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Our flagship series will propel you to the forefront of the global ecommerce revolution. From analyses of breaking current events to the intricacies of navigating cross-border sales and regulations, Business over Borders entertains and informs any audience who wants to learn more about how international ecommerce works.
Hi, everybody, and welcome to Business Over Borders. I'm your host, Leo Tucker, and I'm joined today by the VP of payments here at Reach, Melissa Pottinger.
Melissa Pottenger:Thank you for having me.
Leo Tucker:Glad to have you. So businesses not only have to buy their inventory, sell it, gain customers, find product market fit, but also have to consider their payment strategy. So
Melissa Pottenger:They should.
Leo Tucker:They should.
Melissa Pottenger:They don't always do it, and they don't have to. But to be successful with their consumers, they should.
Leo Tucker:Well, what sort of things let's dive into that a little bit. Like, what is a broadly payment strategy from the perspective of a business?
Melissa Pottenger:Sure. Sure. So it's a few things. Obviously, the end goal is to have as many successful transactions as possible.
Melissa Pottenger:Hopefully, you wanna do that in a way that it is a good experience for your shopper. You wanna do that in a way that you have as many successful authorizations as possible. And if you are a smart business owner, and most entrepreneurs are, you wanna do it in a way that the cost is predictable and as low as possible.
Leo Tucker:Right. So, real world example I can think of for cost is, you know, I'll I'll take my American Express, for example, into a brick and mortar store and, you know, there'll be a sign that says, sorry. No Amex. I I'm assuming that's more expensive for the merchant to offer, you know, accepting American Express, for example.
Melissa Pottenger:Sure. So if you dig in and you look at individual payment methods, the cost may vary, and that is an important consideration for a business owner. But also you wanna look at the types of payment methods you're offering, and then you also wanna add the dimension of the payment methods by region. So what are shoppers preferring to pay with, and what will convert well based on your type of business?
Leo Tucker:Right. Right. So here in Canada, we have, for instance, Interact, which is, you know, kind of a debit payment method that's not, we don't have that in the States. But there's all sorts of other payment methods. Digital wallets, for example, is a is a big example.
Leo Tucker:That's a broad topic, but can we kinda go over what digital wallets are and why why business would care about them?
Melissa Pottenger:Sure. Absolutely. So you probably, like most people around the world, are very familiar with PayPal.
Leo Tucker:Mhmm.
Melissa Pottenger:So PayPal is a digital wallet. A digital wallet on its own could hold funds, but typically people are loading in their own funding instruments. So that's your Amex, for example. What's great about that is that you can use that funding instrument or choose between funding instruments or balances to pay a business anywhere in the world.
Leo Tucker:So, I mean, back to the sort of the regional variations of that. I mean, PayPal, probably the biggest name in the game, but, there's quite a few others that are offering this service too. Like, what's popular in North America and then maybe, you know, versus Europe or the UK or Australia?
Melissa Pottenger:Sure. So, I mean, you've got Apple. Like, that everyone knows that. Google has a wallet, and we're seeing more and more, like, government regulations lifting over how these wallets are used and the cost of doing business. So I think when you look at a wallet, people select different wallets, yes, by regionality, but also by opportunity to expand their spending.
Melissa Pottenger:And what I mean by that is, PayPal has a BNPL offering.
Leo Tucker:It's a buy now, pay later?
Melissa Pottenger:That's right. Buy now, pay later. So that's popular. We see that really pick up around holiday. Klarna.
Melissa Pottenger:Klarna is also a wallet experience. And Klarna, you can use Klarna as a payment method itself and use their BNPL functionality, or you can use Klarna Pay Now. And because you are a loyal consumer that uses Klarna, you can utilize that as a payment method itself. Digital wallet adoption and usage all over the world is super strong, and it's only growing. Their market share of overall card volume and transactions continues to grow, and that's how we know that people adding their funding instruments into digital wallets gains traction that follows closely in line with the uptick in ecommerce that we continue to see.
Leo Tucker:Right. I mean, I'm seeing buy now pay later services at, you know, here we have Canadian Tire. They offer a credit card that'll just, you know, have it kinda built in. Like, it's moving not just from the digital space, but into the brick and mortar space as well. It's it's good.
Leo Tucker:It's a massive boom.
Melissa Pottenger:Right. Omnichannel has been reshaped. We saw that through, you know, the pandemic. Of course, it drove more people online, and into digital spaces. So apps and that sort of thing.
Melissa Pottenger:And as we've catered more to digital shoppers, we have catapulted that curve of people's expectations. So in that shopper experience, they're expecting payment methods that they like, that they're accustomed to, that they trust, and merchants are expecting the support of digital payment methods and consultancy on a global scale.
