Despite their ubiquity in countries like Sweden, Canada, United Kingdom and the United States, credit card usage and availability isn’t consistent around the world. Consumer habits specific to preferred payment options tend to be nation-based.
So, depending on the markets in which you do business, payment options can vary widely.
To make your ecommerce store appealing to consumers across borders and oceans, merchants need to consider alternative payment options, the cost of implementing and using them…and how resistant they are to fraud.
In this episode of Gateway to Ecommerce, Sarah Elizabeth, ClearSale’s Senior Director of Marketing, joins Denise Purtzer, ClearSale’s Vice President of Partnerships and Alliances to discuss alternative payments options—specifically, the “buy now, pay later” options that are becoming commonplace among ecommerce merchants.
is ClearSale’s (former) Vice President of Partnerships & Alliances, and she lives for connecting the right people to make things happen. Denise has 20 years of experience in ecommerce and knows the ecommerce landscape from every angle, for every size business, in every market.
is ClearSale’s Senior Senior Director, Growth Strategy (Former Senior Marketing Director) at ClearSale. An eight-year veteran of the company who helped open ClearSale’s first full-service branch outside Brazil, she understands the strategies needed for expanding into new markets.
The buy now, pay later payment option may initially sound like the layaway plans of the past, where consumers made a purchase, and the product was on hold until it was completely paid off.
But the layaway model forced consumers to wait a long period of time to actually enjoy their purchases. And, in some cases, they were never able to pay it off. Layaways also had a high rate of cancellations because they gave ample time for buyer’s regret to set in or for the customer to spot a better deal somewhere else.
Today’s customer wants to enjoy their purchase right away. Retailers have begun to recognize this and are offering these buy now, pay later alternatives to make this possible.
So who uses this option and why?
• 45% of consumers use it to make a purchase that doesn’t fit their budget.
• 36% of the time people use it to avoid credit card interest.
• 17% of the time consumers use it because their credit cards are maxed out.
Ecommerce merchants may think they offer enough payment options with credit card and PayPal, but they need to consider other payment options if they want to satisfy customers domestically and internationally.
Customers in Latin America and Europe, for instance, don’t have the same habits or available options when it comes to online payments. A narrow range of options on your ecommerce site may make cross-border ecommerce nearly impossible.
Some of the options to consider by market include:
• In Brazil, consumers are accustomed to paying in installments.
• In Europe, more than half of the transactions are cashless payments made via direct debit.
• In Russia, digital wallets like Kiwi are the norm and a requirement for doing business there.
You're listening to Gateway to Ecommerce, a podcast by ClearSale. In this series, global ecommerce leaders discuss challenges, best practices, new tech, and secrets to success. And now your hosts, Sarah and Denise.
Hello, my name is Sarah. I'm the Senior Director of Marketing here at ClearSale and I'm with Denise, VP of Partnerships (and Alliances). If you're a merchant and you're selling online, whether you have an ability to accept credit cards and PayPal, and you might think that you're covered, but it's important to you to think that you might not. There are several additional financing and payment options that need to be part of our payment strategy, and this is what we are going to talk about today.
We've seen the businesses are adopting alternative payment methods, including 'buy now-pay later' options for their customers. Let's face it. We live in a time where instant gratification is a stable state for customers. People don't want to wait for their purchases. They're ready to buy and consume their products now, and retailers from all over the world are recognizing that. So if you want to sell in multiple countries, you need to offer the local preferred payment methods that you can reach the majority of the people there. However, the market of alternative payments is also growing in countries that were based on credit card payments. Today Sarah and I are going to break down emerging trends with ecommerce payment strategies so that you can think about the pros and cons of implementing an alternative method for your business.
Let's go back in time a little bit, and talk about the roots of where this all came from and for those of you that used to shop in store with a layaway plan, this might bring a smile to your face. The whole concept, at least here in the U.S, where people could make a purchase, hold a product in the back shelves, somewhere in a store and pay for it over time. But of course this had delayed gratification. It took too long sometimes to pay that off. And by the time you got it out, that pair of summer shorts that you might've put on layaway that you didn't pay for until far, you no longer need it. A lot of times returns would happen because of that too, because that initial excitement was not always there a few months down the road. I know that there are probably different options in Brazil, Sarah, having grown up there, could you share some of those different options that you had in store?
