As we head towards the end of 2022, it’s safe to say that the UK economy is seeing massive flux, with a new headline discussing the cost of living, inflation and interest rates adorning the front pages every day.
The result is the only real thing we can predict for 2023 is to expect a lot of year-on-year (YoY) changes and less disposable income for most consumers and businesses as the nation tightens its belt. We’re already seeing the impact of the fluctuating global and local economy, with UK retail sales dropping 1.4% in September 2022 – arguably the beginning of the shift in spending – which was 1.3% lower than pre-pandemic levels.
Aligning with customer needs during economic uncertainty
Times of challenge lead to resilience, with the businesses that make savvy choices to weather the storm often coming out the other side stronger. There’s an opportunity to build trust with customers by supporting them during their time of need, which could lead to long-term loyalty. With less disposable income for many consumers during times of recession, payments can – and should – play a big part in a company’s strategy to reassure its customers.
With 44% of consumers saying they will purchase from brands they feel recognise their values, companies should dig into current consumer sentiment around spending. When it comes to payments specifically, it pays to focus business efforts in 2023 on improving payments strategies and meeting their customers’ needs.
Merchants and businesses that want to retain customers and grow will adapt their payment experiences to offer even more convenient and secure ways to pay.
Payments in customer-centricity
In 2022, cart abandonment has been a big issue, with Baymard Institute estimating that nearly 70% of carts are abandoned before checkout. To ensure conversions are optimised amid economic volatility, businesses must provide a customer-centric payments strategy at checkout.
“Customer-centric” is a trendy term for businesses and does, in fact, do exactly what it says on the tin. It puts the customer first and at the heart of the strategy to ensure it meets all their needs. This also applies to designing an intuitive, customer-centric user experience from start to finish.
The same theory can be applied to payments. Conversions can be increased by putting the customer’s needs based on their concerns and behaviours first. This means the payments experience – from choosing the payments method through to entering payment details and checkout confirmation – will meet consumer expectations and ensure a smooth payments experience.
The importance of transparency
With people laser-focused on their finances, we are more likely than ever to see consumers tracking their funds – what they are spending, where, how much, and so on.
Payments systems play a crucial role in helping merchants provide clarity to their customers and guide them on when payment will be taken if the transaction was authorised, as well as identifying said transaction in their card statements. This can help customers better track their finances and therefore build brand trust during turbulent times.
Different options for different demographics
Related to this, people want to pay for goods in a familiar way, to feel that the transaction is secure, and they can see all their payments in one place. Understanding different shopper profiles so their preferred payment methods are available, is key to this. For example, emerchantpay’s New World One Market research found that younger generations are more likely to favour new payment methods, such as digital wallets than their older counterparts. The data also suggests that young consumers are fuelling the subscription economy, taking out more subscriptions on average in 2020 and spending more monthly.
Gen Z and Millennials are also much more likely to favour the increasingly popular buy now pay later (BNPL) schemes. It is essential that merchants targeting these demographics consider including BNPL as part of their payment offerings as the cost of living tightens. A report by McKinsey’s in October 2022 found that nearly a fifth (19%) of consumers say they plan to use more BNPL services over the next few months, up from 13% in April.
Further, digital payment methods are favoured by the younger generation. Research suggests that 52% of Millennials and 48% of Gen Z will continue to purchase fashion (clothing/shoes) online, post-pandemic. Knowing who your customers are and what they prefer is an efficient way to ensure that preferred payment methods are available at checkout.
Optimising every transaction
When times are tough, people will always look for value for money. Therefore, merchants may have to reduce their margins, making optimised payments systems vital to avoid unnecessary revenue loss. In our Great Payments Transformation Report earlier this year, 91% of UK and German businesses surveyed estimated that payment system shortcomings could cost them up to 25% of their lost sales turnover. Of this number, over a third (36%) said that 11-25% of their revenue is being lost due to shortcomings in their payment systems, and over half (55%) predicted losing up to 10% of turnover. When looking at the impact on an organisation’s profitability, the survey found that 39% of the largest businesses (£100m+ turnover) estimate that 11-25% of their revenue is lost. In comparison, 54% say up to 10% is being lost due to a lack of optimisation in payments.
These numbers cannot be ignored. Payment leaders need to optimise their customer-centric strategy to avoid unnecessary loss. For example, merchants processing higher-value payments could witness falsely declined transactions. This is where unoptimised fraud rules decline legitimate transactions. While this impacts the bottom line, it also creates a bad experience for even the most loyal customers, meaning they may not purchase with that merchant again.
At a time when margins for merchants are thin, these errors can be make-or-break for retailers. According to the BRC, UK merchants lost almost €3.1 billion in 2021 to incorrectly declined transactions alone in 2021, following the introduction of Strong Customer Authentication. It’s crucial to ensure that the payment journey is optimised and that the right anti-fraud rules are in place to tackle fraud while accepting legitimate transactions in compliance with payments regulation.
Weathering the economic storm
As we look to 2023 and its expected turbulent times, brands must demonstrate a commitment to understanding customer pressure points and adapt to alleviate their concerns to build trust and maximise sales. Payments are often overlooked, but with the proper expert support, it can become a simple, seamless, and frictionless journey. Optimising payment strategies to provide a multi-channel, frictionless and secure payments experience for customers – both when making purchases and receiving refunds- will be vital to a company converting sales.
Using a payments partner that can analyse payments data and share high-level insights means merchants can make informed decisions about optimising payments strategy, so it not only works now but will also yield long-term benefits and deliver real value for the business.
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About the Author: Jon Horddal is the Group Chief Product Officer at emerchantpay.