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Today’s merchants exist in a payments space defined by the tyranny of choice: that, with so many payment methods, payment service providers, and payment technologies, it’s become almost impossible to select the right one for your business’s needs.
How can you strip it all down, reassess, and take it back to what really matters: creating flowing, friction-free payment experiences that actually convert?
This was just one of the questions Checkout.com’s Senior Product Director Daniel Linder and guest, Forrester Principal Analyst Lily Varon, addressed in a July 2024 webinar: Crafting payment experiences that convert. In a comprehensive couch-side conversation, the two experts covered the rise of digital payments, the role of payment partners, and the future of payments – and how evolving technologies and customer expectations are playing a role.
Are digital payments bigger than credit or debit cards? Is chasing the latest, hottest payment method really the best strategy for your business – or a recipe for a cluttered, overstuffed payments stack? And is there such a thing as the ‘perfect’ payment service provider (PSP)?
Let’s find out.
1. Digital payments are on the rise
First there was cash. Then there was the credit and debit card.
Now, we’re living in a new era, where it’s digital payments that are dominating. As Varon says, digital payments – a term which encompasses mobile payments, e-wallets, direct debits, and even transactions made through Open Banking – are in a meteoric ascendancy.
So much so, in fact, that digital payments have overtaken credit and debit cards to become the most-used payment method in both the US and the UK, as well as a number of different markets around the world. According to Forrester data, 77% of consumers in the US and UK have used a digital payment method in the last few months. By contrast, that number sits at around a comparatively paltry 50% for credit and debit cards.
Of course, it’s important to remember that the term “digital payments'' refers to an amalgam of payment methods – none of which, individually, has overtaken credit and debit cards. With that in mind, this data hardly sounds the death knell for credit or debit cards, or even checks.
Still, it does demonstrate the need for merchants to explore the opportunity that digital payment methods present for their business – and tap into a voracious, fast-expanding market.
2. Modern payments: a case of “more, more, more”
The last decade has seen the rise of digital payments as first an alternative to cash and checks, before overtaking them altogether. Now, with so much payments technology at our fingertips, Varon believes the industry is reaching a kind of ‘critical mass’.
“We’ve got more payment methods, more use cases, more channels, more flows, more options, more technology, more optimization tactics, more tokens, and more token types,” she says. “So much business model innovation is enabled by payment technology and its adjacencies.”
Too much, though? Perhaps – because with this constant evolution and expansion has come something else: fragmentation. And, going forward, Varon is conscious of the need to further operationalize the possibilities of payments: to make them more scalable for merchants, and easier for business owners to embed into their existing operational setup.
3. Missing the Target: the need to prioritize financial inclusivity
One key takeaway from the webinar? The importance of payment methods in allowing merchants to deliver a financially inclusive checkout experience.
As Checkout.com’s Daniel Linder pointed out, there are two worlds of thought around the extent to which merchants should accommodate to the diverse payment preferences of their customers – particularly those visiting from another part of the world – at the register.
One side says yes – in an economy as global as ours, all merchants should have the ability to allow any traveler to pay with their preferred payment method. The other side disagrees: citing the added costs and complexity associated with a larger payment stack.
Whichever side you’re on, though, it’s vital to prioritize financial inclusivity: particularly when it comes to groups already at risk of being shunted to the margins of the payment space. Varon invokes, as an example, the recent news that Target will no longer accept paper-based checks in the checkout lines of its US-based department stores.
Fair, from the retailer’s perspective? Or the opposite?
“In these moments, we may be at risk of excluding an already marginalized group from the payments experience,” Varon says. “Particularly because it’s primarily older consumers paying with paper checks. By not accepting certain payment methods – because of the costs or admin involved, for example – we stand to leave whole demographics of shoppers by the wayside.”
4. Consumer expectations are evolving, and faster than you think
With more payment methods and modalities than ever before, customers don’t simply prefer the flexibility to pay the way they want to. They demand it.
What’s more, this evolving competitive landscape (unlike many of the other changing market conditions businesses are used to coping with) isn’t tied to your industry, or your direct rivals.
It’s everywhere – and it’s now.
“The last best experience your customer has – regardless of where they have it, in your industry or elsewhere – is the baseline for their expectation for tomorrow,” says Varon.
How that ‘tomorrow’ looks for merchants will depend on their ability to stay abreast of their customers’ payment preferences, and accommodate popular new ways to pay as they emerge. That said, a constant preoccupation with “the next big thing” when it comes to payment methods isn’t always the right attitude.
But why?
5. Why newer isn’t always better – and what research into younger consumers can tell us about digital payments
With so many payment technologies and optimization opportunities, it can be tempting, as a merchant, to focus your payment strategy on the next ‘hot’ payment method.
After all, the preferences of each generation evolve. If millennials have a proclivity for Venmo, Gen Z prefer Cash App – and unless you’re staying on top of these, you’re behind. Right?
Not necessarily. At Forrester, Varon and her team dug deeper into this generational assumption around payments. They surveyed a sample of younger consumers: looking at these shoppers’ attitudes toward, adoption of, and behaviors around digital payments and buying online.
What Forrester found? That younger consumers don’t actually feel any more passionate about digital payments than their older counterparts – knowledge which subverts the need to dive onto the latest generational payment trend, and add further bloat to your payments stack.
Forrester’s data into young shoppers turned up plenty of other talking points, too.
This demographic did, for example, feel like digital payments – such as Buy Now, Pay Later (BNPL) platforms – help them manage their money better. They also trusted a broader set of companies to provide payment services: meaning they were much more likely to trust a more diverse range of entities – including tech companies, retailers, and even mobile carriers – to provide them with payment services. (Rather than traditional payment providers alone.)
