eCommerce

Why Paying And Buying Should Break Up At Checkout

Checkout friction and shopping cart abandonment is estimated to be a $4 trillion problem plaguing online merchants today.

Or so estimates say.

Regardless of the specific figure that problem actually amounts to, there’s one thing everyone in the payments industry can agree on today: there’s too much friction in online checkout, specifically when you’re talking about converting mobile shoppers.

In a recent PYMNTS webinar titled “The Shopping Cart Abandonment Fix” between MPD CEO Karen Webster, Klarna North America CEO Brian Billingsley, and Provenir Managing Director Paul Thomas, the three payments pundits dug into how changing the way consumers pay by separating it from the shopping process can help merchants achieve what they’re after most: more conversions.

Why All The Friction?

Webster kicked off the conversation with a brief anecdote about Marilyn Monroe — bringing new meaning to one of Monroe’s most famous sayings. “The one thing Marilyn Monroe was never quite famous for was her business acumens — although one of her more quotable quotes just might pop her to the top of that list, at least as far as mobile commerce and this conversation is concerned. Of life and relationships, of which she had many, she once said, ‘sometimes things have to fall apart so that they can fall together better later.'”

Interestingly enough, Webster said, that can be applied to today’s modern payments problem when it comes to removing friction from checkout. And one not so obvious fix? Separating buying from paying. Or to paraphrase Monroe: “Having payments and buying sort of fall apart at checkout conversions can fall together for the benefit of the merchant and the consumer.”

Especially on mobile.

That’s where Klarna’s perspective comes into play.

Klarna, a payments and eCommerce-as-a-Service firm that was established in 2005 with the mission of making shopping online easy and hassle-free for merchants and consumers, did just that in a time when it was anything but easy, Webster says. In turn, its model has helped define what it really means to have one-click checkout so customers can buy what they want, try it out and settle the transaction later. And last year it brought the model to the U.S.

While many proclaimed that mobile Web was dead, the trends Billingsley was seeing in the mobile commerce market proved just the opposite. Still, the checkout experience on mobile (in many cases) is still quite poor, he said.

But the tide is changing and merchants are starting to catch on to what trends are really driving consumer spend.

“Merchants we are talking/working with are doubling down on their mobile Web strategy because that’s where they are seeing all their volume,” he said.

Yet somehow there’s still an array of friction associated with checking out via mobile. Friction that is costing merchants a bundle every year. At the root of that problem? Forcing consumers to think about paying and buying together is at the center of that problem, according to Klarna’s take on the subject.

“There has to be some level of friction when you’re paying for something. There’s regulatory reasons, there’s legal reasons. And at the end of the day you’re touching people’s money. There’s a lot of information (card number, bank number, etc.) that comes with that. We don’t believe that friction should be transposed on a consumer [for example] telling a merchant that I want that T-shirt,” Billingsley explained in the digital discussion.

This really matters when consumers want to convert via mobile outside of the traditional business day when they aren’t by a desktop or laptop. Today, the checkout conversion problem centers on merchants’ abilities to enable mobile Web optimized sites for consumers who want to purchase at all hours of the day.

To address that pain point, merchants must step back and try to understand how consumers discover those products, Billingsley explained. Mobile is accounting for 50-70 percent of all traffic for online merchants (found through search, social, emails, etc.), but most of that traffic isn’t converting. And on mobile apps? That’s not driving traffic — but the mobile Web is.

In fact, Billingsley says that when looking at a typical conversion issue, 98 out of 100 people leave products in their online carts and walk away. Yes, 98 percent — further highlighting what’s at stake in this matter.

What’s causing this, in many cases, is consumers hitting a paywall, Billingsley said.

“We believe you should make that checkout experience as small as possible,” he explained, pointing toward one-click checkout options.

And that’s where Klarna uses its relationship with Provenir to better understand and use data in order to take friction out of the buying process in a way that can drive up conversions, but still protect the merchant and the consumer during the process. For Klarna, it’s a process that gives the consumers 14 days after initially purchasing a product (in one click) online to make the payment for that item.

Even with the number of mobile wallets and one-click payments checkout experiences in the market, Billingsley tells Webster there is still too much friction in the online checkout experience. For one, digital wallets like Apple Pay (for the moment) only work in-app and in brick-and-mortar. It doesn’t solve the biggest pain problem for online merchants, which is the mobile Web.