Leo Tucker:Right. So jumping into, you know, BNPLs like Klarna and, well, PayPal offers it now too in some some regions, what benefit to the merchant do we see in, you know, raise in in in customer acquisition on that? Because I imagine if you can buy something in 4 easy payments of $20, that's a little bit more palatable. So do we kinda have metrics on how that helps gain customers?
Melissa Pottenger:Absolutely. So as you can imagine, anytime you're implementing a payment method that a shopper know, likes, and trusts, that's gonna build loyalty, right, with your own consumer base. So that's first and foremost. Secondarily, we see that the average ticket increases by a notable amount.
Melissa Pottenger:So say you are shopping online and you were gonna spend $100 But when you realize, oh, actually, I could break this up in 4 payments, you might spend double that.
Leo Tucker:I got more time .
Melissa Pottenger:Yes. All of a sudden, it's kind of a pay your way, pay in your time. PayPal does a great job with the messaging on that, and that varies the offering varies by the consumer itself themselves and based on the historical information that PayPal's already collected. So they create a lower friction experience, which leads to higher spending and overall customer satisfaction.
Leo Tucker:Oh, that's great. And I imagine we're seeing wider adoption, especially with the PayPal. I don't know what they call their their service, but, essentially, the buy now BNPL version. Because it's kinda built into the ecosystem. It's not like you have to sign up for the, you know, PayPal BNPL.
Leo Tucker:It's just sort of, hey. Do you wanna do you wanna pay this in 4 easy payments or all at once? So you get that option kinda built in.
Melissa Pottenger:Exactly. And there's a few flavors of that, but what's most typical is someone goes to PayPal because they already like PayPal. They're they trust that user experience. They go into the wallet itself, and they're presented with that option to pay in 4, pay in 3, pay over time. So there's a lot of different flavors of that depending on your part of the world.
Leo Tucker:So outside of, you know, outside of the BNPLs, what in the digital wallet space are we seeing a large growth amongst those various wallets? Obviously, Apple Pay is huge. Google Pay is huge. I can pay an Apple Pay at the store, so that's everywhere. Any any up and comers that, you know, are really making a splash in the in the space?
Melissa Pottenger:I think that, you know, we've seen some big moves between PayPal really leaning in more towards that shopper experience and helping merchants with merchant facing tools. And then we're seeing Klarna doing really exciting things in their space and gaining market share of, shoppers in different regions, and people are spending more. And that that, extra time is needed by shoppers and appreciated.
Leo Tucker:One thing I think that's important is ease of access into these wallets. So, I mean, I imagine as as a business, I can approach PayPal. And I can say, hey, PayPal. I like to set up a merchant account and offer my customers your your services, whether that's a standard PayPal or BNPL. I can go to Klarna.
Leo Tucker:I can go to you know, if I'm, overseas, I can go to Ideal and, you know, sign up for all these accounts. Is there kind of an an easier way to gain access to these wallets without having to a la carte pick these payment methods? Do or do payment processors or sort of offer integrations or their platforms that offer them sort of, you know, wholesale?
Melissa Pottenger:So when we look at it from the merchant perspective, I think that a merchant's determination on what they offer is honestly a big part of their overall what should be a payment strategy. Mhmm. They could go direct and they could integrate directly and, it's, it's pretty labor intensive, to have that direct integration.
Leo Tucker:Sure.
Melissa Pottenger:And then you also have to have a commercial relationship. So that means you have to hope that your business is significant enough to not only have account management, but to justify some pretty compelling pricing in those regions. That's kind of one of the benefits here at Reach is that we've already done that legwork. So we're able to help merchants get set up with PayPal accounts, in different regions in the world, which means that we're bringing the merchant and the shopper closer together, which is lower cost and higher conversion.
Leo Tucker:Okay. Giving you giving you all the stuff in one relationship, one contract with a business without having to all over the place. Right.
Melissa Pottenger:And sometimes you find that if you say you did have a preferred payment processor, and there's there's a lot of great ones out there, they may have a variety of that payment method. But sometimes you kind of get a light version, which means it may not be as robust an integration, and there's downsides to to that.
Leo Tucker:Oh, okay. Yeah. So you get the you get their their flavor of the wallet offering, for example, and not maybe the most up to date one.
Melissa Pottenger:Right.
Leo Tucker:Yeah. So is there a reason why a merchant would choose more than 1? I mean, if I show up as a customer and I see a wallet option, is that good enough? I mean, why would there be multiple ones, and how would that benefit the customer and the business ultimately? So
Melissa Pottenger:I'm gonna give you that awesome lawyer answer, like, it depends.
Leo Tucker:Yeah.
