The right approach
Written by Scott Thompson
Scott Thompson reviews the latest Retail Systems roundtable, which took place in London in late July and looked at alternative payment methods for
e-commerce in the global retail environment
The roundtable, held at Tower 42, was chaired by Paul Rodgers, chairman, Vendorcom and the panel comprised of: Damian Kelly, VP, sales and marketing, SpeechStorm; Hayley Meenan-Wilkin, head of web operations, Tesco.com; Julian Wallis, country manager, Ogone Payment Services; Lee Carpenter-Johnson, head of e-commerce, British Bookshops; Stephen Savage, managing consultant, SpeechStorm; Carly McIntyre, visual space planning manager, Dixons; David Cox, head of product, Ukash; and a spokesperson from Selfridges.
Paul Rodgers: I think we should kick things off by asking: what is the right payments strategy? What are the different dimensions of that, getting into the international element, abandonment of baskets and so on?
Julian Wallis: First and foremost you have to consider your target market. You can’t really put a payments strategy together until you know who you are trying to reach, who you want to buy your products and services and only when you’ve answered that question can you then actually formulate a strategy and start looking in a deeper way into that side of things.
Damian Kelly: There is an expanding range of payment options out there and very often they have very different profiles.
Hayley Meenan-Wilkin: There are definitely limits. In terms of my previous experience with international retailing, going back 10 years, the minute that you leave the UK and the US, if you travel across central Europe people are extremely cash driven. So being able to transact online with a cash method is absolutely essential for any retailer looking to go into those markets. Flexibility is key and the exciting thing about this is that, if you’d suggested five years ago that we would have a way of paying cash for transactions online, you’d have said: no way, that will never happen. But here we are being able to do it. It’s in a state of evolution and what happens next will be really exciting.
PR: There are more and more avenues developing all the time, whether it’s prepaid, mobile, contactless, cash, cheques, voucher options. What challenges does that present?
HMW: Security challenges, definitely. As fraud becomes more advanced, we need to think about exactly how it’s going to work. During my time at a leading cash transaction service provider, there was a huge project focused on fraud.
JW: There’s so much talk about mobile payments and over the next five years it’s really going to take off. And there are all sorts of technology implications, different ways of processing payments from your iPhone, for instance.
HMW: It’s the telecoms industry driving it because they are using it as a marketing vehicle.
PR: What are your thoughts on integration of the wide range of payments options across the retailer’s various channels? Where is integration going when your strategy has to look at multiple options?
DK: It raises the question: does my payment travel across multiple channels? At a very basic level, what we have to get right is the customer travelling across those channels so that each of the channels is aware of what’s happening in the other. The typical buying pattern, I go into the store, have a look around. I go home and browse on the internet, think about it again, call someone to get an expert opinion to make sure that I’m buying the right Samsung model, for instance. My expectation of what happens across each of the channels changes because I have moved across them all. I have to be comfortable with the payment options on offer.
PR: Ultimately it’s about understanding your customer. You then need to look at how they interact with you. Today we’re talking specifically about payments but when a customer visits a retailer’s website their first thought is not: how am I going to pay?
David Cox: What we’ve found in many of our markets is if the payment options aren’t displayed right at the beginning of the journey, at the homepage level, then customers will move on. If you only have a certain form of payment, then the rest of the site is irrelevant.
JW: So many merchants don’t do that.
DC: In the UK and certain other markets that’s fine because the assumption is that I will be able to transact via Visa or Mastercard or some card in my pocket.
Carly McIntyre: The impact on customer loyalty is huge, when you don’t mention things at the beginning. You get all the way through the transaction, you’ve organised everything so that you can get your TV, your cables, any other adds ons and you get to the end and you can’t pay in the way you want to. You’ve just spent half an hour on the site, getting everything just so.
HMW: There are so many online retailers and so much talk about this mystery of the abandoned basket. But that is the main reason why you abandon the basket. I’m sure if you did an analysis of that, a huge percentage of abandoned baskets would be down to people who weren’t able to pay in the way that they wanted.
DC: We should consider delivery options as well. You might have an expectation that you can have the items delivered to your work address, not to your card address. And again finding out at the end you can’t is another reason for abandoning a basket.
