Cutting the Cost and Complexity of Merchant Payments – But Not the Customer Experience

Monday, May 14, 2018

Posted by Michael Grillo to Merchant Retail, eCommerce

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New research from ACI and Ovum, released this week, highlights that many merchants in 2018 are investing in creating operational efficiencies in their payments systems. But the question is, as they strive to simplify systems and cut costs, will customer experience suffer?

Operating efficiencies are the name of the game

At a global level, our research shows that 50% of merchants will increase their IT spending on payments and related projects, with 21% growing budgets by 5% or more over the prior year. Driven by continued growth in the use of digital channels in the customer journey, and the rapid consumer adoption of new retail payment services, it is no surprise that such a large percentage are making further investments in their payments systems. However, while the need to invest in the user experience remains a priority, many merchants are redirecting their investment focus to improvements in the middle and back office (e.g. ERP systems), to deliver operational efficiencies.

This doesn’t mean that the customer experience is taking a back seat. Merchants understand that middle- and back-office infrastructure enhancements can also have a direct and positive impact on the customer experience. For instance, better integration between various payments systems and the elimination of legacy silos can power improved customer insights, enhanced opportunities for personalization and a smoother end-to-end payments process.

Real-time payments can deliver real value (and replace plastic!)

The research also reveals that merchants are opening their eyes to real-time payments – with 65% interested in accepting real-time payments (up from 57% last year) and 78% of merchants now believing that real-time payments will deliver savings in operational costs through reduced processing fees and faster settlement (up from 57% last year).

In fact, nearly 8 out of 10 merchants surveyed expect to see real-time payments replace cards over time. These findings signal a stronger understanding of the potential value of real-time, and market shift in consumer payment preferences, since real-time or instant payments can also help deliver better customer service through faster refunds and disbursements.

With benefits for both sides, merchants certainly need to ensure that they plan for, and take advantage of, real-time payments infrastructure, and they should take steps to work with their banking or acquiring partners to assess how to grab the opportunities on offer.

Security is a safe investment – but balancing against sales conversions is critical

One in five merchants in our survey admits that they have suffered a data breach in the previous 12 months and 61% of merchants believe they are at a greater risk of a data security breach this year than in 2017. Yet many still feel that cart abandonment is a bigger concern than fraud or chargebacks.

However, the need to manage fraud and protect customer data remains a serious issue, and continues to be a barrier to innovation. Indeed, 51% of merchants report that these concerns have limited their investment in customer experience.

Interestingly, the industry is split when it comes to managing the trade-off between implementing security solutions and the impact on consumers. Across all sectors (retail, hospitality, digital goods, telecom and travel), 48% say that they would not invest in fraud solutions that add friction, with retailers (54%) most keen to avoid reducing the quality of the user experience.

What many merchants might not realize is that it doesn’t have to be an either/or scenario when it comes to risk versus sales.

This data highlights ACI’s ongoing quest to show that the right approach to fraud prevention (including tailoring, careful choice of fraud tools, use of data analytics and enlisting expert advice) can actually help drive conversions and enhance the customer experience. When merchants make their investments in new security solutions and capabilities, every opportunity should be taken to use more sophisticated authentication and monitoring technology to improve the balance between fraud risk and a friction- free experience.

Investing wisely, not just widely

Merchants expect their payments investment to deliver value – and rightly so. But, to get the value out, merchants need to examine how to create operational efficiencies that also serve up the right customer experience and ready their businesses for future development.

Interestingly, those merchants that reported reductions in their operating costs had the highest proportion of off-the-shelf vendor software in their core payment infrastructure. Indeed, for those that have seen costs fall by 5% or more over the past three years, off-the-shelf vendor solutions (including where customized) accounted for 42% of core payment applications, compared to 36% that are in-house developed. The trend is reversed among those that have seen operating costs increase.

As with any other area of business, each merchant is different and has their own individual challenges. Whatever their level of investment in payments, every merchant needs to determine where and how to make the most appropriate investments for their business, as well as choosing the best way to deliver them.

To learn more about how other global merchants are tackling these challenges, and to read expert recommendations on how to leverage the opportunities ahead, you can download our full research report here: www.aciworldwide.com/merchantinsights