Chicken and egg – adding new payment methods
How to build a business case for adopting new ways to pay
Credit cards, debit cards, e-wallets, Google Pay, Apple Pay, PayPal, Klarna… there’s a vast range of payment methods for customers and it’s only getting vaster.
What’s the benefit of adding yet another?
Building a business case for adding a new payment method is tough. The cost is clear and certain but the benefit can sometimes be uncertain.
This thinking comes from a combined team, The Foundation, experts in customer-led business success, and Judopay, leading payment solutions provider. The work we did together included conducting interviews with business leaders across sectors to learn about the payment journey their organisation has been on.
We found that organisations in the charitable sector have particular difficulty with this conundrum. We spoke to leaders from Comic Relief and The National Trust and what was immediately clear was that charities are cautious about any investment they make. Any money spent on something not directly connected to their cause has to be justified and is likely to be questioned not just by the executive team but by supporters, expert observers, and the media.
As Sharon Pickford, Director of Support and Revenue at the National Trust put it, “every penny we spend is weighed up against preserving some habitat or saving some property…”. The external pressure is significant too. Organisations like CharityWatch publish ‘program percentage’ statistics which tell donors what proportion of their contributions are spent directly on the charitable cause compared to the overheads of the organisation. The strong assumption is that overheads are bad even if closer understanding might reveal that they lead to more income or more effective work on the front line.
With such a tight grip on costs internally and externally, it is little wonder that adding new payment methods creates particular nervousness in the sector. The National Trust accepts cash, card payments, and even PayPal. Would accepting Apple Pay in addition really increase spending in the online shop? Or would it just offer more choice to the same customers, people who would have spent anyway?
However, there IS evidence that adding payment methods leads to an increase in transactions and value, not just in customer choice. The problem is that the evidence for a business comes after the decision, not before.
Peter Duffy, former CCO at easyJet, CEO at Just Eat and now CEO at the Moneysupermarket Group, told us that each time they added a new payment method the data was clear - the organisation saw an uplift in transactions.
This seems surprising, including initially to Peter as well. Assuming an organisation offers the main payment types available to the vast majority of the market, why would adding another one increase transactions? Surely there can’t be a group of customers unable to pay using Visa or MasterCard, and who can only be reached with Apple Pay? Peter’s data-led approach to this was, in the end, simple. He didn’t need to worry about why the addition saw an increase in revenue. Having the data to prove it did was enough.
But what is going on? The question needs to be reframed. Perhaps this is not about providing enough payment methods. Perhaps allowing customers to use new and better ways to pay means they choose to pay more. This could be a payment method that feels more secure, one that doesn’t require card details to be entered, or one that is just quicker and easier to use.
A 2018 study by SaleCycle, a US-based sales conversion specialist, looked at ‘abandonment’ surveys for various organisations. These surveys asked customers why they were leaving an e-commerce website. Amongst the top 1,000 US e-commerce sites, 77% of customers who added an item to the cart left the site without making a purchase. For travel sites, this was higher still at 81%. Much of this was a result of ‘shopping around’. Some customers gave up on a purchase due to cost, shipping options or technical issues. But 6% of customers reported abandoning the purchase due to lack of preferred payment options. Clearly this is a minority of the 77% but losing more than one in twenty of all customers’ potential buying decisions because of something completely in the control of an organisation is huge.
Quicker payment methods, ones which feel more convenient or more secure have been shown to reduce cart abandonment for customers. Amazon Prime members using Amazon Pay have been shown to be higher spenders across online shopping beyond the Amazon store. Within two weeks of adding Amazon Pay, the fashion brand All Saints reported 24% of its customer transactions were using the new payment type. It not only increased customer reach; the average order value was also 15% higher. It wasn’t that there was a group of customers unable to pay with the payment options offered before, it was that customers abandoned carts marginally less often when they could use their preferred payment option. In this case, the benefit to customers was likely ease. Those paying with the Amazon Pay facility checked out on average 70 seconds faster. The customers doing this were higher value spenders thus increasing the order value not just the number of orders.
By offering customers their preferred payment method of the moment, All Saints had increased the number of customer decisions they earned from a segment of high value customers. It is at the margins, but it is still an effect that is worth a great deal.
The evidence from All Saints, easyJet and Just Eat suggests that providing customers with their preferred payment method, recognising that this continually evolves, works for organisations. The business case to add new payment methods remains hard to build in advance though, especially for organisations where there is significant scrutiny of their costs.
Our conclusion is that to decide to add a new payment method, what an organisation really needs is not a business case, but belief. They need to believe that doing something beneficial for customers is highly likely to lead to success for the organisation too.
This kind of belief is what, we have learned, invariably sits behind customer-led success.
If a new payment method makes the process of payment better for a significant minority of customers, then this is enough. If it genuinely makes the payment easier, more secure, faster, more convenient, if it lets enough customers use a payment method they prefer (even if they have alternatives they could use too) then it is likely to be good for the business as well.
The test is: “Does it work for customers?”
If it works for them, then it is likely it will work for the organisation too.
Charlie Dawson established The Foundation in 1999 with the aim of helping organisations be more sustainably successful by being customer, not financially, led.
His original inspiration came from working on a new car company launch, Daewoo, that did this by happy accident to great effect, breaking records for speed of growth and disrupting an inward-looking market.
Previous clients include: HSBC, Morrisons, eBay, Harvey Nichols and Eurostar
Edmund Bradbury's move into consulting came from professional sport. Edmund experienced his own customer-led success story altering the traditional model of cycling sponsorship from paid (and not very effective!) advertising to really getting to the heart of what sponsors valued. He now helps other organisations unlock their own customer-led success stories, drawing from his pro sport experience and neuroscience background.
Previous clients include: Tesco Mobile, Lowell, HSBC, Pennington’s Law and Simplyhealth.