Melissa Pottenger:I say that because it depends on regionality.
Leo Tucker:Mhmm.
Melissa Pottenger:So location is an important factor in the consumer preference. Mhmm. And then, of course, how you're targeting your consumers. So what that messaging is around how you think people will choose to pay. So Klarna, obviously, like, sexy brand name in the game of BNPL.
Melissa Pottenger:Right? They're they have widespread marketing. People are going to go there if they've used Klarna before or if they're curious about, like, extending their spending Mhmm. Capability. But a lot like PayPal's the known and trusted provider.
Melissa Pottenger:So you may know, okay. Well, my Visa is in my PayPal wallet. I'm going to click on PayPal. Maybe I didn't expect to break it up into 4 payments, but once I got there, I decided on that. So those two paths, neither one's wrong, but you do wanna make sure that you understand why you've incorporated them.
Leo Tucker:So was there any downside then to a merchant saying, okay, I'm gonna offer Ideal, Klarna, Afterpay, PayPal, like, a big accordion list of payment methods. So, I mean, why why why not that?
Melissa Pottenger:I call that the payment method buffet.
Leo Tucker:Oh, I like that.
Melissa Pottenger:Okay. So a payment method buffet. You walk up and you're like, that's a lot of choices. And then you're like, I don't know what I was hungry for anymore. And maybe I'm not, and you just walk away.
Melissa Pottenger:Are you abandoning your cart at the payment method buffet? Yes. You are.
Leo Tucker:Oh, no.
Melissa Pottenger:Right? Because you're not seeing any of it done really well. What I mean by that is what we help our suppliers with is incorporating payment methods that are logical for their business, are low friction for their shoppers, and have proven to have successful authorizations and a great overall experience for them. A lot of times, people will come to us and say, well, I think I need all these things because they've seen a chat board or they've talked to other business owners. But there's important considerations in that.
Melissa Pottenger:One of those is what type of business are you? What's your MCC code or merchant category code? So how are you defined as a business? What type of shoppers are you trying to reach? And, you know, what is your overall expectation for that payments flow?
Melissa Pottenger:There are some types of payment methods that have very high dispute rates. There's some payment methods that don't support a response to a dispute at all, and that means a supplier loses the funds. We don't wanna put anyone in that situation. So we're very strategic in how we select and consult on payment method integration.
Leo Tucker:Oh, that's interesting. I hadn't thought about the chargeback element because if you're if you're incurring higher chargebacks from your customers, that's gonna sort of flag them, you know, not just for your site, but other sites as well because the payment history gets sort of remembered across, across places. But, yeah, the friction thing is interesting. So I I can imagine coming to the the checkout page. You know, I've bought my my tap shoes.
Leo Tucker:I buy a lot of tap shoes on this show if you watch. If I'm confronted with 25 different payment methods, that is kind of friction. You know, I've got
Melissa Pottenger:It's noise.
Leo Tucker:I have I have another choice to make.
Melissa Pottenger:Yeah. It's noise. It's overwhelming. You don't know why you should pick which one or which one you will pick, and that's kind of unnecessary friction, in that overall payments flow.
Leo Tucker:The payment method buffet. I like that. Yeah. So, I mean, obviously, a merchant can, trial and error it, you know, show up and put the, you know, select the items from the payment method buffet and crunch their own numbers, pool the data, and see what works and what doesn't this region and that. But is there a better way, and how can a merchant sort of get that intel without having to say maybe this works, this doesn't, this doesn't, which is time consuming, potentially very expensive, you know, offer some risk of reputational harm?
Melissa Pottenger:I think, you know, what we see here in our business at reach is that we're able to look at our data. So we're looking at, you know, the consumer insights of how much are people spending in different regions of the world on different types of payment methods, and are there other, related aspects that should be considered? Is a dispute rate higher? Are there more refunds for them? What does that overall path look like?
Melissa Pottenger:So that's how we're helping them advise on their payment strategy. In fact, checkout.com came out with a recent article that I thought was really about why having a head of payments is so important in the business. Because payments is rather that, side of your business that you may not be an expert in, and you don't have to be. But you can ignore it because it will cost you money and it will probably cost you customers too.
Leo Tucker:Yeah. So I understand that as being integral to, overall payment strategy. You know? And it's, you know, having somebody, whether it's a department or a person or, you know, a third party that you can consult with on that payment strategy. Just having somebody who understands the data and the metrics and what's gonna work and what's not as big.
Melissa Pottenger:Exactly. Yeah. I think having a trusted adviser in the space is is pretty pivotal to being overall successful and driving, like, better margins in your business.
