Payments Isn’t A Cost, It’s A Revenue Generator

Finance says payments is a cost and needs to come down. Marketing says it’s the biggest way to drive revenue. And, Digital River’s Group VP of Payments, Eric Christensen says that he has the data to show that the marketing folks are right, particularly when it comes to cross border payments. He laid out the data in an exclusive digital discussion with MPD CEO Karen Webster. And there are three big drivers of that data that, Christensen says, make all the difference. Find out what they are.



There are many theories about why some companies are more successful than others when expanding outside of their own borders to explore commerce opportunities. But Digital River would like to end that speculation and provide those with similar ambitions with the roadmap for how to maximize their chances of success. Once on line, Group VP of Payments Products Eric Christensen says that getting online, of course, is the first step. The rest, is a function of three critical things:


  • Where To Expand: Where and how aggressively a company should actually look for opportunities cross border.
  • The Payments Mix: The importance of supporting local payments methods while expanding internationally.
  • Authorization Rates: How to optimize revenue using data and then tying that analysis to other parts of the business (for example, the marketing team).


Christensen provided a step by step instructional in a one-hour digital discussion, which was hosted by MPD CEO Karen Webster on Monday, November 17 exclusively on And if there was one thing that he wanted to overcome, it was the to correct the misperception that payments are a cost versus a revenue driver. While people on the finance side of the business thinks about managing and cutting costs, the marketing side wants to drive revenue from payments. Finding a balance between the two is necessary – and all about data.

Here are three areas where looking at the data can, Christensen said, go a long way in bridging that gap.




Digital River Gross Sales Index


“For a client that’s currently doing business in the US and wants to expand internationally, what can they expect as they go to different markets?” asked Christensen at the opening of this discussion.

The slide depicts how, for example, how Digital River benchmarked $100 in U.S. sales in other parts of the world, based on data when looking at 7.2 million transactions that ran across through their system. So, if a company is looking to expand into Canada, for every $100 of sales in the U.S., it can expect another $8.60. In Australia, it can expect another $9.70.

This data can be used in a couple different ways, said Christensen. For one, those looking to expand internationally can use it to figure out which countries might be worth focusing on. In addition, companies that already exist in these particular countries can also use the data to determine if they see more or less volume than the benchmarks suggest and how to optimize their presence in those markets.


When asked what’s driving the disparity, for example, between Canada, Australia, and China’s numbers, Christensen responded as follows:

“A lot of it comes down to what consumers are used to purchasing,” he said. “As a US company that looks to expand, you’ve got to be able to make a footprint in the market to get new consumers. The key is knowing how to optimize the experience to make it feel like a local experience for the consumer.”



Webster also asked Christensen how companies can take the benchmarking that Digital River has done and use it to their advantage.

According to Christensen, companies can use this data to determine if they are on par with what the benchmarking data reveals. If they’re not, they have a starting point for figuring out what work needs to be done that could include everything from looking at how to optimize the way products are displayed in shopping cards to other things that can enhance or detract from the consumer’s shopping experience.

“Most importantly, we look at what kind of payment options merchants are offering today and whether we can improve their experience by offering local payment methods consumers are used to using,” he said.


Webster asked, based on looking at the gross sales by country, what Digital River tells its clients to think about and whether they point them to particular types or numbers of countries.

“Many companies are really aggressive and want to expand around the globe as quickly as possible,” Christensen responded. In some cases, companies get too aggressive too quickly and try to expand around the entire globe while only touching each market with a small amount of investment.

“What we’ve found to be more successful is having a focus strategy. Opening two to three markets per year gives companies the most optimized performance from an investment perspective,” he said. If a company opens one market a year, it risks moving at too slow a pace and could be beat out by competition. On the other hand, if it attempts to open 5-10 a year, it could lose focus on creating an optimal consumer experience and end up spending more time to get customers to keep purchasing.

What’s key, he noted, is focusing on expanding both from a payment method and localization perspective – this includes multiple currencies, languages, and back office support.