Sure. We don't have anything similar to the layaway option that you guys had here, but what we have in Brazil is that it's really common and it's very specific of Brazil, the payment with Boleto, which is essentially you get the product, they give you a piece of paper, you go to the bank and you pay for it. Sometimes immersion in my release the product right away or they might wait until you show the proof of payment of the bullet, which is most of the cases because of fraud, and something really specific for our geography.
Very interesting. And that's something that's still there today, right?
Yes. The accounts somewhere 15, 20% of the payments in Brazil.
Wow. And that sounds very similar to in-store financing that we've had here and still continued use mostly with furniture, consumer electronics, or higher priced appliances where people can apply for credit or financing over time. Go ahead and take that product away, but pay for it over a period of time. So if you shift that to ecommerce then, and think about the different strategies that people are utilizing in store, this might make it seem more affordable for people to be able to offer that sort of thing and give that same instant gratification that that customer is demanding with a 'buy now, pay later' type of option. And interestingly, while in store, the financing was mostly in furniture, electronics, and higher price products as I mentioned, the 'buy now pay later' options are really applied to all verticals, including clothing, also electronics and higher AOVs like jewelry, but people are able to consume those products and make it more palatable because of the fact that they see that a product is only a certain amount over more periods of time or more payment periods.
So when we take a look at those types of things and we apply it to some findings that I read about recently on the ascent survey, which was done in January, 2021, which we'll have in our show notes for you. So you can read about it more thoroughly, but the most common reason that we saw during this crazy time that we're going through is that people are using 'buy now pay later' because the purchase that they need to make doesn't fit their budget about 45% of the time people noted that. People also want to avoid credit card interest, and they can do that with buy now pay later options quite oftentimes. So 36% of the time people were choosing it for that reason. In addition, we've got other things that are emerging, where you've got scenarios where people's credit cards are maxed out. So 17% of the time people were utilizing buy now pay later for that reason.
And then the underbanked, some people, they don't have a bank account about 8% of the time they're choosing buy now pay later for that reason. But interestingly as well, there's something around safeguarding data. People feel secure in sharing information to be able to make a buy now pay later purchase, which may be utilizing social security number, or just the last four digits of a social number in the U.S for instance, to be able to apply for that sort of thing. And safeguarding personal data was 21% of the reason why people would choose a buy now pay later option.
That's really interesting because when we think about the data privacy, it is true that lots of people, they were afraid of putting the information in digital and commerce in the past, but this is changing really fast because nowadays the banks have been using much more online features. So people are getting more used to sharing their data online, right? Which is also the reason why many other alternative payment methods are emerging. And when we think about the merchant's point of view, another thing that it's really, really interesting that it's changing, nowadays from the data privacy protection point of view, the merchant, they can, instead of they asking for the consumer, for them to disclose their data, the merchant can be the one sharing their banking information so the consumer might decide or not to make a payment for them. This is all changing after the PSD2, the new payment directive that it's mainly emerging in Europe. So we have many, many things that are changing really quickly now in the industry. And it's really important for merchants to be on top of these changes.
That's so true. So let's break down the landscape a little bit and talk about what are some of the options for buy now pay later that a merchant can have. And it's interesting to look at it again, regionally, you've got companies like Klarna who started out in Europe, really in the Scandinavian countries. And they started out with a plan that was a little bit different about what they released in the U.S because they are in the U.S as a payment option and it's actually more of a wallet now as well, but they do have buy now pay later as well. What they did was more of a collect on delivery trend solution, where people would not have to pay for a product until it was actually on their doorstep. And so they could pay in either cash to the delivery company, or they could pay with a credit card if they wish, depending on the country.