Leo Tucker:So in previous episodes, we've talked about authorization rates more generally, and, we've got some more specific episodes ahead. But that falls into payment strategy, you know, making sure you maximize, authorization rates. We've talked about digital wallets. What else? What's what's our top 3?
Leo Tucker:Let's give one more here for for merchants, working on their payment strategy. What it's what's important? What should be top of mind?
Melissa Pottenger:So number 3, I would say redundancy. I think what's often ignored in payments is that having redundancy matters, and what I mean by that is having multiple processor connections or, a single connection that will be able to support you in the event that there are payment methods that are perhaps discontinued in one place. There are regions that don't have the comprehensive or optimized coverage that you need. And the reality is that multiple payment processors do a lot of similar things, but they don't all do them the same. To expand on that Yeah.
Leo Tucker:Give me an example.
Melissa Pottenger:Sure. So somebody may have a great acquiring bank, but it doesn't talk really well to this issuing bank. It just so happens that you have a lot of subscribers in one region that are using this one issuing bank. You are going to suffer having low authorization rates just because of that connection. Here at Reach, we look at the data and we will make routing optimizations based on that information.
Melissa Pottenger:So we will move to a different payment processor by region, by currency, or by payment method to ensure that those authorization rates stay high.
Leo Tucker:Oh, okay. So in that case, that's an example of the one connection that connects to many, if you will.
Melissa Pottenger:Sure.
Leo Tucker:And, otherwise, if you weren't, you know, going through reach, that would be multiple processor integrations. So an integration into Adyen, Stripe, Checkout, PayPal, all of those just just
Melissa Pottenger:this contracts. That means pricing by payment method, by country. And the reality is unless you we talk about this a lot in our business. Unless you have entities in all those regions, you're gonna do cross border payments Yeah. All over the world.
Melissa Pottenger:Low conversion rate, higher cost, surcharges and cross border fees, FX. All of it adds up, and what it equals is poor experience for you as a merchant and for your shoppers.
Leo Tucker:K. So a business has, engaged with a company like Reach, you know, to help them set up various payment methods, get an overall payment strategy. What else is there to consider?
Melissa Pottenger:I think optimization is usually forgotten. I think a few examples of optimization are going to be retry logic. Mhmm. So all of the kind of fancy behind the scenes tools that happen when a transaction occurs in real time. We incorporate tools such as real time account updater, retry logic, and adaptive and intelligent acceptance with our providers to ensure that that transaction has as many opportunities to be successful as possible.
Leo Tucker:Okay. So it's not just offering the right payment methods, but how you actually engage with the the processor. You know, we'll do a retry and, you know, if it's insufficient funds, we try again or, you know, when do you try again? When do you not try again?
Melissa Pottenger:Right. And so different types of businesses may incorporate different optimizations. A subscription business optimization logic is gonna look a lot different than a retail business that needs to know, did I get that authorization right now, and am I good to ship the goods? Whereas a subscription business can say, sure. We can retry a subscription that we already had a previous successful auth, you know, 12, 13 times in a month, and they may have sophisticated logic around when to retry and how.
Leo Tucker:Right. So I imagine that varies quite a bit between customer initiated transactions, you know, where the customer is typing in their card versus, like, in a subscription business where you've got the merchant initiated transactions where they're taking saved card information and maybe trying, you know, 3 days before the subscription's send out a notice to say, hey. Your subscription will end soon. Right. Exactly.
Leo Tucker:So messaging is an important part of any sort of optimization that you may be doing.
Melissa Pottenger:That can happen by way of email, like you just mentioned. That can happen with on-site messaging. So you may if you have a declined transaction, messaging for optimization sake is pretty important because you want to let that customer know exactly what they can change so that you receive that successful authorization and they get the goods or services that they're expecting.
Leo Tucker:So specifically, what would on what give us an example of Sure.
Melissa Pottenger:So I think usually you wanna help the shopper understand what they can change so that their transaction will be successful. So that, again, is one of the ways that you're reducing the friction of a decline. Declines in and of themselves are not great. But if you just, like, say nothing and say try again, you're not really helping that shopper get to a successful transaction, and that's really frustrating. We call that the angry click when the shopper just keeps hitting submit because they don't know what to change.
Leo Tucker:Oh, I've angry clicked. Try again. I'll try again. Yeah. Absolutely.
Leo Tucker:Well, Melissa, thanks for joining us today. I think we've covered a broad range of topics on payment strategy. It was nice to have you.
Melissa Pottenger:Thanks so much.
Leo Tucker:And if you thought this content was exciting, engaging, interesting, or any of the above, feel free to subscribe, give us a like. And if you wanna see when we have more videos come out, click the little bell. Thanks. Brought to you by the reach network. Visit with reach.com/network for more.