How to turn payments into an upside during economic downturn

Across the world, rising inflation, market turbulence, and fears of a recession are leading to an increased focus from consumers on savings and reducing costs. Despite the global economic downturn, 2021 e-commerce sales amounted to almost $5 trillion USD, a figure retailers can expect to grow by 50% by 2025. As e-commerce continues to boom, retailers can adopt a new payment mindset and overcome key payment hurdles to take advantage of continued growth and overcome economic woes.

Retailers looking to upgrade their payment stacks will find the payments landscape riddled with complexities. Adding new payment methods is a complex process from integration to deployment, and then ongoing maintenance thereafter. International and domestic regulations and optimization of the consumer checkout process also present payment challenges that may seem insurmountable for merchants that are facing a number of hurdles in the industry.

However, the right payments strategy can give retailers a leg-up on the competition, and build brand loyalty amongst consumers.

Out with the old, in with the new – getting rid of legacy payment infrastructure

Legacy infrastructure is a term every business across every industry is familiar with as companies struggle to update and future-proof their systems. But most retailers haven’t touched their payment systems in over two years, making it difficult to keep up with consumer payment preferences and offering enough alternative payment methods (APMs) at the checkout, which, in turn, leads to increased cart abandonment.

The future of technology is in the cloud. According to McKinsey & Co., there is more than $1 trillion value in cloud adoption for Fortune 500 companies alone, and a 2022 Foundry report showed that 69% of companies had advanced cloud migration over the past 12 months, with merchants listing it as a top priority.

Payments infrastructure is no different. Retailers need a payments infrastructure that can plug in with their systems today and solve immediate pain points – for example, adding new connections, payment methods, workflow automation with minimal development resources. To take on digital transformation, retailers need to choose a platform that works now, will work with their infrastructure in the future, and functions wherever and however it’s deployed.

Cloud-native payment orchestration platforms (POPs) allow retailers to add a layer  to their infrastructure that can orchestrate, and standardize all the payment methods required by consumers. Through this orchestration layer, retailers can add both traditional payment types, and more of the new gen APMs such as Open Banking, BNPL, and digital wallets, among others. The ability to offer newer APMs will be key as interest rates continue to rise and consumers and merchants look to offset costs such as interchange fees associated with card payments.

When the merchant is ready, they need to depend on the payment orchestration layer to take over all their payment and risk processing needs as economies of scale makes sense and empower their teams to do more for their own business objectives. Retailers can’t repeat past mistakes with an orchestration platform that locks them into a single provider with a single point of failure. Payment service providers (PSPs) have highly scalable redundant platforms; bolting a single point of failure on top introduces unnecessary risk.

Optimize the checkout experience while meeting regulatory requirements

By working with payments in the cloud, merchants can gain a future-proofed and modern payment infrastructure that allows for easy optimization and personalization of the checkout experience. Payment orchestration platforms allow retailers to test new payment types and toggle on/off payment methods depending on transaction value, and the geographical location of their customers, among others.

In addition to the back-end orchestration outlined above, POPs can also orchestrate the front-end of the checkout experience. Merchants can dynamically filter and order payment methods offered to individual customers at the checkout based on the content of a shopping cart or preferences based on previous transactions.

For example, if a customer has expensive electronic products in their cart, they might be a good candidate for alternative payment methods such as ‘buy now, pay later’ or open banking, so a merchant can set a rule based on transaction value (for example, $1,000+) to offer a provider for that method, such as Klarna, Trustly or Vyne, as “first” in the order of payment methods displayed to the consumer.

In addition, the recent federal reserve debit card regulation will allow merchants in the US to benefit from increased conversion rates, lowering risk, and lower processing costs. Using orchestration allows merchants to take immediate advantage of cost based routing and optimize over time with intelligent data insights with zero costs and time to deliver to their organization.

With an orchestration layer or platform that optimizes both the front- and back-end, merchants can create a checkout experience that will delight their customers. Positioning semi-personalized payment methods depending on purchases in front of consumers, in addition to plenty of options for the consumer to select depending on their preferences, can be as easy as one click.

With greater payment options and the globalization of e-commerce, comes increased scrutiny on data protection and regulation. An infrastructure-first solution built natively in the cloud gives merchants the tools and features they need built into their own individualized cloud instances that they can quickly spin out as an ‘Edge’ to new locations, adding new and localized payment services through a single Universal API.

Retailers can’t do this with a central solution – they need a distributed solution that offers PCI compliance, and the ability to tokenize payment data. Edge computing provides flexibility for organizations to achieve greater data sovereignty, greater autonomy, better security, and solve latency issues. A cloud-native POP enables merchants to enter new markets by creating Edge Instances within a chosen country or region, keeping transactions and data secure within a local, unique Edge that is compliant with local sales and privacy regulations.

Give back to consumers through loyalty schemes

More and more brands are turning their focus to loyalty schemes as a way to incentivize and support consumers during difficult times. In the UK, retailers have been experimenting with pre-paid systems as a way to offset the impact of the ‘cost of living crisis’. Consumers make a monthly payment into a prepaid system with a specific brand and can take advantage of exclusive discounts.

Loyalty is becoming a part of payments. When coupled together, retailers have access to rich data around customer purchasing behavior, enabling merchants to offer hyper-personalized offers based on purchase history, and a consumer’s preferred payment method(s). For example, in the UK, supermarket chain, Tesco, spearheaded personalized discounts with its Clubcard scheme – where consumers receive points and offers against purchases they make regularly, or items they might be interested in based on transaction history.

Despite the gathering storm clouds, the outlook remains bright for online retailers. But to succeed against the competition, they need to give customers the personalized shopping and payment experiences they want, and payment orchestration platforms can be the helping hand they need.

If you’re a merchant looking to grow internationally and you’re interested in learning more about payment orchestration, download our eGuide, ‘IaaS vs. SaaS: An e-commerce merchant’s guide to payment orchestration’, to discover which platform is best for your needs – including building a payment orchestration layer in-house.

This article first appeared on Total Retail