Lee Carpenter-Johnson: People buying books need to be able to pay by any method they want. We’re talking about an average price of a book being seven or eight pounds. The new Dan Brown book we’re selling for four pounds. You are going to have quite a lot of people who want an easy method, they may not want to pay by card. They can go to Next, for instance, or other competitors selling books and actually do it via their account card. From my perspective, Verisign and security settings, that’s one of the first things I look for on a website. Is it secure? That’s equally as important as having various payment methods. Most people aren’t going to sites for payment methods, they are interested in price etc, then they cast their eye down the page and see it’s secure and that gives you a little more loyalty to your site.
DC: There has to a mind shift at the companies looking to go into other countries. If you’re expanding into a country and making all the investment in infrastructure that goes with it, if you’re happy to tap into just 10 per cent of the population because they are the ones with Visa and Mastercard, then that’s fine. But if targeting the other 90 per cent will cost you more money, that has to be put on the table and a decision made resulting in a change in business model.
HMW: If you go to slightly less mature countries in the likes of central Europe, you will probably come up against problems dealing with some banks.
PR: What are the experiences in terms of being able to support international payment infrastructures in those relationships with banks and the acquiring side?
HMW: I can speak from my experience of working with a cash transaction service provider in Turkey. They would probably say it’s very complex and you need to do a lot of due diligence and research before you invest in infrastructures.
JW: Alot of the UK acquirers are now pushing out into Europe and trying to position themselves as international acquirers to try and consolidate Visa/Mastercard through one single network. But when you start looking at the other payment methods, you suddenly have to build bridges and relationships with all sorts of organisations that have been operating locally in these countries.
LCJ: We went overseas and had a store in New York. We decided to take our website to the States, found we weren’t allowed
to because of the payment methods so had to set up a new site. There were alot of issues and complexities surrounding payments, such as passing the data back to the UK as you’re not allowed to share data outside of the country.
PR: Companies would like to be international and a one stop shop. If it is so complicated, doe it have an impact on basket abandonment rates?
LCJ: Basket rates in the US were alot lower than in the UK, purely because the company we used were making alot of different payment methods available.
DK: I love the idea of an abandoned cart sitting around somewhere in cyberspace. But I do wonder how many of those baskets could be retrieved. Many times people don’t mean to abandon them, they just went off to do something else, to confirm something before they made the purchase. And often it is the contact centre that is best placed to close the sale or solve the problem.
JW: There are companies dealing with that very issue. As soon as a cart is abandoned, a message is routed through to the call centre, so the customer can be contacted and offered help.
DK: You do that in-store. It’s a case of multi-channel awareness. If I’m in a store and looking at something for more than a minute or so, someone comes up and asks if I need help.
LCJ: Our basket doesn’t time out. People can get distracted quite easily when shopping online. The door goes, for instance, and you go to answer it.
PR: Is there anyone doing this well, from a payment strategy point of view, presentation, integrating various channels?
DK: There are relatively few true multi-channel retailers - that is, retailers who provide an integrated experience for a customer journey across multiple channels.
HMW: I agree. It’s been such an evolution over the last 10 years. It has been incredible. I don’t think there is a retailer who can say: we have ticked all the
boxes, we’re fully integrated, it’s seamless for the customer.
PR: Which e-tailers do it well?
HMW: Amazon would be the obvious one.
DK: But Amazon is a single channel retailer - it only sells on the web.
DC: I abandoned my last cart with Amazon because my frustration levels were so high - they were unable to find the correct address for my office and I could see the danger of the parcel going astray.
LCJ: Look at Asos - you can email but you can’t call them. It’s not acceptable. Great business model but where is the customer interaction?
HMW: Asthetically I don’t enjoy shopping with Amazon but you have to take your hat off to them. They are always one step ahead - they are about the convenience of getting the product to you. They don’t do any of the fluffy, fancy stuff.
Selfridges spokesperson: If we take Amazon as the model, what alternative payment methods have been particularly successful on an international basis?
DC: In Germany, they have to look at things like ELV which is about setting up an instant direct debit. That is a very popular method in Germany.
HMW: The success of PayPoint is down to large numbers of people in the UK not having a bank account. They need to pay their rent, electricity etc and they have to pay through PayPoint.
DK: So for some customers, switching channels just to complete the payment part of the process is something that works. Could that work in other markets too?
JW: Debit/credit cards are not used that much in Germany.
PR: Flexibility is crucial. In the Netherlands we are seeing alternative payment methods picking up. So there are other mechanisms available and I think we need to make it clear to the customer why they would find it useful to transact in a particular way. That’s probably the bit that Amazon has done well, a fairly consistent approach internationally. So yes, they don’t have the complexity of multi-channel, but they do have the complexity of trying to be a fully global organisation.
