal to brand names but instead opting for generic. Signifyd’s data indicates that financial strain is even leading some consumers to falsely claim an order was not satisfactory (32%), didn’t arrive when it did (26%), or sending back an empty box or a box containing something else (4%) in order to keep the product or receive a refund.
This year’s traditional shopping peaks have been stressful for retailers as consumers were spending less and making every penny count, evidenced by the fact that online sales during Black Friday dropped 4% compared with 2021. In addition to the usual preparation, retailers have had to really go above and beyond to invest in and capitalise on customer experience as a bad experience could mean a first-time customer becomes a last-time customer.
Hacking the “Amazon experience”
As a leading e-commerce business with UK net sales of $32 billion, many retailers are trying to replicate the Amazon model. And the competition is tough. As of 2021, there were more than 220,000 registered retailers in the UK trying to get their share of the £421 billion industry.
Setting themselves apart comes back to a seamless customer experience which requires seamless payments reliant on merchant innovation. The drivers of this merchant innovation are simple: providing quick, easy, and effortless journeys without allowing friction to get in the way. A key element of this is now – in an era of increasing regulatory pressure, particularly in Europe – focused on using payments and risk screening to achieve a frictionless experience while embracing the legislation put in place to protect consumers.
Retailers are having to contend with the fact that the way consumers shop has changed, and that change is more dramatic than the shift to online seen throughout the pandemic. Consumers treat online shopping flexibly, buying on the go while travelling, sending direct to end destinations or gifts to friends and family. Shopping on a mobile or in-app, and buying cross-border are all variables that need to be accounted for within a merchant’s tech stack, and if they’re not properly set up, it can introduce huge amounts of friction to the customer experience.
That’s where payment innovation comes in with verifying whether purchases made in various circumstances – like those above – are suspect, or alternatively of very low risk based on previous consumer behaviour and key data points, such as IP, email, delivery addresses or payment method. In most cases, where activity isn’t found to be suspicious, merchants can then automatically authorise the transaction in question with minimal to no disruption to the consumer.
The fewer clicks and verifications steps it takes to check out, the better a retailer is at providing the full ‘Amazon Experience’, and the more likely it will be that they’ll drive repeat business.
Sunsetting traditional payment methods
The proportion of traditional payment methods such as debit and credit cards is quickly declining. According to Signifyd’s 2023 State of Ecommerce data, ecommerce sales conducted via debit or credit card have dropped 22% this year compared to last year. Meanwhile, Buy Now, Pay Later (BNPL) rose 68%, whereas PayPal and Apple Pay were up 274% and 70% respectively. The huge shift towards instantaneous, embedded options further shows how consumers are fundamentally changing the way they shop: wanting to access what they want, when they want it, while paying for it over a longer span of time.
BNPL only plays into the fact that consumers are strapped for cash and don’t have spare money to be able to make purchases. This reality was particularly evident during the holiday season as 77% of consumers said they were planning on cutting Christmas spending this year. As this trend continues, driven by the cost of living and spikes in inflation, we’ll see more and more consumers opting to spread the cost of ‘nice to haves’ as an increasingly standard practice.
While consumers enjoy the benefits of these new payment methods, retailers are aware of the potential threats they can pose. That’s why merchants need to significantly increase authorisation rates while lowering their operating costs and providing their merchant customers with a full financial guarantee against all types of chargebacks.
Navigating Regulatory Challenges
To complicate things further for merchants, regulation is an ever changing landscape that has to be navigated carefully across borders. In Europe, PSD2 is an ever-evolving journey that consumers can’t keep up with – and aren’t interested in keeping up with. The responsibility then falls to the merchants and their vendors to navigate. False positives, bank declines and Strong Customer Authentication (SCA) friction means up to 11% of customers are falsely declined after ”Pay Now”.
The direct complications brought about by the enforcement of SCA have been well documented. In fact, 36% of UK shoppers in a Signifyd survey said they’d abandoned a purchase because of frustration caused by SCA. More ominous for retailers, 68% said they’d turn to another merchant if they encountered a bad experience with their first choice.
What’s next? The future is what merchants make it
In short, retailers who want to succeed in the current environment need to win their customers with personalised experiences underpinned by strong authentication that protects both the business and the consumer.
A future-focused fraud and abuse prevention strategy needs to be in place, too. Ideally, the strategy should include a process for understanding the identity and intent behind every transaction — meaning purchases and refund requests.
Innovation is a key element that will help retailers stay ahead of the game if they want to entice consumers to spend money with them. Otherwise the looming recession might have existential consequences for many of them.