Jon Horddal, Group Chief Product Officer at emerchantpay, writes for Payment Expert on the importance of adapting to evolving consumer habits, particularly at a time of economic instability.
The economy is in a constant state of flux. As it stands, the inflation rate in the UK is 11.1% – the highest in over 40 years – with businesses and consumers alike being affected. Merchants in particular have already felt the impact as UK retail sales dropped 1.4% in September of 2022.
It’s crucial to understand consumer concerns and align with their needs to win trust and loyalty and this is particularly the case during such times of uncertainty. As the cost-of-living crisis continues, money remains tight for many so businesses must focus efforts on payment strategies to reassure their customers.
Changing consumer habits
Consumer habits are transforming. An example here is the changing preferences of younger groups of shoppers. emerchantpay’s New World One Market report showed that younger generations are more likely to opt for digital payment methods. 48% of Gen Z and over half (52%) of Millennials agreed that they would continue to purchase fashion items, i.e., clothing/shoes online post-pandemic.
Nevertheless, the cost of living crisis remains an obvious concern and this is having ongoing implications for sales. Research from PWC highlights consumer sentiment has been declining since July 2021. The latest figures show that sentiment fell eight points from summer, currently sitting at –44 – that’s even worse than the beginning of the pandemic (-26) and the lowest score demonstrated by PWC’s study since 2008. These figures aren’t a surprise given the increasing inflation rates and the cost-of-living crisis impacting consumers globally.
Consumers are therefore becoming more alert about their spending and in turn, monitoring their purchases meticulously. If consumers fail to recognise a transaction on their bank statements, there’s a greater possibility they’ll request a refund/chargeback. 75% of ecommerce merchants saw growth in fraud attempts in 2021 – on average losing $3.75 for every $1 they lost to chargebacks. This creates an unnecessary, time-consuming process for both merchants and consumers.
To avoid confusion, there must be clear communication between businesses and their customers with regards to payments. In addition, the right processes must be put in place such that consumers can delineate between a genuine fraud attempt and a credible transaction.
Ultimately, it’s essential that merchants work to identify the needs of their customer base and understand their shopping preferences. By doing so they can adapt their payment offering to suit their consumers in suitable channels.
Adapting to remain competitive
In a digital economy and with the adoption of ecommerce, there are stricter regulations to protect businesses and consumers from fraudulent payments. However, merchants can still experience high decline rates in their payments, especially when processing higher-value payments, due to unoptimised fraud rules.
In emerchantpay’s Great Payments Transformation report, 91% of businesses surveyed revealed shortcomings with their payment gateway resulting in significant revenue loss. In fact, over half (55%) estimated they lose up to 10% of their turnover.
Going further, 32% of the payments professionals surveyed agreed that analysis of payment data to recognise problems, i.e., decline codes, could be improved. By making such improvements, businesses will be better positioned to create strategies to combat declined payments and therefore increase profits.
Adding to this point, 40% said they need to improve payment strategies by the end of 2022 to avoid losing revenue and customers, while 29% agreed that similar action needed to be taken for 2023. It’s clear that to stay competitive, businesses must acknowledge and implement changes aligning with consumer and economic demands.
There is an important role to play for payment service providers (PSPs) in enabling merchants to meet these demands. The report highlighted integration (29%) and anti-fraud (29%) options as the top factors for merchants when selecting a PSP for online retail. It’s evident that merchants want to ensure they select a trusted PSP that offers strategically valuable insight, helping them to meet consumer needs while ensuring they protect profit margins heading into 2023.
Businesses must commit to understanding the needs of their customers – where their concerns lie, how to resolve them and in turn, build trust and maximise sales.
One thing is for certain – an easy payment experience will be remembered positively by customers long after the economic downturn eases, so it’s important that businesses make sure it’s done right.