Why Data Matters, And How To Manage Risk

There’s one obvious question that comes to mind when looking at the checkout process with merchants who use Klarna’s checkout option, and it’s about how Klarna can afford to take on the risk that the consumer will actually pay, and how it manages fraud. In most cases, Billingsley said, it’s all about trust. It’s also ensuring Klarna is in sync with the payments network’s efforts on tokenization and security to ensure its bases are being covered.

But of course, that trust is backed by droves of data (provided with the help of Provenir’s tech), which gives Klarna the ability to know which consumers are able to use the one-click checkout options. That data comes from a variety of sources, including IP addresses. From there, buying patterns are broken down by time, region and amount of the purchase. Regardless of where or how the transaction occurs, Klarna takes all the credit and fraud risk from the merchant, leaving the merchant to focus on what they care about most.

Which in most cases is about attracting customers, retaining them and driving conversions — which merchants can also do by using Klarna’s data on those customers to help influence each of those factors.

The Platform Underpinning This Solution

How Klarna is able to make judgments about consumers, and how it avoids having the risk shifted from merchants to Klarna has a lot to do with one of its partners, Provenir — a risk analytics platform — which allows a fraud and credit decision to be made in under a second. That also means separating those purchases from payments in just seconds.

Provenir’s role comes into play through its series of tools that enable clients to sketch out processes. Those processes involve merchant onboarding, origination, credit risk, business process automation, decision management and analytics. And with its agnostic approach to data, it makes the process simpler — and enables it to occur in real-time.

“It’s our view that it should be really easy for clients to collect data from any source and truly integrate it into the risk-lifecycle, including using it with [the] modeling analytics tool of their choice,” Thomas explained during the discussion. “We want them to be able to pull all of that data … and to pull the data in real-time. We also want them to be able to use that data and intelligently tell where it’s coming from. Data-driven decisioning — [which] can be based on user behavior on Web form or early intelligence around what that consumer is intending to do — is vital in that process.”

By integrating the business process, the merchant integration and the analytics in real-time, Thomas says they are able to create the frictionless environment that everyone in the industry strives to achieve. But by bringing data together and applying analytics to it, it can help bring about the innovations needed in today’s online checkout ecosystem.

Webster asks what lessons can be learned from data sources in real-time for players who are trying to make instant decisions, making frictionless experiences for consumers and merchants. And to that, Thomas says it’s about orchestration.

“Orchestrating the business process that’s really taught toward the fix that the real industry is trying to achieve. Being able to build workflows, often dynamically,” he explains further. He also notes that it’s about the ability to adapt to customer behavior in almost real-time.

Klarna’s End Game — And The $4 Trillion Question

When it comes to enabling checkout options that are frictionless, Klarna certainly isn’t the only player. But being able to look at the market holistically is what Billingsley says sets it apart. While most of its competitors are focused on providing one solution, he says Klarna is trying to add value where the merchants need help most.

And that’s in addressing the shopping cart abandonment issue.

“[We ask] how we can add tangible value to the merchants where they can see the impact. How do you give consumers great options that actually serve up what they want to see in the right place,” Billingsley explained. “We take what competitors are doing … and encompass that in holistic way that makes sense for merchants and consumers.”

It’s also about the loyalty.

“With all merchants, we work on getting lists and real-time data,” he noted. “Long term, where Klarna can still put loyalty back in consumers’ hands, but make loyalty work for merchants and how they want it — which is to drive retention and drive conversions.”

Speaking of those conversions, Webster asks: “Is shopping cart abandonment really a $4 trillion problem? Or is it really just relevant to a merchant who is trying to convert more customers who come into their site as buyers?”

From Thomas’ perspective, it’s more than just abandonment. It’s about mitigating risk, and other inefficiencies/costs for both the merchants and their customers. Risk plays a big role in this conversation, even if it’s not talked about enough. Instead, conversations about abandonment bring about other challenges, including onboarding, application of data, analytics, integrating, etc.

From Klarna’s perspective, Billingsley says it all comes back to consumer choice and enabling ways to pay and checkout faster, without risk and without friction. And, of course, figuring out how to enable that all on the devices consumers are gravitating to more and more.

Which, of course, is mobile.

“I don’t know if it’s $4 trillion, but it’s certainly not $1 trillion. We do a lot of user tests. While there are reasons consumers abandon carts (shipping fees, how fast they are going to get it, etc.), all of that definitely plays into it. I think you see more eCommerce platforms addressing a lot of those issues. The abandonment isn’t going away.”

And for merchants who don’t address optimizing for the mobile Web, it appears the friction isn’t going away either.

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