Payment Methods

How Payments Will Save Retail

I, Shopper, take thee, Online Retailer, to be my faithful partner in commerce. To have and to hold from this day forward — for better, for worse; for richer, for poorer; in sickness and in health — to love and to cherish, till death us do part.

Shoppers just aren’t as loyal as they once were.

Today, fewer than a third say that membership in loyalty programs drives their choice of retailer. That’s down 13 percent in just 5 years.

Fewer than half say that they even use their loyalty benefits when they shop. In today’s competitive retail environment, discounts are abundant, and the benefits of loyalty programs don’t necessarily afford those shoppers any better deals than they can get by simply showing up at another retailer’s physical or virtual storefront. What, instead, drives consumer choice more than anything else these days are those discounts — and free shipping.

It’s not surprising, then, that Amazon rules the roost. It was they, after all, who redefined the retail playbook by bundling free shipping and low prices around a loyalty program that consumers paid to join! Who’da thunk it?

But that’s only the half of it. There’s another reason why Amazon rules the retail roost and shoppers are unfaithful to many of its competitors.


Consumers are increasingly moving their shopping and buying not only online, but online via the mobile devices. Small screens and shoppers on the move require a checkout process that’s efficient and void of friction if a merchant actually wants to convert those shoppers to buyers.

As friction-free as it used to be in the physical store in the good of days before EMV when swiping was easy and fast.

As efficient as one-click checkout has always been on Amazon.

Something that most online retailers don’t have – or even come close to having.

Here’s the evidence.

Just took a look at our second Checkout Conversion Index (CCI) – a collaboration between PYMNTS and BlueSnap. We’ll release the full results on Thursday, March 3. What it shows is that, if anything, the friction involved at moving through the online shopping and buying process at online retailers is getting worse, not better.

And that’s a pretty troubling state of affairs since retailer after retailer has declared publicly that digital is their future. And what’s needed to save their bottom lines.


CCI scoring is the result of shopping 657 sites and applying 55 attributes to those sites to determine how easy it is for consumers to shop online. And guess what? If it’s friction-filled to shop online, then it’s a total nightmare on the mobile device.

These 657 sites exclude Amazon but account for 70 percent of all online sales in the U.S. We examine the entire process – what happens before and after a consumer hits the “buy button.”

When we published our first report on Cyber Monday, even the dismal scientists who built and ran the model were stunned at just how badly these 657 online retailers scored overall.

On a scale of 0 to 100, the average Checkout Conversion Index score was about a 55-54.8 to be precise. That meant that most online retailers almost set themselves up for a retailer/shopper breakup – aka checkout abandonment – at the start. Using regression models and calculating conversion rates to sales, we then estimated the cost of that breakup with consumers cost retailers, overall, about 42 percent of their sales.
But believe it or not, in just three months, things have actually gotten a bit worse.
We shopped those 657 sites again in January and now have 36,000 data points that support this conclusion. Once again, our dismal scientists were totally bummed out.

The overall Checkout Conversion Index score dropped 3.1 percent to 53. Now that may not sound like a big deal or even enough to push the panic button. But this decline happened  in the space of just three months.

For kicks this time, we decided to implement a grading system for all 657 sites we shopped – and we even graded on a curve. So, if a site scored a 75 or above, they got an “A.” (Hey, our dismal scientists were doing their best to spread some sunshine on this situation.)
Even that didn’t help.
Only four sites of the 657 got an A. Yes, FOUR! And that’s three fewer than did in October – even when we graded on a curve.

Another 110 got a B, scoring between 65 and 75.

But here’s perhaps the biggest disappointment: 48 percent of the 657 sites got a failing grade – a “D” or an “F,” scoring 55 or below.

(BTW thankfully we didn’t have this curve when we were in school or the payments industry would be real mess. And you better hope your kids don’t now either. Otherwise, kiss goodbye any chance that they’ll do well enough to support you in your golden, olden years.)

Only 133 sites, overall, improved their scores, but 211 saw their CCI scores decline by more than 5 points. Hey, when the average CCI score is a 53 and the score drops 5 points, that’s alarming.

This time we estimated the hit to sales to be worse, too, increasing from 42 percent to about 44 percent.

That’s about $158 billion in sales this year.

That means that an online retailer that clocks $6 million or $7 million in annual sales could stand to lose between $3.3 million and $4 million in 2016. And probably even more in 2017 as those shoppers just never come back to try again. And worst of all, maybe not even know it.

Of course, those aren’t dollars that are lost forever; someone gets the benefit of those sales. Like, say Amazon, for instance.


Interestingly, the size of merchant had nothing to do with who got the A’s and who got the F’s. In fact, some of the largest retailers scored the worst. I’ll tell you why I think that’s the case in a minute.

Those who did best actually tried to make the online process via mobile as easy and efficient as it used to be to shop and checkout in a physical store.