What’s more, the younger generation were far more likely to have shopped in, and prefer to shop in, emerging commerce touch points. (That includes voice and chat-based commerce, as well as shopping with a mobile device or app; anything that isn’t a ‘point and click’ experience.)
Against this backdrop, Varon hypothesizes that, in these emerging ecommerce experiences of 2024, digital payments simply work better.
It’s this – rather than some innate love younger consumers have for the latest, hottest payment methods – that is driving the demographic’s faster adoption of digital payments (at least compared to older consumers), even though their attitudes are the same. Rather, all young customers are doing is simply engaging in novel commerce experiences – that just happen to be supported better by a digital payments infrastructure.
Ultimately, Varon says, any merchants chasing payments’ next big thing are “putting the cart before the horse”. She continues, “Let’s give ourselves permission to step off that hamster wheel and ask: ‘Where should commerce exist in my digital footprint? Where doesn’t it? And where is it supported poorly – like in IVR (Interactive Voice Response), for example, or in chat?
“Moreover, how do we improve those payment experiences to capitalize on commerce moments when customers want to have them, rather than adding yet another payment method to our payment pages? That, I think, is where there is big bang for the buck.”
6. Is there such a thing as the perfect payment service provider?
The answer is, quite simply, no – there isn’t.
In recent Forrester research into the payment provider space, Varon divulges that, in a space which is more cluttered and crowded than ever, there were no clear leaders.
Why? Because no one vendor, despite some excelling in specific categories, hit full marks across the board. (You can read more about this research in the Forrester Wave report of merchant services providers for Q1 2024: Checkout.com scored 5 out of 5 for payments performance optimization),
In the PSP space, there are always trade-offs, and always compromise: which is why many merchants opt to balance their processing across multiple PSPs. If one provider experiences downtime, the merchant can switch to the backup to keep their payments running smoothly.
Yet, as the webinar demonstrated, this model is also changing.
7. Be a partner, not a vendor: adapting to the era of the multi-PSP approach
As we touched on above, the plethora of PSP choices a merchant has means they’re forced to make trade-offs. This involves the merchant identifying the requirements most important to their business, then weighing up the positives and negatives of each provider against these.
For example, does the merchant opt for a large PSP with a huge presence – with stability, viability, and huge economies of scale, but where that merchant will ultimately be a “small fish in a big pond” – or for something smaller, where they can have more influence over strategy and direction? Does the merchant want a ‘slow and steady’ type of PSP, or one that fails fast?
In a similar vein, while some merchants want a managed service, others are drawn to a more flexible model of self-service – whether that’s diving into the data to discover insights themselves, or having this information packaged up and presented to them by their PSP.
Merchants’ increasing recognition of these trade-offs is leading, Varon says, to the end of the dual-PSP approach, and the dawn of a new age: the multi-PSP strategy. This shift also marks a growing merchant awareness that introducing more PSPs doesn’t just have to be as a backup in case of failure or outage – but rather, to gain benefits in performance and optionality.
“We’re seeing merchants undertake a lot more qualitative assessment,” Varon says. “They’re asking, ‘How important do I feel to this business? Do I trust them? Do they operate with transparency – and do we have the same definition of excellence? Ultimately, merchants want to know who’s going to be a vendor to them – and who’s going to be a partner.”
8. Pivoting to the top line: how merchants are beginning to look at payments in an increasingly strategic light
Traditionally, merchants have focused their payment optimization around two goals: minimizing cost and mitigating risk. More recently, though, Varon has observed a welcome pivot “to the top line” – to a place in which merchants are starting to see payments as a strategic cornerstone.
Varon is, for example, starting to see payments teams working more closely with customer experience teams – as well as wider commerce and operational teams – within businesses to better align their payment strategies to a more nuanced set of goals. In other words, it’s not about seeing payments as a simple lever to pull to maximize conversions, but as a tactical toolkit with which to optimize the consumer experience, and engender more customer loyalty.
9. The ‘invisible invaluable’: what the future of payments has in store, and cryptocurrency’s role
“When we talk about the future,” Varon says, “the payment experience is not going to be a checkout moment – it’ll be an authentication moment. And, on the front end of the customer experience, authentication and payments will become one and the same.”
There are hints of this already in the Uber experience – where the payment happens before the customer has even engaged with the service – and in the burgeoning popularity of Amazon One’s biometric-based payment system. The future of payments, then, is this: the palm-scanning and frictionless, checkout-free nature of technologies like Amazon’s Just Walk Out that stand to become an increasingly natural presence in consumers’ lives.
The webinar’s gaze into the crystal ball of payments also suggested that embedded finance has a big part to play in the sphere’s future – but it might still be a little too early for cryptocurrency to make its mark. Despite a fervent fan base, cryptocurrency’s narrow range of payment use cases (typically high-value luxury items) will limit its growth in the short-term.
Similarly, while blockchain will remain an important part of payment-adjacent technologies – such as identity verification –Linder predicts that its application in merchant payment methods is more likely 10 years, rather than five years, away.
Want more? Watch the full webinar for the complete discussion
The key takeaways we’ve mentioned here merely scratch the surface of what Linder and Varon touched on in an extensive, electrifying conversation – all of which is available to watch in full.
Simply fill out a short form with your details to access the webinar: unfiltered and unabridged.
Or, if you’re ready to start boosting your business’s conversion rates, get in touch with our team of payment experts here at Checkout.com today to find out how we can help you do just that.
