Payment solutions for the next generation retailer

David Jokinen explains how retailers can implement payment solutions to maximise the efficiency of e-commerce retailing.

What advice would you give retailers about the need for effective e-commerce solutions?

David Jokinen. Our first objective is always to get a solid understanding of the business model so that we can advise our merchants how best to implement their payment process. More often than not, their business model needs to change to meet the increasingly stringent requirements of the payment card schemes, the merchant acquiring bank, the payment processing technology and, of course, the customer. The earlier they consult us during their planning process, the sooner we can point them in the right direction so that the act of getting paid is a natural part of their business model.

Obviously online payments are often a prime target for fraudulent transactions. How can the correct e-commerce payment technologies ensure a secure financial transfer?

DJ. A single risk management strategy doesn't work in all circumstances. That's why it's important to work with a payment service provider who fully understands the business model. When advising our clients, we first take into account the real-world fraud patterns we're seeing in their particular industry, as well as their transaction volumes, profit margins, geographical considerations and other aspects unique to their business.

For example, if a merchant sells expensive products, implementing a two-step payment process is a simple yet very effective way to incorporate manual review for some or all orders; when confirming the customer's order they first obtain an authorisation from the card issuer, but don't actually charge the card until are ready to fulfil. If they need to roll back the order for any reason, then they will never charge the card, which eliminates any possibility of a chargeback. Conversely, if a merchant sells downloadable products, or services that are instantly fulfilled, then manual review is unlikely to be practical or cost effective. Full automation is usually the order of the day here.

Today we are seeing increasing numbers of retailers setting up online due to the lower costs involved compared to walk-in stores. Are you experiencing a lot of competition in the e-commerce market as a result of this and how do you stay ahead of the competition?

DJ. As a payment service provider focused on meeting the unique needs of e-commerce retailers, we obviously welcome this trend and we expect it will continue to accelerate as e-commerce becomes practical and accepted in an increasingly broad range of market sectors.

One competitive issue that we find many retailers fail to fully appreciate is the potentially catastrophic erosion of their margins due to the relatively low barrier to entry in the online environment; the same low barrier that attracted them will inevitably attract others.

For example, if you're the only consumer electronics shop on the high street of a small town, your customers may be willing to pay a little extra for the convenience of dealing face-to-face with a local dealer; this competitive advantage will of course be of no use when you decide to take the business online, where consumer electronics is one of the most fiercely competitive sectors dominated by well-established retailers with massive buying power. Your most obvious weapon is pricing, but you are unlikely to win the war on this basis.

What challenges do you predict the e-commerce payment solutions industry will face in the coming years?

DJ. The future will see merchants getting out of the payment acceptance business and outsourcing the job to increasingly specialised payment service providers. They have so much else to worry about; they should be spending their limited resources on being better retailers, not on detecting fraud or blocking hackers.

For this reason, we foresee the growth of niche payment service providers, such as Apple's App Store, which manage the payment acceptance process and many other merchandising functions on behalf of thousands of businesses, ranging from sole traders to large companies. The businesses pay a premium on each sale for this all-inclusive e-commerce service; however, the benefit of being free to focus on their core business of making and marketing great software cannot be overstated.

About

David Jokinen manages Optimal Payments' European subsidiary, with regional oversight of business development, marketing, sales, compliance, risk, customer service and technical support. He has more than 20 years' experience in the information technology and financial services sectors.