On The Agenda: The Power of Payments in Driving Digital Transformation

With smartphone penetration a done deal, 4G speeds now common and all our food and merchandise orderable online and delivered straight to the front door, you might guess the digital transformation of business and society is nearing a kind of completion. We’re there.

Guess again.

According to PYMNTS’ ConnectedEconomy (CE) Index, a new benchmarking tool gauging the progress of digital transformation by the behaviors of over 15,100 consumers in 11 countries that make up half of total global GDP, we’ve attained a collective score of just 27 out of 100.

Sounds anemic after two-plus years of furious innovation and transformation, and some are further along than others. Discussing the topic — and the study series “Benchmarking The World’s Digital Transformation,” a PYMNTS and Stripe collaboration — we put the question of digital transformation to a panel of diverse panel of experts for a look under the hood.

Panelists included Sophie Sakellariadis, product lead, payment methods at Stripe; Brandon Hayes, director financial services at The Home Depot; and Nicolas Capuono, chief customer officer at Adore Me, moderated by PYMNTS’ Karen Webster.

Sakellariadis kicked it off by saying, “on a global scale it didn’t surprise me at all” that the world’s digital transformation is just over one-quarter complete in the second quarter of 2022.

“At Stripe we often talk about how we’re really at day zero and there’s just so much runway left to grow the share of online payments,” she said. “We look at those numbers and feel excited at how much work there is that we can do to make things better for shoppers and merchants.”

Getting right to root causes, Hayes said, “There are probably a lot of things that are just natural breaks to how quickly you can move. One that I find all the time at Home Depot is just awareness. Do people even know that we have this capability?”

Describing focus groups where builders and DIY consumers would talk about digital features they’d like to have, Hayes said, “I’m thinking, ‘Our app can do that, that, and they just don’t know it.’ We haven’t found a way to communicate that. Another example you see is the banks would tell you 40% of people are carrying around a contactless card, [but only] 20% of people know it. Again, even though we’ve communicated that information, they’re just not there.”

And he added that “the U.S. payment system is not bad. Could it be better? Yes. But a lot of people are like, ‘I don’t know that I see enough value to go figure out how to learn the digital side of it when basically the system I have today is OK.’”

For a digital-native brand like Adore Me, Capuono said, “We were very aware that offering a great customer experience online is important. There are two things that we need to focus on. One is one how you bridge the gap to create this connection with the product. On the other side is payments.”

“It’s true that working with Stripe, for instance, is very core to Adore Me because this frictionless checkout is something that our customers value a lot. That’s why we saw massive growth, beyond the norm,” he said, noting that online luxury sales went from about zero a decade ago to between 20% and 25% of sales volume today.

Get the study: Benchmarking World’s Digital Transformation

The Many Flavors of Choice

A key finding of PYMNTS’ digital benchmarking work is some myth-busting around the idea that millennials and younger demographic groups can bring about digital transformation alone. Our research found the opposite: all demographic groups are needed to complete the shift.

For Home Depot, Hayes said, “We are creating very different digital experiences for pros and DIYs. When you come into our website or mobile app, you are segmented into a DIY or pro experience, really to try to facilitate some of those shopping characteristics, as well as purchase characteristics, that we need.”

That’s one way of speeding digital transformation. Another is removing friction from digital experiences, and that’s a sweet spot for Stripe. “We sometimes say payments is behind the rest of the internet,” Sakellariadis said.

“One real trend that we’re seeing is that given the way some of these new payment methods are popping up, it’s structurally very difficult to accept many of them, both from a UI standpoint — you have to figure out how to show the right payment method to the right customer — as well as from an operational standpoint.”

Payments choice is a prime move of the connected economy and corresponding CE Index scores, and even Stripe itself isn’t fully transformed in this regard. At least not yet.