So that's kind of an interesting thing, but in the U.S, a lot of different brands have emerged from a firm, split it, PayPal with PayPal credit, after pay, future pay, quad pay, sessile, the list goes on and on. And some of these like split it, after pay, quad pay and sessile are really based around a credit card purchase itself. So what breaks it down for the consumer to be able to buy now and pay over a certain specific period of time, which is arranged with the merchants and the payment option, and then they don't have to incur that, that bill all at once so that they don't have a large line of credit. It makes it more palatable for them. Options, like Affirm would be a virtual line of credit where they're actually applying for line of credits. And it is portable sometimes to other merchants and reusable to that same merchant so they don't have to apply again and again, and they're not having to enter a credit card at the point of purchase.
So there are a couple of different types of financing available. Obviously the one where it's a virtual line of credit would be based on credit worthiness. The other ones that are using an existing credit card would break it into installments. Where of course, here it's ClearSale, what we do is we protect those payments. So if it is a credit card based payments, such as what is offered through our partner at split it, that's something that we can decision and be able to guarantee against charge backs for that merchant as well.
That's really interesting because when I think about the payment habits that people have, they vary nationally, right? They vary not only region by region, by country by country. If you're thinking about installments, for instance, this is the norm in Brazil, when you're paying with credit card, this is what I have most common. It was always like this. And versus here in the U.S it's all new. It's really important for merchants when they're thinking about selling multiple countries, that they have to offer local and preferred payment methods so they can reach the majority of the people. I have here some data that I was looking into that I can share with people so they can have a sense of how different these numbers can be paid on each country. For example, in Mexico only around 40% transactions are paid via credit card, because there are some wheat wallets there they're really strong like MercadoPago. Whether in Brazil, which lots of people think, they are all Latin America, they are probably similar. That's not true. Brazil, more than 75% of the transactions they are paid via credit card, which surprised lots of people.
When you go to Europe, for instance, which is a population that it has a high banking rate, or their population, most of them they do have a bank account, which is not true. All over the world, most of the alternative payment methods, they are based on online banking. So chairman direct debit. So most of the transactions there, more than more than half of the transactions there, they are cashless payments transactions, and they are made via direct debit. Go to Russia, this is less than 1%, for instance.
In Russia, having your wallets like Kiwi, it's a must. So if you're a merchant and you're considering selling internationally, as we said in the beginning, having credit card, and maybe what your wallet such as PayPal available might not be enough to reach the people that you want to. If you want to learn more about this, we also have some of this data that I share in our publishing, our website, in our resources era of the website and we are more than happy to connect about it as well. And Denise, going back to buy now pay later, what do you think are the main things to consider when choosing this options.
This is interesting to think about because I used to, I actually came from this space. I spent seven years working with a company called future pay, where we started out and launched in a time where there weren't a lot of buy now pay later options. Over the years we got a lot of questions and got to see the morphing from merchants educating their customers on what, by now pay later was to having to answer questions about what is the best option out there that they should give to their customers.
And so that creates a lot of different thoughts around making sure that you have the right offer for your customers. If you're offering really high, average order value purchases, and you're doing a virtual line of credits, not everybody is going to be approved for that line of credit.
So you have to think about what that consumer experience is going to be. If they get declined and give them options, loop that back in to give them a credit card option or whatever the case might be.
You also have to look at what sort of fees that customer's going to pay. Are they going to have interest fees or you absorbing them as the merchants, because somehow they're going to get paid, right? As well as late fees, so if that consumer doesn't pay on time and they have a 30-some dollars late fee in place, is that going to come back to you as a question and a concern and is that going to be a tarnish on your brand as well? So there are lots of things to consider, but also think about the consumer experience. Are they going to be able to easily check out without adding a lot of friction?
How many extra steps is it going to be, or is it actually easier for them to check out because they've got a virtual line of credit where they can just log in and check out with a single click. Do they have to leave your cart or your site to sign up and make the purchase? Because we all know being an ecommerce, the more clicks that are happening, the greater the potential for drop-off rate. And think about it from your perspective, is it a good offering for you as the merchant? Are you locked into an exclusive deal for a long period of time with one payment option? I mean, think about it as a merchant. You're not offering just visa, just MasterCard, just discover you want to give people options to utilize their payments in whatever way that they want to pay. So make sure that you're not locked into exclusivity.
