Deferred payment systems: boosting mobile conversion
Financial World recently asked Salmon, a Wunderman Commerce Company, to comment on the subject of deferred payments for a feature discussing online payment methods. We were delighted to share our experience:
We've spoken to three UK sites that offer deferred payments (all using Klarna). They all report improved completion rates especially on mobile but won't give exact numbers. Is the model really as good as it seems? Is there any downside (apart from the higher costs)?
“Deferred payment services enable retailers to offer customers more flexibility and choice in the way they pay for items. In return, retailers are rewarded with conversion rate and average order value (AOV) increases due to customers disconnecting the purchase commitment and payment elements of the sale. In our experience of implementing deferred payment models, one of our clients saw a significant increase in AOV by using spread payment financing; nearly 60% higher order values were placed when using deferred payment in comparison to more traditional card purchases. This same retailer spiked to 90% higher order value when the interest free credit option was combined with a promotional campaign.
This is an especially compelling option for retailers offering finance, as in many cases the payment provider carries the financial risk and the retailer receives immediate payment for sold goods. Deferred payments do, however, enable and promote a ‘try then buy’ mentality where customers will order multiple products with the intention of returning many of them. This creates a return rate increase and produces a cost burden that directly hits the bottom line for retailers, especially if they offer free delivery and free returns. The solution also isn’t a good fit for all sectors or categories; high frequency purchases like grocery and low margin and perishable / breakable products are examples where deferring payment option wouldn’t be suitable as it’s an ongoing and regular cost.”
If it's so amazing, why don't other players in the payment space jump in? (It seems strange that PayPal, WorldPay haven't got equivalent offerings)
“They are all different business models offering different services. The cleverness of PayPal is that it is ultimately a very large, global bank that holds funds until month end for retailers. PayPal offers a credit facility for approved customers that replicates the function of a standard credit card without the plastic; however, a benefit with PayPal credit is the 0% interest for 4 months on orders over £150. This makes it a compelling place for customers to load debt for impulse or emergency purchases. WorldPay is a multi-channel acquirer that acts as the middleman between customer and retailer. They have experienced great success in providing secure transactions and frankly don’t want the added hassle that comes with the risk of carrying customer debt. If anything, deferred payment models have something to learn from other traditional payment providers by delivering the same spread payment or deferred payments model in-store as well as online.”
How important could the deferred payment model for web purchasing become? Helpful in niche sectors or countries? Could it create a huge global player like PayPal?
“Ecommerce was an opportunity uncovered by providing a better service through convenience and choice to customers; choice of payment method is an extension of this. Understanding how and why people want to purchase items and making it easier for them to shop removes barriers. Choice creates differentiation in a market where price and availability are equal. Deferred and spread payments have been a commerce model for thousands of years – digitising the model and applying it to ecommerce purchasing is an evolution of this and we expect to see a sizeable adoption of it as retailers move away from loading interest heavy credit cards towards interest free credit options.”
Any other thoughts on deferred payments?
“Retailers will be faced with a challenge to prevent customer confusion around new and diverse payment options. Multi-department retailers like M&S in the UK and Walmart in the US will need to address the presentation of available payment options based on the basket items and their entitlement. Mixed baskets may require more sophisticated rules and customer experiences to deal with product exceptions and exclusions. Service providers like Klarna also offer a managed checkout option that removes the complex maintenance cycles required for a frictionless checkout. A hosted option does remove ownership of a key customer journey where data capture is often undertaken. Retailers will need to find new ways to capture customer data that drive loyalty and repeat purchases.”
Payment and its democratisation is one of 20 key trends in ecommerce that Salmon has identified. You can download the 20 for 20 Trends ebook featuring all 20 trends.
Please contact us if you'd like to discuss any of the different payment methods discussed above.