  • They minimize the number of steps it takes to start and finish the checkout process.
  • They pay attention to the little things that make for a better shopping experience – like having a check box that makes the shipping address the same as billing, or offering discounts at checkout and live help – just like one would have access to while shopping in a store.
  • None of them require a profile to checkout. Can you imagine how many consumers would just walk out of a physical store if they had to fill out their name, email and phone number before they paid for the stuff that they had in their baskets and put on the counter to pay for? Sure, some stores now ask for all or some of that stuff at the end of the checkout process. And sometimes it is positioned as a way to get an electronic receipt – which is frankly a value-added benefit. Or whether a customer would like to enroll in a loyalty program or be added to the retailer’s mailing list – but never is that a condition upon which payment and checkout is predicated. Shoppers have the option to grab their bags and run away if they’d like, but with their purchase in hand.
  • And the very best sites offer payments options that reflect the preferences of the shopper.

Which is why payments could now save retail – since the preferences of those shoppers is to shop and buy online and increasingly use their mobile devices to do that.


It wasn’t always that way. Actually for the last five or more years, the retailers themselves and the payments industry got retailers off track.

The payments industry got behind a narrative that smartphones with NFC- enabled wallets is what consumers were dying to use in-store to pay for stuff. That it would reinvent the retail and checkout experience in the store. You remember that, right? The industry tried very hard to convince the retailers that consumers needed this thing called a mobile wallet that was the digital version of their physical wallet. It could aggregate payments cards, loyalty cards, store coupons, and maybe even convert a consumer’s physical identity into something digital so that a consumer could literally leave home without her wallet.

And since the argument was that 96 percent of shopping still happened in physical stores, giving consumers that option would help retailers move that consumer to a mobile-enabled digital checkout experience.

Except there were a few things wrong with that narrative. 

First, as we know, have written about extensively and started a war with the Census Department over, the Census Data reporting on the mix of physical and online sales is flawed – massively – and has been for years. They today say that 95 percent of sales still happen in a physical store.

We believe that’s too low.

Large physical retailers apparently don’t report all the online sales, although it is pretty much impossible to get the Census to provide any insight into how big their data error is. But beyond that, whether the right figure is 95% or 90% (what our calculations show), it’s an average across all retailers. That’s also like saying the average winter temperature in Boston is 37 degrees. We’ve had days this season where it was -11 degrees Fahrenheit and multiple days where it was +65 degrees. In retail, in some categories like electronics and apparel, the percentage of online to physical retail sales is probably much, much higher than any “average” and quickly moving north.

Now the big retailers like Walmart, Target, Kohls, Macy’s, Gap and JC Penney don’t need the Census’ bad data to tell them that their shoppers are now shifting to online and going online via the mobile device. Their sales numbers show that. Yet, for the last five years, our industry had retailers focused on solving a problem that didn’t exist for any shopper walking up to checkout to pay for stuff in their physical stores.

In fact, outside of Starbucks – still the single greatest in-store mobile wallet success story in history that really wrapped loyalty around digital payments — consumers with mobile wallets encountered more friction than a benefit when they tried to use a mobile wallet in a store. Nearly 100 percent of these wallets were NFC-enabled for the most part, a technology that merchants didn’t support nor want to invest to support.
Then, the retailers distracted themselves.
Not wanting their digital futures to be tied to third party-branded wallets, retailers set off to develop their own mobile wallet solution – MCX/CurrentC – which turned out to be a complete dud.

I wrote in 2013 in that MCX would go nowhere. In the MCX Fairy Tale that I wrote that year, I said that this story could never have a happy ending. And it doesn’t. After years of struggle, MCX is floundering and breaking apart at the seams, with even the biggest of the big founding partners, Walmart, pursuing its own solution. No one in MCX-land is living happily ever after now and it’s debatable that they ever did.
Those two things independently and collectively contributed to the lousy Checkout Conversion Index scores for retailers that we see today — and that we’ve watched decline over the last three months.
Retailers simply focused on where there wasn’t a problem – in-store – instead of where there is a real problem – checking out online, especially when that’s happening via a mobile device.

So now, merchants – especially the big ones — lost years of making the digital shopping and buying environment every bit as good as what they have (or maybe had) in the physical stores that consumers now don’t want to visit as often as they once did.

It’s also why pure-play etailers score higher overall in our Checkout Conversion Index. It’s why the smaller guys who knew that they had to get it right online or lose a customer score highly, too. It’s why the big guys, who’ve been focused on the wrong thing for way too long, have the worst performance and such a long road to hoe to make things better.

And why the payments players that can help retailers save their marriages to consumers by reducing checkout abandonment – and help save retail.


Take PayPal for example.