And what are the fees on your end? Make sure you know the accountability, if a customer doesn't pay, are you liable for a portion or all of it? Does it make sense for you to offer more than one payment? I think that sometimes we can go overboard as well. You want to make it easy and you want to educate your customers that you've got different options, but if you get to the checkout and you make it five different paths and too many different options, think about it from the consumers experience and what they want to be able to see to make that smooth once they've made the decision to make that purchase. So when you think about all those things, there are lots of people that have never used buy now pay later, and you want to look at why they're not using it. 45% are using debit or cash instead.
So is there a way for them to utilize that at your checkout as well? 27% are using the credit card and 10% are not sure how buy now pay later works. So when you think about that aspect, there is some education involved on your site to let them know that they can buy now, pay later. Give them an FAQ page around the specifics of that. And in most often times I would say your buy now pay later option will give you very specific verbiage that you need to use, that is compatible with terms and conditions that they have in place with you. So look to them for guidance as well.
That's so true. From the information available for people, especially when this is all new for them, it's key. Speaking of information, I'd like to circle back on a topic that I talk a little bit earlier, which is a new director of payment services, PSD2, which is something that lots of merchants they have questions about. And it's also one of the drivers for the growth of alternative payment methods. Now that particularly in Europe, that you can have bank to bank payments rather than just credit your debit card payments. Things are changing and changing a lot. So for instance, it's important for the merchants to think that they could be initiating the payment service instead of using their credit card for that. When they do that, they can, they can shift the liability from them. So whether in a credit card transaction that if there's a fraud chargeback, the merchant has to pay for that. All I say, use guaranteed services like ClearSale. If you talk about the PSD2 regulations. That might be a different case.
This is all new. Nobody knows really well how this is going to work? Because lots of things, we need a reality to play, right? But there are some seeds that we'll have to have in our minds to think about from time to time, especially if you're talking about international expansion and Europe payments and so forth. Why do you say the needs are the main questions that merchants should make themselves when considering alternative payment methods?
Yeah, I think you do. I mean, you take in all this information and it does put some main questions into play for the merchants. Have you thought about offering more consumer friendly ways to purchase it? And given all this information, obviously giving more is a good way to go. And have you considered expanding to other markets in different countries? Which of these payment methods is your target customer most likely to use? And what ecommerce features do these methods need to support? What security do these methods include for both you and the customer and what is the right number of payment methods to offer without unnecessarily complicating your checkout area? How will you report and reconcile these alternative payment methods? So giving it a lot of food for thought, if you ask yourself these questions and start to fill in the blanks, I think you can come up with your payments landscape.
So we've covered a ton of ground today and we've given hopefully some good food for thought. If I had to choose the most important thing that people would walk away with as the next step it would be, do I have enough out there to cover the emerging payments and the different types of payments that people expect to see? Sarah? What is something that you think is the most important thing for our listeners to take action on?
I think that if you're a merchant, you have always to remember that it's not only a matter of offering different payments or the technology for having it. But also you have to think about who is your consumer? What [are] they expecting? What do they know, what they don't know, different geographies they might need, different FAQ's for instance, or different technologies. Sometimes we are so focused on implementing attentive payment methods or 'I to plug as many options as I have in my website', but not always your consumer is going to be ready for that, right? So there's lots of education happening, especially because things are moving really, really fast. Not only the ecommerce is growing, but the data protection, regulations changing, consumer behavior changing, so that's a lot for merchants to follow.
Thanks, Sarah. I always love hopping on these episodes and talking about different ecommerce topics with you. It gets me thinking about a lot and hopefully our merchants as well. Hopefully today you have a better understanding of the options out there, how to seek financing and why marketing is a huge factor for pulling off an alternative pay strategy. If you want to take a deeper dive into this topic, you can visit our website at ClearSale to learn how the online payments process works. It's also linked in the description of this podcast, along with another resource to get you started.
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