PR: We’ve talked about understanding the customer and giving them multiple payment options. We’ve also touched upon the need to convince the customer when it comes to security, fraud and identity. Customer awareness of this is much higher than it used to be. I think that area warrants some discussion. How do you think that dynamic affects how you would put in place a payments solution or a new alternative solution?
LCJ: Obviously you’ve got the 3rd Man system so you can do your fraud
checks and so on. But we need to see them integrating with other companies
so we can see fraudulent activity from other transactions. I think that will give
a bit more security. For us, you wouldn’t want to implement unless you can check everything going forward, especially when you throw mobile technology and payments into the mix. It all needs to feed into a central cyberspace, I guess. Fraud happens quite often on the cheaper websites - they test it on low value transactions and then they test it on higher end systems. That’s where we need to see more integration amongst the different payment methods.
PR: Alot of charity sites are really vulnerable to that - they are test beds for card fraud. We saw it during the Haiti disaster relief appeal - lots of genuine donations were being refused.
Stephen Savage: In terms of the contact centre space, they are having to redesign their processes around the technology, rather than the other way around. I suspect that there’s a reservation around alternative payment methods simply because they can’t tap that into existing security systems - they are going to end up with another silo doing something else.
PR: Let’s have a discussion about 3D Secure and how that fits in with international payment strategies.
JW: We had a high luxury goods e-tailer using us as a payment service provider and another company for fraud detection. The values of what they are selling are extremely high. In the last three months, they have suffered £80,000 worth of fraud. With 3D Secure, the merchant is not liable, it’s the issuer who is suffering, so the merchant has the financial drive at the moment. But any minute now the acquirers are going to be breathing down their necks as somebody is footing this huge bill. The fraudsters are clever, they know how the systems work.
DK: With 3D Secure, it’s the one password I always forget so I end up changing it almost every time. Also, when you look at it as a strategy, it’s a single channel solution. It only works on the web, not in the call centre etc. It’s an odd strategy to take a problem and only address it in a narrow way.
JW: 3D Secure took a long time to get off the ground, as we all know. And consumers probably generally don’t like it and merchants didn’t like it for various reasons. We’re a long way down the road, however, and there has been progress with 3D Secure. It has done a lot to reduce some of the fraud but the fraudsters are now working around it. Alternative payment methods that don’t have a 3D Secure mechanism in place could be the next ones to suffer.
PR: It’s ugly, it’s clumsy. It doesn’t relate to the normal experience of the consumer. As soon as something more elegant appears on the scene, it will die. The adoption rates are quite high in terms of the number of retailers that have put it in, but in terms of the number of transactions processed under a 3D Secure mechanism, it’s a miniscule fraction of the transactions going through. There’s a new Visa card - CodeSecure - which has now been launched. It’s the same size as a credit card but on the back it has a small screen which is a code generator. It seems to get around the ugliness of 3D Secure. Mastercard are
also looking at this sort of thing. chip and PIN has really helped customer present transactions - the fraud levels in e-commerce are huge. Online fraud
across Europe has now reached Euro 1 billion a year and that’s just unsustainable, particularly given the current economic climate.
DC: It’s shifted from face-to-face to online and that was the logical way for it to go. In the same way that as cars become secure, it won’t stop people stealing them, it will just change the way they’re stolen. And that was clearly going to happen with payment fraud, it was always going to move from PoS to online.
PR: One of the problems with 3D Secure is that it’s delivered slightly differently whether you are using Visa or Mastercard. It can be unnerving for a customer.
DK: It is unnerving the first time you come across it. A pop up is unnerving - we’ve conditioned ourselves to hate pop ups. I don’t want to be sent to another site. Also, the fact that it’s optional is terribly confusing. Yes, it’s secure but you can choose whether or not to be secure.
HMW: I do find that very confusing.
LCJ: It would be interesting to see if there is any research being done on the older generation and the use of Verisign and how that affects your abandonment rates, because it’s another password to mention. I tried to get my parents to shop online and they were put off completely by it. And they were going to spend a reasonable amount of money.
DC: It’s fundamental to the customer journey. It’s like finding out at the end of the transaction that you need to register. Whereas the smart sites like Amazon let you get on and make the purchase and tell you everything upfront.
