Payments Powering the Platform Economy

How Fashion eCommerce Payments Can Be Designed For Cross-Border Appeal

When it comes to appeasing cross-border shoppers, a one-size-fits-all approach can fall short. Winning over customers worldwide requires merchants to offer a secure, localized payment experience — which is no easy task, according to Kai-Uwe Mokros, payments managing directors at fashion eTailer Zalando. In our first Payments Powering The Platform Economy Report, Mokros discusses the security and infrastructure challenges that can get in the way of cross-border sales — and how retailers can navigate them with machine learning.

The international eCommerce market grew to $412 billion by the end of 2019 — a 4 percent improvement over the previous year.

Online transactions are more important than ever amid the coronavirus pandemic, which has consumers following stay-at-home directives and merchants shifting commerce online after temporarily closing their in-person operations. Sellers need to understand each market’s local payment preferences to effectively reach them.

Buyers used local payment methods for 77 percent of worldwide eCommerce in 2019, and that figure is projected to reach 82 percent by 2024. This means it is critical that online merchants quickly learn which payment methods are most wanted in each country and identify the markets most receptive to more international purchasing tools like global credit cards.

One way that international companies may seek to provide flexible and streamlined purchasing experiences is by working with payment orchestration platforms (POPs). These platforms enable merchants to integrate with a variety of localized payment methods and also receive services that support payments analysis, regulatory compliance and more.

Finding the right international payments approach is a major concern for fashion retailer Zalando, which sells domestically in its home country of Germany and across borders to customers in other parts of Europe. Winning consumers in 17 different markets involves tailoring payment offerings to each nation’s preferences, Rick Centeno and Kai-Uwe Mokros, the company’s payments managing directors, explained in a recent interview with PYMNTS. Compelling checkout transactions require current knowledge of the payment instruments consumers want to use as well as an understanding of when exactly they want to pay.

Extending Across Europe

Serving various markets means being ready to accept payments made with several instruments and methods, Mokros said. Getting the payment offerings right can be bumpy, and they may need constant adjustments.

“Our goal is to identify the ideal domestic payment mix,” Centeno added. “To do so, we rely on an iterative trial-and-error approach.”

Zalando has found that mainstream global credit cards like American Express, Diners Club, Mastercard and Visa are useful in markets like France, the U.K. and Scandinavia. Cards can be critical to serving the U.K. as consumers there tend to make 90 percent of their online purchases via this method.

Such payments are not as popular elsewhere, however. Credit card offerings fall flat for Italian eCommerce consumers, Mokros said, and some players in the space have found that prepaid debit and mobile wallets tend to be popular online transaction tools for them. He added that supporting purchasing via local payment systems was key to opening some markets.

“It is our goal to put the customers in the driver’s seat and let them decide when and where they get their parcels delivered as well as when and how they want to pay,” Mokros said. “Today, we offer 22 different payment methods and accept eight different currencies to meet local preferences.”

Local methods are a must for serving Finland and the Netherlands, for example. Zalando had to enable transactions via online payments service Svea Payments — also known as Maksuturva — to cater to Finnish customers. Serving Dutch consumers, however, required supporting iDEAL, a national method that enables funds to be transferred directly from users’ bank accounts. A 2017 study found that 95 percent of Dutch consumers used iDEAL for eCommerce, with the next most popular payment methods, credit cards and PayPal, used by 50 percent and 31 percent, respectively.

Serving German customers has required the company to consider not only the payment methods it offers but also payments’ timelines. Mokros explained that Germans tend to prefer paying for online offerings via paper invoices, which are dropped off along with customers’ packages. Consumers are then given two to four weeks before being required to pay, while eCommerce merchants are compensated at the point of purchase by third-party payment providers that collect invoice payments from shoppers. This means consumers do not have to enter payment details when checking out — just delivery addresses — and do not need to worry about fraudsters trying to steal sensitive payment data, which may explain the method’s strong support.

A 2020 survey reported that 22 percent of local consumers would like to use invoices for online purchasing, indicating high approval for the method. Invoices are not the only payment approach important in Germany, however, and the share of eCommerce shoppers who said they favored invoices was surpassed by the 57 percent who preferred PayPal. Merchants may be wise to follow these customer segments and consider how to provide a seamless and secure payment experience.

Enabling a vast array of payment options for meetings customers’ expectations can be tricky, however. Some merchants may struggle to create and manage integrations with an array of payment providers, for example, or lack the resources to analyze the most efficient way to route the different customer payments they accept. POPs can step in and provide these kinds of supports. Merchants that connect to POPs can gain access to many payment types and providers around the globe while also receiving payment-related services like transaction routing, analytics, checkout optimization and risk assessment.

“Integrating over 20 local payment options requires numerous technical resources,” Zalando Corporate Communications Manager Anne Gläßer said. “Every merchant needs to decide on whether direct integrations or orchestration platforms are more beneficial for them, as this depends among others on their business models, resources or technology focuses.”

Zalando’s work to serve cross-border customers has required doing more than just determining integration strategies to accept different local payment options. The company also has had to explore optimizing when it asks customers to pay for their items.

Try Now, Pay Later

Zalando’s efforts to create compelling purchasing experiences throughout Europe have found that customers are generally drawn to flexible payment timelines regardless of the country in which they reside. The company has been testing ways to allow consumers to try clothing on before deciding whether to pay by credit card or return the items, Centeno explained. The method comes with both risks and rewards: Zalando debuted it in France in 2016 and Denmark in 2018, finding that customers tend to be more willing to buy — and purchase greater amounts — when given the ability to pay later, Mokros said.

“Introducing deferred payment methods changed consumers’ purchase behaviors rapidly,” he said. “[That behavior] shifted toward bigger basket sizes, higher conversion and retention rates [and] higher customer satisfaction, but also higher return rates.”

Having to pay for return shipment can be costly to eTailers, and fraudsters present another problem as well. The ability to acquire goods without having to pay first tempts criminals to place pay-later orders, receive the items and then never submit funds for the goods they received. Avoiding major harm requires being able to differentiate legitimate orders from risky ones, and Zalando relies on machine learning (ML)-enhanced tools to help it rapidly assess such risks.

Zalando has found pay later a worthwhile offering, despite such challenges. The method has become the most popular payment choice for French customers and the second-most popular in Denmark. The company has since made efforts to expand the option into other European markets and began piloting a new variant in fall 2019 that enables shoppers to choose from more payment instruments for these transactions.

“Customers can choose from a full menu of payment options for the items they keep, including PayPal, for instance,” Centeno said. “This is not only compliant with the [revised Payment Services Directive] but also provides an unmatched level of flexibility and convenience tailored to our customers’ individual preferences.”

Merchants must find ways to provide these kinds of conveniences safely. That entails either adopting their own security solutions or working with platforms like POPs that offer payment card industry (PCI)-compliant payment data protection and customer data tokenization. It is imperative for merchants to ensure that customers’ transactions and data are kept safe.

Extending compelling eCommerce experiences across borders can be tricky and only occurs successfully with careful investigation of local purchasing preferences. POPs can alleviate some of the technical challenges, helping merchants focus on customer experiences. Creating the right purchasing offerings can pay off with happier customers and higher transaction volumes, however.

Current stay-at-home orders have put eTailers in the spotlight, giving them a chance to demonstrate their advantages and provide the convenience that many customers are craving now more than ever.

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