That was a logical segue to the discussion of three specific cases of how the company’s payments acceptance strategy fit with local trends and payment methods.


Case Study 1: Konbini in Japan

One example Christensen gave was a case study on the local payment method Konbini in Japan. Konbinis are convenience stores located all throughout the country, where consumers can buy groceries, pay cell phone bills/top up, buy their newspapers, and more. The culture focuses so much around that experience, he said, which makes it critical for companies to incorporate into their eCommerce experience.

That includes giving a consumer who makes a purchase online instructions on how to pay for that purchase using Konbini. Japanese consumers make that payment typically directly out of their bank account. For the particular case study, the company saw 40 percent year-over-year growth after adding Konbini as a payment method, and it in turn became 15 percent of the company’s overall online payment transaction spend.


Case Study 2: Boleto in Brazil

“Everyone wants to get into Brazil, but no one wants to make that investment. It’s one of the fastest growing markets in the world, but also have particular idiosyncrasies to consider in order to sell to consumers,” noted Christensen. In addition, he added, it’s important to make sure consumers can pay with a method they’re comfortable with.

Boleto is a bank-based payment method in Brazil where the consumer makes their purchase online and either logs into their account or goes to their local branch or post office to make their payment. They are then able to transfer funds from their account to the merchant. Because of the nature of the experience, it becomes a delayed payment method, said Christensen.

“The best practice is to not release your product until you’ve actually confirmed that the payment has been made,” he said. “This can cause challenges for companies that have things like flash sales or low inventories and need to make decisions on how to manage that inventory. It adds an interesting nuance to inventory management.”

Christensen recounted the experience of a particular company that increased their sales exponentially after accepting Boleto. In fact, 32 percent of its volume was attributed to Boleto transactions in a very short period of time.

When compared to Konbini in Japan, Christensen said that Boleto is even more critical since consumers may not have access to credit and Boleto enables installment payments to be made on a variety of purchases. Installment payments are hugely popular in Brazil – and are even used to buy for items as low as USD $10-20.

“The Brazilian consumer also doesn’t have access to credit like a US consumer would, so being able to offer them a payment method where they can fund directly from their bank accounts and even get installment options from those banks is greatly important,” said Christensen.


Webster asked the logical question – but what’s the overall impact of enabling these local payment methods on the revenue side of the payments equation?


Local Payment Methods Digital River


Christensen then presented an example of a use case in The Netherlands. The iDEAL network there is used by most every consumer in that country to pay for things like utility bills, cell phones, etc., he said. They’re used to that experience.

When Digital River expanded into The Netherlands and later enabled merchants to accept iDEAL, they saw its volume on iDEAL hockey-stick. In its first three months, Digital River was only able to offer its merchants credit cards as a payment method. In the 4th month, it added iDEAL. In month 5, Digital River launched a marketing program around the acceptance of iDEAL which resulted in a 68 percent increase in volume attributed to iDEAL.

“Tying a marketing program and payments information together can really help drive incremental revenue,” added Christensen.


Webster then asked how complicated and expensive it is for merchants to enable new payments methods.

Christensen responded by saying that this is where companies need to do a cost-revenue analysis to figure out the value – and stop looking at payments as a cost of doing business and look at the incremental revenue that comes from it.

“Being able to optimize the checkout flow, finding the right partner to get you connected into the right network, and leveraging that partner to help with shopping experience that will ultimately drive revenue is important,” said Christensen.





Benchmark Authorization DIgital River


The final area of focus, Christensen says, is driving revenue from payments programs using data obtained from an examination of authorization rates.

“Authorization rates are probably the most used payments KPI in the industry, but also the most underused. That doesn’t make a lot of sense but ultimately there’s a lot of ways to leverage them to optimize the experience,” said Christensen.

Christensen contends that any movement in authorization rates is real, important movement in revenue.

“When there’s a declined authorization, that’s coming from a consumer that wanted to make that purchase originally. Losing that consumer and the cost that a merchant spent to acquire that consumer far outweighs finding new consumers with new payment methods,” he said.


Webster asked how ones does that – and how does one know how good or bad a merchant’s individual experiences are with authorization rates.