PR: It’s one of the big issues. If it’s a case of just entering your 3D Secure
password, that’s fine. OK, you’ve got to remember it but that’s relatively simple.
It’s if you’re coming at it for the first time on a particular card and you have to register, then go back in once you’ve got the password.
LCJ: There needs to be an integration when it comes to first time use.
DK: It brings up the interesting point of trusting brands. Who would you trust to hold your money? Apple, for instance, has 16 million captive credit card details. When I download from iTunes, I don’t even think of it as a purchase. Do I trust Apple - yes, probably. They’re not going to do anything bad with my details.
CM: Boots do a similar thing where you can have multiple cards registered, so it’s a one click thing.
DC: That comes back to innovation through multi-channel. Are people trying to create an online presence which mirrors what they’ve done in their physical stores or are they looking at it as a new space?
PR: What sort of innovations are people seeing? Who should be leading this? Should we be leaving it to the cards and payments industry? Where is that dynamic in terms of where the innovation comes from?
DK: The consumer has a very small role in all of this - but they do vote with their
feet. And that’s why I make purchases with Apple.
PR: We recently did a briefing on end-to-end encryption and tokenisation for a number of retailers. If you’re going to be holding all this information, whether as a retailer or an aggregator, that’s where the whole PCI thing begins to kick in. And that in itself has been a real challenge, particularly for bricks and mortars retailers.
JW: The acquirers are driving that in terms of direct communication with the merchants. As far as Ogone is concerned, we can’t make somebody PCI compliant but we can give them better practice advice. If you are processing payments, cards within your environment, you might have an online system that is capturing all the information securely. But if you’ve also got a call centre and are taking payments through other channels, that opens up all sorts of PCI responsibilities.
PR: It’s great and we need to do it, but sometimes it can stifle innovation.
DK: We are planning a webinar on PCI compliance and contact centres. It does offer up an interesting opportunity in terms of the way we handle it as an automated transaction at the end of the call.
SS: Most of the merchants have such a challenge in the contact centre - they’re nowhere close to where they should be in terms of timelines. Having been through PCI DSS, as a single channel hosted service provider we recognise how painful that can be. I can’t begin to imagine the challenge faced by large multi-channel retailers.
JW: Boots were mentioned earlier and the automatic drop down of the card. It may well be that Boots themselves are not actually storing the card details - it might be a third party PSP, but the consumer has trust in Boots and sees
them as a safe merchant. But they will be very aware of PCI compliance and storing those details and may well have outsourced it.
HMW: Anybody with an ounce of sense will outsource it because you want a specialist and you want terms and conditions signed to guarantee your retail business isn’t at risk.
PR: That raises a really interesting point. At what stage do retailers go back to retailing, as opposed to giving alot of focus on the payment process?
DK: It’s better if the approach is consistent. If I trust Boots then that trust probably extends to whoever they outsource to.
JW: It’s about creating the seamless journey for the consumer. That’s why it’s so important to customise those screens - going back to expanding overseas, it has to be localised.
HMW: Does anyone know what John Lewis do? If there’s one retailer who reassures its customers it’s them.
DK: They do some very smart things in a multi-channel way - they are joined up. The online channel is a store in their minds.
JW: They’ve had to mirror online the strong personal service they give in-store, because people have that trust in them.
HMW: And they’ve been trading internationally for years.
LCJ: They are up there with Amazon in leading the way with integration.
Branding and marketing
PR: How does DSGi go about creating a coherent visual space?
CM: It’s all price driven and how does that work horizontally and vertically, so the customers can find what they need, upselling, making sure you’ve got the right product groups. We hold regular focus groups and get feedback from customers to ensure that we are offering what they need. There’s alot that goes into it.
PR: Again we come back to consistency across channels. Look at the iPhone, I can choose whether this will be linked to my bank. There are lots of opportunities to link together the process of shopping and payment with the various mobile devices we have. Is there a particular difficulty in terms of delivering that in-store, online, via mobile and so on?
HMW: It’s moving on at speed and there will be a more cohesive payment
approach in the future. The difficulty will be with the acquirer and what they start demanding, they will try to influence the merchants. That surely has to move to a different place.
DK: The game is going to shift so it’s not about banks, merchants and acquirers because the phone is all important. If I forget my keys, someone will let me in. If I forget my wallet, someone will lend me the money for lunch. But if I forget my mobile, I will turn back around and go and get it.
DC: The mindset has to shift. If it’s always going to be limited by the cost of the transaction, there will be no innovation. You need to look beyond price at the value of it to your business.
