4 Signs Your Payment Strategy Needs To Be Modernized

With the payments market set to soar to $4.7 trillion by 2032, businesses must stay ahead of the curve. The significant growth from $1.5 trillion in 2022 underscores the need for a robust, user-friendly, scalable, and future-proof payment strategy. If you recognize these four signs, it’s time for an overhaul.

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Payments market set to soar to $4.7 trillion by 2032.

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The Ripple Effect of Ineffective Payments Strategy

Inefficient payment systems result in higher transaction failure rates, causing customer frustration and abandoned carts. The Subscription Trade Association (SUBTA) notes that consumer subscription brands lose about 10% of revenue due to failed payments, with nearly a third of subscribers likely to cancel following a failed payment.

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“Consumer subscription brands experience close to a 10% loss in revenue due to failed payments...Nearly a third of subscribers revealed that they were likely to cancel a subscription following a failed payment.”

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Outdated payment systems also incur higher transaction fees, increased chargeback rates, and the costs associated with managing manual processes. For instance, systems that lack automated reconciliation require finance teams to spend extensive hours verifying transactions and resolving discrepancies, diverting resources from strategic growth activities. Additionally, outdated strategies often lack advanced fraud detection, leading to increased fraud and further eroding profit margins.

1. Revenue Loss Due to Friction at Checkout

One of the primary causes of revenue loss is payment friction and the resulting poor customer experience. These happen due to various factors such as slow processing times, declined transactions, and cumbersome checkout procedures. For instance, customers may abandon their purchases if a payment gateway fails to process transactions due to errors or a lack of efficiency. 

You are probably aware that 70% of online shopping carts are abandoned on average. Do you know why your customers are jumping ship before finalizing their purchase? Cart abandonment directly related to your payment processing solution occurs for the following reasons:

9% of customers walk away because of the lack of payment method options.

• About 20% of shoppers abandon their cart because they don’t trust the site with their sensitive information.
• A complicated checkout process deters another 17% from completing their purchases.
• 9% of customers walk away because of the lack of payment method options.

While there are many other reasons why customers jump ship at checkout, these are some of the factors under your control as a payments decision-maker.

Solution: Improve Customer Experience with Smart Routing

Smart or intelligent routing can mitigate these issues by automatically directing transactions through the most reliable and cost-effective channels, preventing transaction failure, recapturing lost revenue and lowering transaction fees. Advanced data analytics can also identify and resolve common payment issues, helping recover revenue lost due to errors.

2. High Operational Costs from Maintaining Legacy Systems

Legacy systems often require extensive manual intervention for tasks like transaction reconciliation, error resolution, and system maintenance. This consumes significant time and labor, increases the risk of human error, and leads to inefficiencies and potential financial losses. Additionally, outdated systems lack integration capabilities, increasing the time and effort needed for system integration across departments or acquired companies. As businesses grow, these inefficiencies and costs escalate, making legacy systems unsustainable.

Solution: Streamline Processes with Payment Orchestration

Payment orchestration software can streamline systems and eliminate costly manual processes. Effective payment orchestration platforms (POPs) can centralize payment channels and processes, detect fraud, handle chargebacks, generate reports, update transaction logs, and reconcile transactions. These platforms are designed for long-term growth, offering scalability that legacy systems cannot match, ensuring consistent performance during peak times without requiring significant additional investment.

Solution: Improve Security and PCI DSS Compliance

Upgrading to a custom or off-the-shelf payment orchestration solution can decrease the costs of achieving and maintaining compliance by reducing PCI scope. Centralized payments platforms limit the number of access points, enhancing security and financial efficiency. Features such as tokenization, encryption, centralized payments, and early fraud detection are crucial. 

According to IBM, the cost of a data breach averaged $4.45 million last year, emphasizing the importance of security updates and PCI DSS compliance to prevent costly breaches. So, if it’s been a while since your last security audit and update, it’s time to act. Your systems could be vulnerable to an attack. Security updates and PCI DSS compliance are costly but could save you millions in the long run. 

3. Lack of Visibility and Clarity

A lack of transparency in payment processes can hinder decision-making and operational efficiency by obscuring critical financial data and transaction insights. Without clear visibility into transaction fees, processing times, and error rates, businesses struggle to identify inefficiencies and cost drivers, making optimization difficult. This opacity can lead to misinformed decisions, higher operational costs, and missed opportunities for improvement, affecting the company's financial health and competitiveness.

Solution: Advanced Analytics and Reporting

Centralizing analytics and reporting into a single platform makes it easier for decision-makers to understand the company’s financial performance. Real-time analytics and automated reconciliation provide immediate insights and streamline financial operations. With up-to-the-minute data on transaction statuses, customer behaviors, and payment performance, businesses can respond promptly to emerging issues and opportunities.

4. You’re Locked In 

Vendor lock-in can severely limit a company’s ability to adapt and take advantage of changing technologies, customer needs, and market conditions. Companies tied to a single provider lose the freedom to implement the best solutions for their unique needs. For instance, a company may want to use a different card reader than the one provided by its current POS solution provider but may be forced to choose a less ideal card reader or change the entire system due to vendor lock-in.

Solution: True Hardware Independence

True hardware independence allows selecting hardware from multiple vendors, ensuring the best technology for the company’s needs. Custom solutions or pre-built software designed to integrate with solutions from multiple providers can prevent vendor lock-in, ensuring flexibility and adaptability.

The Bottom Line and Next Steps

A modern, scalable, and cohesive payment strategy is crucial for today’s businesses. Regularly evaluating your payment processing system to identify areas of improvement can unlock new revenue opportunities and enhance the effectiveness of your strategy. Leveraging expert insights and new or custom solutions to utilize tools like smart routing, automated reconciliation, increased security, and reduced operational costs can dramatically improve your payment processing strategy.

Ready to unlock the full potential of your payments? Take the first step. Sign up for our FREE Payment Strategy Assessment to identify areas for improvement and unlock new revenue opportunities.

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