It is a testing time for the retail industry, and all of the signs point towards 2023 being another challenging year for many businesses.
Already contending with the after-effects of the COVID-19 crisis, a devastating war in Europe, and a rocket-high inflation, businesses will face new challenges along the way. To add to the picture, the Strong Customer Authentication (SCA) enforcement, which aims to reduce online fraud, has created more friction in the ecommerce customer journey.
What will determine the success or failure of businesses in 2023 in the UK and the European Union is mastering four key challenges which have the potential to be gamechangers. These challenges have been identified in the ecommerce report for 2023 by fraud protection platform Signifyd.
The transformation of payments
Payments have been the centre of attention for years, as they’re a vital part of the customer journey. Merchants who understand this and are taking a strategic approach to payments are seeing tremendous results even during such turbulent times.
Diversifying the payment methods portfolio
As consumers are adapting to the new era of ecommerce, they’re starting to embrace and demand a variety of payment methods. Debit and credit cards are becoming less popular, while buy now, pay later rose by 68% in the last year, according to Signifyd’s report. PayPal and Apple Pay also saw an uplift – 274% and 70% respectively.
This creates an urgency for retailers to diversify their accepted payment methods portfolio and accommodate the fact that one customer might use a different payment option depending on the circumstance.
If they don’t take that step, merchants are risking losing customers. A survey by UK Consultancy Merchant Advice Service found that one in five consumers will abandon their purchase if their preferred payment method isn’t available. Failure to diversify their portfolio of payment methods has led to merchants losing £1.8 billion a year in the European Economic Area.
To ensure success, retailers need to consider what payment methods are trending among their target audience and integrate them.
Implementing data to optimise payments
Merchants are being urged to start utilising data throughout the whole customer journey. This will help them adopt better risk management and approve more good orders. Research by CMSPI found that in 2021, merchants were losing £21.7 billion (€25 billion) per year due to false declines and £1.9 billion (€2.2 billion) to fraud.
Data is key to adopting machine-learning and will help merchants improve their authorisation rate, drive more loyalty, and understand their customers better. These are key elements of the ecommerce game, especially when SCA is already causing friction in the checkout experience and customers are on the verge of abandoning their carts.
The post-COVID returns era
It’s no secret that during the COVID-19 pandemic more consumers turned to online shopping and are still driving retail sales in the ecommerce space. But with the increase of online purchases came the rise of online returns. During the pandemic, 38% of customers became more comfortable with the idea of returning goods, according to Mintel.
Nevertheless, this comes at a higher cost for retailers, who are expecting lower annual revenue due to the increase of returns during the cost-of-living crisis.
And while some of these returns are genuine, others are malicious. As the checkout process is becoming more difficult to penetrate due to SCA, fraudsters are finding other ways to exploit the online customer journey. Some of these methods include claiming that items haven’t arrived when they have, or that the item they’ve received doesn’t match the website description or is damaged. One example of such deception involves the UK electronics giant Maplin who received cans of baked beans weighing the same as the PlayStation 5 the customers had paid for.
But while you’re trying to guard against fraudulent attacks, it’s important not to deter good customers away. Finding the balance is key, and you can do so by maintaining return-friendly policies for your legitimate customers and by building barriers against those who would take advantage of the system. In order to do so, turn to machine-learning and a fraud solution that leverages data to determine the identity and intent behind every return and refund request.
Cross-border expansion opens new markets
Despite the current economic headwinds, global ecommerce is set to grow exponentially in the next few years. Online sales have continued their rapid growth and are up 33% year on year in 2021, Signifyd’s report shows. And although shoppers are returning to shopping in-store, almost reaching pre-pandemic levels, the online shopping space has cemented in its position in the retail market.
It presents a vast opportunity for businesses to expand internationally and reach a wider customer base, thus increasing their revenue. In fact, cross-border sales are up 45% this year compared to pre-pandemic figures, according to Signifyd.
Customers value the ease of shopping online and are looking for foreign goods at the best value possible. For companies, this is a great opportunity to capitalise on the created need and give their business a push if they’ve reached a stagnation in their home market, for example.
Expanding globally comes with its challenges, and it’s important to consider if this is the right thing for your business. Content localisation, diversifying your payment methods, and becoming familiar with the local fraud trends are only some of the things you need to implement into your cross-border expansion strategy.
Each market has its own characteristics, so doing your research, utilising data, and asking yourself the most important questions including why, where and what you are willing to risk, are key to success.
When talking about international expansion, one thing is for sure – the time to do it is now. 85% of UK consumers are already shopping cross-borders, according to Signifyd’s ecommerce report. Foreign markets are thirsty for new and innovative products, and you can capitalise on the early-mover advantage.
Navigating the SCA challenges
The enforcement of strong customer authentication (SCA) marked the biggest change in online payments since 2007. Its aim is to reduce the rising fraud in line with the booming ecommerce sales and create a safer ecommerce space. But the two-factor authentication came with an unforeseen effect – it caused friction in the customer journey which led to frustration.
Customers nowadays are expecting a fast and efficient online service, and the slightest disruption can contribute to a negative shopping experience. In fact, Signifyd’s report shows that 71% of UK consumers rank the unsuccessful checkout experience due to SCA at five or higher on the frustration meter.
As a result, customers are likely to abandon their shopping carts, decide against shopping with a particular retailer altogether, or worse – turn to the retailer’s competitors.
And while the SCA enforcement appears to have been off to a rocky start in the UK and the European Union, the experience has not been uniform throughout the region. Some countries have experienced less friction than others, but what is it that sets them apart?
3D Secure, EMVCo’s SCA authentication protocol, is what is making the difference. Some countries are still relying on the original and outdated version of 3D Secure, which is the cause for significant transaction declines. Signifyd’s analysis shows that 42% of Italy’s approved orders were met with significant friction due to the 3D Secure version 1 review and 22% were rejected and abandoned.
What that means for merchants is that they need to implement an SCA-friendly strategy that will take into account exemptions and out of scope transactions in order to reduce the SCA friction.
2023 is set to be another exciting year for ecommerce. While there are many challenges along the way – with the right tools and a robust strategy, merchants can overcome them and use them to their best advantage in order to succeed.