PR: I strongly believe that the payments landscape will change radically over the next 10 years. We think we’ve done alot in the first decade of the century and we have but that’s not delivering, it’s creating a foundation and infrastructure with PCI, contactless etc. Mobile is definitely a mechanism - it can be your cash, your vouchers and so on. Equally we can get transfixed by the iPhone - it’s still only five or six per cent of the mobile phones out there. There are still going to be people who want to use cheques.
DK: You’re going from an alternative payment method to a substitute currency.
PR: We’ve touched on this already, but I think now is a good time to discuss cross border challenges. It’s not just a case of customising screens, it’s about customising the customer experience. I’d be interested to touch upon how we personalise the shopping experience, how much granularity is there? Retailers have been very good at this, but maybe we are a bit restrictive in terms of payments?
HMW: It comes down to the target market. That’s where it starts and once you’ve done your due diligence and understand what that target market looks like, then you come up with your payments strategy. Then there’s the personalisation of the payments experience to potentially age group level. That’s really important. My teenage daughter will give all sorts of information away. Her generation has no awareness of fraud - they don’t care.
DC: It highlights the lack of multi-channel awareness. Most of the retailers who have the problem will stop you buying things in-store with age verification, they didn’t translate that at all into the online space.
Selfridges spokesperson: I think we concentrate on this too much. Alot of people have stopped selling knifes online because it’s easier and they will stop taking payment methods as that’s the easiest way. If we’re not careful, the obsession with security will stop us from doing anything.
DC: In relation to not taking the payments. To me, if you’re a retailer and the easiest way to do business is to not do business, because there’s something about the payment you don’t like, that’s not a smart approach.
Selfridges: You have to ensure that controls over things are reasonable and acceptable, generate the right behaviours and are not an extreme reaction.
DC: It’s a good point about the one size fits all approach. Some companies will have put in fraud systems that, as soon as you enter an address with the wrong postcode, it will instantly say: don’t supply a TV to that address. Would it be better to have a system where you got the alert, however if the customer could pay by another method, say prepaid, you would let it go through?
JW: We’re actually working on that right now with some companies where fraud/risk alert comes up, but they think, hang on a second, if we can offer this payment method which might be safer for us as a merchant, let’s do it.
DK: Those things definitely improve the situation, using more context and intelligence about customer intent and your intent and customising the solution. That makes perfect sense. But alot of the debate and scaremongering is missing the broader picture - it’s a very silo’d approach, we’re trying to solve all the problems in one channel when the customer operates across them all.
PR: There’s a very real social dimension to all of this as well. We rely more and more on statutory bodies, on CCTV cameras and so on. We’ve depersonalised the experience to a certain extent. Now there are in some areas huge difficulties with fraud and we can use technology to help us. But it’s important to note that there isn’t a one size fits all approach.
DK: If you go to France and Germany, people don’t tend to buy goods with debit and credit cards. They are comfortable with a certain way of paying. And we just need to adjust to their way of paying.
PR: It’s interesting to take a Pan European perspective on this. We have a special interest group coming up with Visa and a group of retailers, looking at terminal estate management, knowing that a payment terminal that is sent by
Verifone, Ingenico is where it’s supposed to be. This problem exists in the UK,
but not the Nordics or France and we need to learn from that. We think in
the UK and most of Europe that mobile payments is the way forward. In Japan,
it’s absolutely the case and there are different dynamics that have made
that happen. Poland went from basic zip zap machines right through to full
chip and PIN without any magstripe stuff at all.
DK: You will come up against vested interests which will work against things. In the UK, those vested interests have become stronger over time. You go to so called developing economies and you’re talking about a 3G mobile phone network that’s always at five bars, not oh well, I might get a signal.
PR: The SEPA Cards Framework, single Europe payment area has done a job in relation to international credit transfers and direct debits and there is a framework being put in place for card payments and that’s really going nowhere at the moment because of vested interests. Each national banking organisation is saying, we do it our own way, sometimes with good reason. We’ve got a different risk profile in Italy, Greece and the Nordics. The UK has a very constraining risk profile, one of the reasons it was the first to adopt
chip and PIN.
DK: Finland have taken out their national payments infrastructure, which means peer-to-peer payments. That opens up whole new possibilities, like the German experience, where you’re used to paying with your bank account details. And it goes straight through. So there are alot of innovations out there.