By Jack M. Germain
6/3/2021 5:00 AM PT
E-commerce retailers are literally at the mercy of the digital checkout systems that are tied to their web shops. For retailers, what happens on the other side of the checkout button is critical to avoiding denied approvals.
Online sellers cannot survive without a strong checkout page. The payment system that handles the majority of online transactions is now 40 years old. Some investors have become aware of this. A new payment system behind the scenes is slowly taking hold.
For example, Fast, a startup that offers online checkout and identity products, recently announced that it had completed a $ 102 million Series B funding event led by Stripe, a previous investor in the company. Stripe, an online payments giant, also led Fasts Series A last year, a $ 20 million deal. Fast says it has raised $ 124 million so far.
Credorax, a payment provider for cross-border processing of e-commerce and omnichannel payments, opened the curtain on the E-Commerce Times to reveal the details of what goes on behind the checkout button.
The process can be a dizzying integration of numerous moving parts. Authentication, currency conversions, and approval rates need to work together to ensure a quick and complete transaction so merchants can take their business to the next level.
How fast money moves in a changing digital economy is a sign of efficiency and health. So what does it mean when it takes $ 18 trillion in US business-to-business payments to land in bank accounts?
For merchants, this means a loss of efficiency and a loss of time to use cash. For consumers, such delays mean they have no access to the funds many of them need right now. For both parties it also means failed transactions.
“Unsurprisingly, payment acceptance and authorization are among the top hurdles any merchant must overcome,” Igal Rotem, CEO of Credorax, told the E-Commerce Times.
Money in slow motion
This process is slowly changing. Big moves could be happening this year, however, as the first new payment system rolled out in the US in 40 years gains momentum.
RTP (Real-Time Payments) was developed by The Clearing House and is backed by major US banks and has been acquired by nearly 40 percent of major US corporations, according to Dimitri Dadiomov, co-CEO and founder of the Modern Treasury payments platform.
RTP represents the new frontier for payments and is likely to become the new standard. More than a third (36 percent) of large companies in the US are already using real-time payments, which was introduced in the US in 2017. Outside of US borders, however, RTP is used much more heavily.
Modern Treasury supports RTP and enables companies to work more easily with banks. The process leads to the automation and acceleration of payments. Modern Treasury recently raised $ 38 million in venture capital and is growing more than 24 percent per month, according to Dadiomov.
RTP awareness is likely to grow, he predicted. Levvel Research’s 2021 Real-Time Payments Market Report showed that 66 percent of US companies say they are likely to adopt RTP in the next two years. The technology has already gained momentum in other countries.
Modern Treasury supports RTP for corporate customers who want to accelerate Automated Clearing House (ACH) or bank transfers. ACH is a banking network that coordinates electronic payments. ACH, wire transfers and checks make up 76 percent of all money flow in the US, Dadiomov said.
“These are technologies that haven’t been extensively updated in decades. Payments are slow, cumbersome to process, and don’t provide real-time insight into cash. RTP is a big step in accelerating and modernizing payments, bookkeeping, and money movements. ” he explained.
New benefits, less risk
RTP enables financial institutions and corporations to send and receive payments in real time. The process is much faster than checks, ACH, or wire transfers, which can take up to three days to clear. More than $ 18.5 trillion in B2B payments is sent every year in the US, and half of that is still through paper checks, noted Dadiomov.
Speed aside, RTP differs from the way B2B payments are made today by enabling three new processes.
One of them is better data to get better insights. With non-RTP transactions, providers can at best see their customers’ payments in their bank account. RTP enables data transfer with payment so companies can view invoices, appointments, orders and more.
“This gives companies an edge in responding to customer needs and has the potential to improve their finance function and decision-making,” said Dadiomov.
The second new process ensures continuous availability. RTP is always available. This gives merchants more flexibility than traditional banking hours, which restrict payments without RTP.
The third benefit is the reduced risk of default. RTP payments are irrevocable. Money orders will not be sent unless sufficient funds are available. This reduces the risk of payment exceptions.
Make online checkouts seamless
From a merchant’s point of view, three levels of optimization are required for a smooth checkout experience. These are improvements to checkout, integration and issuer responses that Rotem offers from Credorax.
They can provide the smoothest experience for a customer and increase the likelihood of completing a purchase. This will also make it easy for merchants to keep track of their transactions and get the most out of their buyers.
Checkout optimization reduces the number of steps a consumer has to take when paying for goods online. Fewer steps mean less frustration and fewer abandoned baskets.
“Offering customers preferred local payment methods and multiple currency options is critical to ensuring that customers have a convenient and familiar checkout experience no matter what country they are shopping in,” said Rotem.
Integration optimization means that consumers do not enter their credit card information into a website that they do not trust. Hence, ensuring a payment gateway that is properly configured and incorporated into the checkout process with the same look and feel as the rest of the experience is critical.
This optimization should include the authorization process and structured data informing merchants of their business transactions. In this way, merchants can quickly see where any downturns in the processing chain are coming from, what the reason is, and monitor the smooth flow of transactions.
The issuer optimization is the last cog in the pay wheel. As soon as the payment has passed the gateway and the acquirer, the final decision on the authorization of a transaction lies with the issuer.
“Interestingly, every issuer has their own rules. They are complicated and change regularly, which makes it difficult to keep track of them,” noted Rotem. “To combat this, traders need to keep abreast of how issuers think and understand their reasons for rejecting transactions in the territories they are trading in.”
Behind the pay curtain
What happens on the other side of the checkout button is crucial. A maze of steps must be followed without interference to complete transactions successfully. Even if a customer commits to a purchase, enters the details and clicks the checkout button, the order won’t necessarily be successful because all sorts of variables like authorization rates come into play, Rotem warned.
There are multiple parties involved in every transaction. Anyone has the power to fail a transaction and affect a merchant’s approval rates. This is why it is so important that merchants work with a payment partner who can handle this process for them.
“However, this is the part of the process that customers never see. They don’t understand why their transaction was declined, nothing to do with the dealer or retailer, damage is being done, “he explained.
It is unlikely that customers will bother to buy again from a retailer where they could not complete the transaction process, he argued.
“It is therefore crucial that merchants optimize their payment process. Otherwise, they risk losing conversions and the cumulative impact of those conversions further down the line, ”he said.
The RTP Edge
RTP is inevitable because the pace of business and economy is getting faster and faster. RTP is all about convenience, as payments are instant, noted Modern Treasury’s Dadiomov.
Companies cited instant access to funds as the most appealing benefit of RTP, according to the Levvel report. 76 percent of companies also believe that RTP will give them a competitive advantage.
As more and more companies adopt this, so will others in order to stay competitive. In addition to RTP, the Federal Reserve is pushing its real-time payments system, FedNow, which is expected in 2023 or 2024.
For consumers, real-time payments mean instant access to funds without having to wait for checks to be cashed. For some consumers living from paycheck to paycheck, this could reduce the need for expensive, short-term loans or the likelihood of bank overdrafts.
In addition, RTP will accelerate the operational needs of basic back office processes such as accounts receivable and accounts payable, potentially resulting in lower costs. It goes without saying that these savings can lead to increased added value for your customers.