By Ed Whitehead, MD Europe, Signifyd
There is no great mystery behind the reasons conversion rate is the gold standard for measuring ecommerce success.
Conversion is where the money is. It’s the moment that the hard work of marketing, merchandising and customer acquisition pays off.
So, is it possible to be too focused on conversion rate? Well, yes. Or at least it’s possible to be too narrowly focused on conversion rate. Think about it? When is a conversion not a conversion?
There are fraudulent orders that result in chargebacks. There are returns that result not only in a lost sale, but additional cost for shipping, restocking or otherwise redistributing the product. There is friendly fraud, when the customer receives their order, but says they didn’t and gets a refund in addition.
All of these misfortunes befall an online seller after a customer clicks the buy button. And all of them can be better managed with a view of fraud management that is tailored for the new era of ecommerce.
First that new era: Few would dispute that the coronavirus pandemic has propelled ecommerce years into the future and that it’s never coming back to its 2019 status.
Global ecommerce sales rose 49% in 2020 over 2019, according to Signifyd’s Ecommerce Pulse data. In February, sales were still tracking 31% above their year-ago figures.
Consumers shifted to online shopping — and they liked it. Nearly 83% of UK consumers said they would be shopping differently post-COVID than they did before the pandemic, according to a Signifyd survey conducted by market researchers Upwave. In significant numbers they said they’d be doing more online shopping and more frequently availing themselves of click-and-collect.
These new realities call for a new way of looking at fraud management — a way that sees fraud management not as a defensive shield, but as a means of revenue optimization.
This new thinking starts with retailers examining the buying journeys they’ve created, so they can identify spots where they are unwittingly leaking revenue due to barriers they’ve placed in the way of customers.
In working with retailers, Signifyd has discovered that retailers are leaving as much as 10% of potential sales on the table due to revenue leakage. This loss occurs because of friction in the buying process — everything from poor user experience, overly conservative payment gateways, outdated fraud management and two-factor authentication.
And with new Strong Customer Authentication (SCA) enforcement coming to the UK in just a few months, it has never been more important to understand where the drop-off is happening.
The good news: Merchants can optimise their sales funnels. And while retailers aren’t oblivious to lost sales and damaged customer relationships, the issues often don’t get the attention they deserve.
Silos make it difficult to see where revenue is leaking
The lack of attention stems from the fact that it’s hard for any one team to see all the holes in the buying journey where revenue leaks. Teams often work in silos, relying on walled off data. By collaborating — marketing, payments, fraud management, customer support, operations and finance can build a more complete view.
Signifyd has developed a way to look at the revenue leakage problem that allows retailers to survey the entire buying journey and plug the leaks. Start with the way payment gateways operate, and rules governing transaction velocity and the like triggered by ecommerce platforms. Add the imperfection in some retailers’ fraud reviews. All of which leads to false declines.
Then, there are returned orders — which can easily reach 20% or higher — and chargeback claims to deal with. Before you know it, the initial set of customers that marketing acquired has shrunk by as much as 30% in some of the hardest hit verticals.
So, what do you do about revenue leakage?
What should retailers do to tighten up those journeys so they do not leak revenue?
The first step is to break down the internal, organizational barriers that prevent retailers’ customers from completing a sale. Data and communication silos have to go, so that all teams have a clear and unified vision of the buying funnel that encourages collaboration.
Next, merchants need to develop a revenue leakage dashboard that provides a comprehensive view of the buyer’s journey to help assess and plug holes. Retailers then need to establish a revenue-leakage benchmark. In short, merchants need to know where they stand in comparison to others in the same space. There is a whole industry of consultants whose expertise can be drawn on.
From there, retailers can identify the biggest leakage problems and go to work on those. The next part of that phase includes optimising that trouble spot; measuring improvements and testing effectiveness; then moving to the next problem and repeating the cycle again.
One likely suspect, where revenue normally leaks, is at the payment level. Significant progress can be made here and retailers should trust their fraud professionals to drive the relationship with payment gateways in their favour. Typically payment gateways try to dictate how risk management operations perform and so we advise that inhouse fraud experts strive to drive and control this relationship.
Fraud fear kills conversions
Beyond reviewing outside payment processors, retailers need to assess their own fraud tools and processes. Experts can, appropriately and easily, review and disable some rules and filters activated by payment gateways, ecommerce platforms and card processors to see what orders are not getting through systems. Also, retailers should strive to understand whether they are suffering from an unreasonably high percentage of declines from payment partners. Accessing benchmark data from the likes of Visa can help here.
Finally, merchants should evaluate the market for SCA solutions that will allow them to provide the best customer experience and minimise the number of step-ups caused by SCA.
Marrying modern fraud management with the right ecommerce platform, the right design and user-experience can stem revenue leakage and preserve lifetime customer value – giving retailers the confidence to serve more legitimate customers in the way they want to be served.