That’s where Christensen said a lot of the work is done with Digital River clients – helping them benchmark their authorization rates across the verticals they serve.

“We can help companies find apples to apples comparisons to analyze their rates, compare them to peers and make sure they’re rates are sufficient for their industry.”

Christensen then walked Webster through another case study.


Revenue Case Study: Automated Routing

Automated routing is about examining transactions at the time of purchase, making sure they are not fraudulent and then finding the right partner to authorize that transaction so that the odds of it being authorized by the issuer are improved. Christensen said that this is the quintessential win-win-win proposition in payments: consumer wants product, merchant wants to get paid, issuer wants legitimate transaction to run through their rails.

“What’s interesting to note is the card issuers will take a different stance on the transaction depending on the amount of data sent around the transaction, as well as where the transaction is being processed from and being processed for,” said Christensen.

He then showed two different card brands and transactions with the same subset of information: European customers shopping in a US store. The case study was done to illustrate the differences between having a U.S. company processing a US dollar transaction through a U.S. bank and then out to the European issuer, versus sending that transaction through to a European issuer and processing that transaction in country.


Automated Routing
The slide shows the benefits by taking a U.S. dollar transaction by a European customer and routing it through their European partners directly.

“You can see a double-digit increase by doing that. It really comes down to the trust of knowing that transaction is being processed locally on shore as opposed to by some US bank that they haven’t dealt with before,” said Christensen.

But while the merchant gets the benefit of the sale, there may be additional costs to consider. Each has a different interchange rate table that needs to be taken into account, said Christensen. In addition, a company has to be able to have a relationship with a bank in that region. It needs to make the investment to have some sort of presence there, and decide if it has enough volume in that region to justify an investment in building that entity and relationship with a local card processor.


Authorization Rates By Time Of Day


Authorization By Time Of Day


Digital River also took a look at a 90-day period, tracking what the authorization rates were over the course of that time. Surprisingly, the authorization rates differ by about 20 percent based on the first couple hours of the day compared to the rest of the day.


Webster wanted to know what could be done with that data since companies won’t stop selling products at certain hours of the day.

This is where Christensen said leveraging the data throughout other parts of the company’s organization can be extremely helpful. For example, they can work with their marketing team so that instead of spending a flat amount on demand gen throughout the day, they can spend more on demand gen on parts of the day with authorization rates are higher and less when they’re lower.

“That should lead to a clear difference in ROI in marketing spend,” said Christensen.

Webster then pointed out that mobile devices enable transacting at any point of the day – it will therefore be interesting to see what happens with this data. Digital River, responded Christensen, also plans to spend much more time analyzing it and figuring out ways to turn it into a better revenue story.




Webster pointed out that decisions related to where to expand, what payments types to offer and when to push the marketing pedal down all come down to data. So, how do people get access to the data Digital River has? 

Christensen said that today, Digital River uses this data with clients to consult them. For example, if they have plans to expand into Russia, Digital River looks at past examples and data from that region to make sure that particular company will be successful in that market.

“We’ll also be rolling out, in April of next year, our Digital River global insights,” added Christensen. “This is going to be a much more market-driven approach to showing all of the different data points that Digital River has collected across our transaction flows to figure out how to optimize revenue by tying in payments, commerce and marketing programs together.”


In closing, Webster asked what surprised Christensen the most about the data that Digital River has gathered.

Christensen said that what he found to be most surprising was the way authorization rates varied by time of day – this got him thinking about other data that they have not yet analyzed. Perhaps, he said, authorization rates vary greatly by the device used – something Digital River will look at in the future.

The other thing that has always surprised him is just how much local payment methods drive incremental revenue. When you can actually see it play out in examples that show double-digit revenue growth, it really justifies the existence of companies like Digital River, he admitted.

“Overall, you can make a big difference in a company’s bottom line just by supporting the right payment method.”


Watch the video below to see the full recorded version of the digital discussion.


Transforming Payments from Cost Centers to Revenue Drivers from on Vimeo.



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