As a payments player that grew up digital. PayPal had to – and has to – get it right. They exist only because they removed the friction from checking out online and really blazed the online digital trail for all of the online retailers that weren’t Amazon. Today, they have 1 million merchants enabled to checkout via PayPal — including 50 percent of the top 1000 online retailers — and are powering marketplaces like Pinterest. Its new partnerships with telcos provide distribution for PayPal to hundreds of millions of those telco subscribers. One Touch and a variety of user enhancements now make one-click checkout more streamlined for its merchants and 180 million accountholders. They are adding tons of value online – offline in stores, not so much. Which, right now, isn’t where retail’s house is burning to the ground.

Then there’s Visa.

Visa ditched its mobile wallet ambitions ( a couple of years back too, recognizing that the most important thing for retailers online was making it easier to get their customers through checkout as quickly as possible. Visa Checkout, which launched in 2014, has 11 million users now and will expand to 16 markets. A variety of user enhancements will launch next month, further reducing checkout abandonment and making the underlying payment account a more efficient platform for applying offers, coupons and loyalty without the consumer having to remember to. Fixing how their plastic cards or mobile wallets work in a store isn’t solving a big retailer pain point right now.

MasterCard is doing the same thing. It announced a variety of partnerships last week with telcos that will expand the reach of its MasterPass mark. MasterCard is also using its Developer platform to give the innovators who are trying to solve checkout problems for retailers a way to more easily embed its checkout function in that app or online experience. Making it efficient for consumers to use mobile devices to buy online is the biggest help they can provide merchants right now.

Of course, Amazon is working hard to get Pay With Amazon outside of Amazon – banking on the trust with their consumers and one-click checkout to boost online conversions.

And why Android Pay is focusing in-app.

Why Samsung Pay has announced that it will also offer an online solution and is tucking payments into a lot of connected commerce experiences like fuel via the car.

Why LevelUp helps physical QSRs solve more problems far bigger than checkout problems – like cost of labor and margin problems — by enabling mobile order ahead via their app.

Why Walmart Pay recognized that the power of their physical store mobile checkout was to take every single customer – the 22 million each month who shop in their stores — and make them capable of using those accounts to shop in the physical store.

And what every single online checkout mark with a critical mass of customers can do, too.

That’s, of course, just the beginning.

Retailers have to be open for business for the consumers with mobile devices all over the world searching for places to spend their money. Being able to accommodate those shoppers means presenting the payments methods that those consumers want to use, including the buy buttons that make it efficient to quickly pay and be on their way. And checkout pages that denominate the basket in the currency of the shopper. And acquiring relationships that can fall over to an acquiring bank that is better situated to authorize the transaction.

Basically paying attention to all of the payments things – domestic and cross- border — that contribute to checkout abandonment and the 44 percent sales leakage that introducing friction online pre- and post-checkout delivers.


So can this marriage of online retailers and consumers on mobile devices be saved?


And happily, for retailers, there are payments innovators with robust platforms that can help them maximize the opportunity for checkout conversion.  Whether a retailer is purely online or a mix of clicks and bricks, it’s simply not the case that retailers have to go it alone or struggle to figure all this out alone.

But, given what we are measuring with CCI quarter after quarter, retailers better hop to. Solving the online checkout via mobile device first will make the shift to mobile checkout in-store a whole lot more efficient – and happen a whole lot faster than we’ve seen to date. That doesn’t mean simply mobile-optimizing a friction-filled merchant website. Or just addressing mobile checkout in-store, or even arguing over the cost of payments acceptance. After all, the fastest way to zero interchange, is zero sales. And judging by our numbers, many online retailers are well on their way there, probably without even knowing it.

So, let me know if you’d like an advance copy of the Checkout Conversion Index 24 hours before it’s made available on PYMNTS. Drop me an email and I’ll see that you get it – and would, of course, love your feedback on our findings.

And, if you’re interested in hearing how the leaders of the largest players in payments see the future of checkout conversion and their view of payments will save retail, we’ve got them, on stage, at The Innovation Project on March 16-17. It’s an impressive lineup of CEOs who rarely, if ever, speak at conferences, the leaders who are igniting every significant mobile wallet in the market, as well as the CEOs of the platforms that are in the trenches helping merchants solve their hairiest checkout conversion problems. I’ll send you a VIP link to get registered.

Oh, and Happy Leap Day!



The How We Shop Report, a PYMNTS collaboration with PayPal, aims to understand how consumers of all ages and incomes are shifting to shopping and paying online in the midst of the COVID-19 pandemic. Our research builds on a series of studies conducted since March, surveying more than 16,000 consumers on how their shopping habits and payments preferences are changing as the crisis continues. This report focuses on our latest survey of 2,163 respondents and examines how their increased appetite for online commerce and digital touchless methods, such as QR codes, contactless cards and digital wallets, is poised to shape the post-pandemic economy.