Mandatory closures boosted online transactions as companies pivoted to e-commerce as a way to offset lost revenue. The challenge for companies going forward, as reopenings begin, is scaling online operations in a way that grows margins and keeps conversions high without letting fraud slip in, specialists said in a CFO.com webinar.
Online transactions totaled almost $4 trillion last year, about 14% of global retail volume. That's expected to grow to 21% next year and to 95% by 2040, said Dane Vahey, an enterprise marketing executive at payments company Stripe.
The drawback to companies shifting more of their business online is an increase in transaction complexity, rising payment processing fees, higher return rates, and more fraud.
"There’s a trade-off you make when moving to e-commerce," Vahey said. But the upside is big: businesses see an average uplift of 10% in revenue after making the shift, he said.
Much of the success or failure of online commerce depends on how easy you make it for customers to complete a transaction while balancing the risk of online fraud, Vahey said. This means the CFO must work with the design and development teams to ensure the company strikes the right balance.
If the process requires consumers to dig out information they don't have easily available, they're likely to abandon the purchase, said Raymond Lee, who oversees payment optimization at Stripe.
Consumers abandon more than a quarter of online transactions today, he said. That's more than just lost revenue; it’s a negative experience making someone unlikely to return, reducing their lifetime value (LTV) as a customer. The abandonment rate is twice as high for mobile customers.
If they abandon the transaction because they couldn't get their credit card to go through, even if it's their fault, the experience is considered negative and reflects badly on your company.
To make the experience as seamless as possible, set up your process to provide as close to real-time card validation as possible, use forms that allow for auto-fill, and accept as many types of payment as possible, not just credit cards.
If you only focus on one of these efforts, you probably want to focus on auto-fill forms. They’re the easiest, most efficient way to reduce the frustration level for customers, Lee said.
Fraud reduction will be one of your most important initiatives. Fraud is much higher online than off. Even though only 14% of transactions today are online, 60% of fraud is committed when there’s no physical card involved.
Not all types of e-commerce are equally at risk. A business-to-business software-as-a-service (SaaS) model, for example, will see far less fraud than a business-to-consumer direct retailer.
Controlling fraud without making transactions too difficult is a balancing act. If you set up controls to weed out virtually all fraud, the experience will likely discourage people from completing transactions. If you make the experience almost friction-free, you’re likely to attract a lot of fraud.
Attracting fraud isn't just costly in lost revenue and time spent cleaning things up; it can cost you in lower acceptance rates by payment issuers. Issuers treat transactions generated by organizations with high fraud rates much more stringently, which means some customers will get transactions that would go through elsewhere denied when they transact you.
Skip the Dishes and Just Eat, a Canada-based food delivery company, created a transaction process that was as easy as possible for customers when it launched 2012, but it backfired when the company expanded out of sparsely populated provinces to more densely populated areas.
The odds of a fraudulent transaction were 1 in 16,600 when it operated in low-density areas like Manitoba, Alberta, and Saskatchewan, Matthew Neff, Skip the Dishes product head, said. The odds jumped to 1 in 50 when it moved to big provinces like Ontario and Quebec.
"At the start, we under-focused on fraud," he said.
As a result of the spike in bad transactions, the company landed in Visa's fraud monitoring program. "So, when you’re sending transactions to them, they apply more caution, you get more declines and payment process approval rates go down," he said.
To turn things around, the company implemented layers of fraud prevention, many of them invisible to consumers, and now it has its product, finance, and development teams factor fraud prevention into all processes. The result has been a 90% fraud reduction, and a 7% payment approvals improvement, he said.
"For every million visitors, that's 70,000 additional customers experiencing our service," he said.
Bottom line: e-commerce represents how goods and services will be sold in the future, but setting up your organization for online transactions requires a balance between the friction your customers experience and the amount of fraud you’re willing to accept.
Shifting to E-commerce: Five Ways Finance Leaders Can Protect Revenue was sponsored by the Argyle Group and Stripe.