The Big eCommerce Short

Shorting the stocks of online merchants whose volumes are exploding: unthinkable, right? Not to Ralph Dangelmaier, CEO of BlueSnap, who explains to MPD CEO Karen Webster that some 40 percent of eCommerce merchants’ sales never convert — and the merchants aren’t even aware of it. Are we in the middle of an “eCommerce bubble”?

Jaap Buitendijk / Paramount Pictures


There’s an Oscar-nominated movie in theaters right now called “The Big Short,” based on the true story (as examined in Michael Lewis’ book of the same name) of the buildup of the housing bubble that led to the financial crisis of 2007–2008. At the center of that tale is a small group of people that saw that bubble coming when no one else did and took the then-unthinkable action of betting against — or “shorting” — the housing market … and won big.

As inconceivable as the thought of successfully shorting the housing market was in the mid-2000s, the same could be said today with respect to eCommerce, as online sales are only increasing, with no apparent end in sight. In fact, as the discovery of the recent census data error in reporting online sales reveals, online sales are actually even higher than originally reported — by as much as one-third each year as far back as 2010. But betting against the stocks of online merchants might, in a way, be advisable, says Ralph Dangelmaier, CEO of BlueSnap. Because, as he recently explained to MPD CEO Karen Webster, he sees what is possibly a bubble in that market, too — one with, potentially, a pretty hard landing.

“As we’re working with merchants and converting them from one payment gateway to ours, we’re seeing that the number of sales is increasing,” says Dangelmaier. “What that means is that they’re losing sales in their current checkout process, and almost none of the merchants know that until it’s pointed out to them.”

The up to 40 percent of online sales that are not going through — in many cases, without merchants even realizing it — is potentially leading to what Dangelmaier is calling “the new big short,” and he attributes the issue to three factors: friction in the checkout process, consumer confidence in a merchant and how merchants handle payment declines.

Shopper Buy Cycle Infographic

BlueSnap’s shopper buy cycle visual tells the real story of where the breakdowns that drive sales out of the merchant’s virtual door occurs — breakdowns that are “not all weighed equally,” Dangelmaier tells Webster, “and need to be constantly monitored.”

The issue of friction at checkout is “probably weighted much higher” than the other two factors, says Dangelmaier, who explains that “the biggest thing we’re hearing from merchants right now is ‘frictionless, frictionless, frictionless’ — everybody wants to be like Uber and Amazon; they just don’t know how to do that.”

The area with the second most weight is the merchant’s ability to deal with declines. Dangelmaier is seeing a lot of what he calls “currency acquiring mismatches,” where a consumer is purchasing with a foreign currency (compared to the merchant’s); that can often lead to valid transactions being declined because they’re flagged as fraudulent.

Consumer confidence in a merchant is likely weighted third on the list, although it’s still a vital part of a successful transaction. If a merchant lacks offerings like live chat and a security logo on its site, explains Dangelmaier, that can lead to shopping cart abandonment.

These types of breakdowns are “not really easy to fix,” according to Dangelmaier, largely because a lot of merchants don’t have the data on what’s wrong or where transactions are failing. That data obviously can’t be optimized if it’s inaccessible.

Even in cases where they do have that data, Dangelmaier has observed that merchants don’t have a process in place “to really look at it on a continual basis — monthly or quarterly — to find out where it is.”

“They’re not using tools that are available to them,” he goes on to say, “from their payment gateway or from the websites.”

Beyond general unawareness of this pervasive problem, another reason that merchants aren’t rushing to repair the breakdowns causing it is what Dangelmaier refers to as the tendency for merchants to “set and forget” in an API.

“They don’t realize that what they really need to do,” Dangelmaier tells Webster, “is look at the data, use things like Google Analytics, use data reporting they get from the gateways, evaluate where their problems are, adjust — and wash, rinse, repeat.”

For merchants seeking to offset “the new big short” by gaining back their portion of the 40 percent of online sales that are currently being lost, Dangelmaier says they need to look carefully at their own checkout conversion process to diagnose where their own breakdowns can occur and then benchmark themselves against how other merchants are doing. That benchmarking study, the Checkout Conversion Index, provides details with respect to the specific areas of friction that contribute to checkout failures.

“Generally speaking,” he remarks, “there isn’t anyone at [most merchants] that really owns that process on a regular basis.”

Until that changes, concludes Dangelmaier, “[those] that get it right — like Amazon — are going to have much higher success rates than other merchants.”


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