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The $20 billion online payments hole putting businesses at risk

Digital payments
(Image credit: Shutterstock.com / TMLsPhotoG)

A new study by Checkout.com has revealed that economic recovery could be hampered due to issues with e-commerce sales that fail at the point of checkout. 

The digital payments processing company found that a loss of sales because of so-called false declines, which are legitimate transactions that get flagged as fraudulent, cost online retailers up to $20bn in 2019.

The report also revealed that failed online transactions through e-commerce outlets is resulting in merchants losing nearly $13bn to competitors as customers get frustrated with the falsely rejected payments. A further $7.5bn of consumer cash is said to be lost altogether, due to unfulfilled digital transactions.

The research was conducted on 5,000 consumers and 1,500 merchants across the US, the UK, France and Germany. Its finding show that the US comes off as worst hit, losing $15bn last year to false declines, followed by the UK ($2.3bn), Germany ($1.7bn) and France ($1.3bn).

Despite a global downturn caused by Covid-19 the volume of online payments is growing as consumer habits change, due in part to the pandemic. Checkout.com saw a 250% increase in online transaction volume in May year on year.

Better e-commerce

Bradley Riss, Chief Commercial Officer, Checkout.com said: "The global economy continues to recover from the pandemic. The crisis has only accelerated the shift of commerce to digital. Now more than ever, merchants must be empowered to create better customer experiences and innovative offers that drive more business and capture more revenue.

Payments are a source of amazing hidden value that merchants can use to unleash growth, but they need more actionable, granular data and better control to create the right solution for their business. They need flexible, modular payments solutions that can be built their way."

Without making their payments more efficient, the research indicates that businesses will continue to lose part of this growth. More than two thirds (65%) of merchants don’t receive the data that tells them when, why and how customer payments have been declined, stopping them from even beginning to address their payment inefficiencies. 

While only 50% of digital ventures have a clear payment strategy that is understood across their business, those that prioritise payments are reaping the real benefits. Rapid growth companies, or those growing at more than 40% year on year, are more likely to have an authorisation rate of 96-100% than other businesses questioned in the survey.

A lack of payment options for consumers has also been shown to be another barrier for e-commerce outlets. 56% of shoppers said they would take their money elsewhere if the merchant did not offer their preferred payment method.

Yet only four in 10 (37 per cent) of the merchants surveyed currently offer a full range of alternative payment methods, from local methods like Giropay in Germany and iDeal in the Netherlands to digital wallets like AliPay and Apple Pay

The study also highlighted that while online customers want efficiency when it comes to payment processes, they put a high priority on security too. In fact, the research shows that people are willing to pay more for better security than they are for convenience.

Economists working on the report were able to find that consumers will pay $4.13 on average for the security of two-factor authentication. French consumers were most security-conscious, valuing two-factor at €4.95, followed by the UK (£3.99), Germany (€3.10) and the US ($3.17). 

In stark contrast, merchants believe security is one of the least important aspects of payments to consumers. The data shows that merchants rank security of 3DS2 (the next generation of authentication) third after screen optimisation across devices.