“That’s one area that we’re really focused on fixing, is leveraging our financial capabilities to enable a merchant in country X to convert a buyer in country Y using that buyer’s preferred payment method,” she said. “But even domestically, we see this as a pretty big pain point. Some of the outcomes of offering installment-based payments for example, are remarkable.”

She cited an internal Stripe study finding that over 1,000 merchants experienced conversion improvements in the range of 25% when adding buy now, pay later (BNPL) as a payment method.

If only it ended there. It doesn’t. “Getting that right, figuring out, ‘this customer is going to want to use Afterpay because we’ve seen them before so I’m going to show them the Afterpay offer versus Klarna and Affirm’ is quite challenging,” she added.

“What we’re really focused on at Stripe is trying to build the infrastructure components that will help companies using us to do that smart UI targeting and matching payment method to customer.”

Hayes invoked the NASCAR effect of proliferating payments buttons on eCommerce sites, saying, “You’ve got 50 different options. How do you tailor them, how do you figure out what people prefer and really try to drive them down? Obviously, when you get into financing you’ve got fair lending rules and you’ve got to make sure everybody’s aware of different options. For us, it is really about where do we see the majority of people wanting to transact?”

His is somewhat of a “less is more” viewpoint, saying that for Home Depot’s base of pros and DIY hobbyists, “Just having a couple key options [is best], as long as you can keep them nice and tailored to that customer, you’d get them in and out much faster.”

From the Adore Me perspective, Capuono said, “This question is very relevant when you are an international brand, because the payment method is not the same in the U.S. versus a country on another continent. I would tend to agree with Brandon about trying to select the major one, of course, finding this balance between a few payment options,” be it what he called “the classic credit card, maybe buy now pay later, maybe a PayPal, a Google Pay, an Apple Pay.”

Get the study: Benchmarking World’s Digital Transformation

Refining the Rails

On the topic of buy now, pay later (BNPL), there wasn’t unanimous agreement that it’s the right feature for every merchant just because it trends strongly among certain demos.

Home Depot’s private label employs what Hayes called a “kind of buy now, pay later tactic to try to show how you can spread out that payment, because all of our purchases over $299 offer six-month financing.”

Nor is BNPL a fit for Adore Me. “We didn’t rush into this payment method. The selling price for Adore Me is somewhere around $40 to $60. [BNPL] is not the bread and butter to increase our conversion rate and our revenue when the selling price is $40 to $60,” Capuono said.

While all panelists agreed that payments choice is indispensable in the connected economy, there are other approaches, like subscription commerce, aiding cash flow and loyalty.

Capuono lauded the return, via streaming platforms like TikTok, of TV-style selling of the Home Shopping Network variety. “The ability to transform with traffic, with connection with the customer into the rest of the experience … will be very important” to transformation, he said.

However, Sakellariadis countered with the fact that Stripe is “seeing more and more customers develop brand loyalty to different payment methods. Cash App is another example of a payment method that has a really loyal customer base.”

She continued, “As Nicholas was mentioning, they still have some work to do to close the gaps between the buyer preference and what needs to be true for the merchant to make those payment methods usable, and to convert that new buyer preference and buyer reach.”

Pointing to underlying issues posing barriers to 100% digital transformation, Sakellariadis said, “If you have a really low AOV or want to enable things like tipping or an app payment, the prominent rails in the U.S. today are poorly structured commercially for those types of payments. One thing Stripe is working on is partnering with existing payment providers, and new ones, to figure out ways that we can get a better commercial model for transactions.”

She said China is doing a good job of this, particularly regarding microtransactions that game platforms (and eventually probably the metaverse) use to sell to highly engaged consumers.

“There’s a lot of infrastructure that needs to get built to connect the loop between buyer issuer and merchant,” Sakellariadis added. “What we’re most excited about, which is probably boring outside of the geeks inside Stripe, is connecting the dots to enable the issuers to really drive that transformation through buyer to merchant faster and more effectively.”

Get the study: Benchmarking World’s Digital Transformation