Welcome to Finance Friday, a new monthly column at Footwear News that takes a closer look at the intersection of economic innovation, retail and the footwear industry. On the first Friday of every month, FN will analyze shifting consumer purchasing behaviors, the launch of new FinTech and how businesses are embracing a new digital-first economy.
From cash to checks to credit cards, shoppers have always favored getting to choose how to pay for their goods. But as new methods emerge on the market, consumers are becoming more varied in their preferences. With each customer favoring a different way to buy, it can be challenging for a retailer to know what payment methods to offer at checkout. And the stakes are high – get it wrong and the shopper may abandon their cart altogether.
“Amidst the steep competition for consumer’s attention, e-commerce shops must go to incredible lengths just to get shoppers to visit their store, let alone add an item to their cart,” said Veronica Katz, chief revenue officer at buy now, pay later (BNPL) firm Sezzle. “Yet as it turns out, the hardest part is getting them to see the user journey through checkout – the stickiest part of the user journey. Why? Because consumers want options; they want to pay their way.”
When a retailer doesn’t offer a familiar or preferred method of payment, shoppers might decide to purchase from an alternate store that does. This is because preferred methods frequently enable a smoother, more efficient checkout: Consumers might be able to access saved payment information, budgeting services like BNPL, or even one-click checkout. And as shoppers become accustomed to these conveniences, they’re less likely to be willing to pay another way.
This is particularly relevant to mobile commerce and e-commerce, which have experienced rapid growth over the past year. This period of time has also seen a rise in the use of alternative payment choices like BNPL or tools like PayPal, as younger consumers grow more wary of traditional credit solutions. For retailers that want to connect with a younger audience, flexibility at checkout could be even more critical.
“We believe that consumers, especially millennials and Gen Z, have lost trust in financial institutions and increasingly prefer more flexible and innovative digital payment solutions,” said Greg Fisher, CMO at BNPL solution Affirm. “This, coupled with industry trends such as the rapid acceleration of online spending, are driving demand for Affirm and modern, flexible payment options more generally.”
Despite all the benefits of offering multiple flexible payment options, retailers still need to ensure they are doing so effectively. Too many integrations or poorly executed ones may cause online load times to lag, which might lead customers to abandon their cart due to frustration. Similarly, too many options at checkout may confuse customers and be overwhelming to navigate; experts recommend that retailers keep the user experience clear and uncluttered.
It is also important to communicate the available payment options early in the customer journey. If a shopper doesn’t know that they can use their preferred format at checkout, they may quit browsing before they can discover this. Not only can clear messaging keep shoppers confident about their purchase, but it may also impact how much they choose to spend.
“Messaging BNPL options on product pages can help a consumer know early in the process that they will be able to split their payments into more manageable increments,” said Katz. “At Sezzle, we’ve seen firsthand the dramatically positive impact that installment payments have for our merchant partners on increasing sales, conversion rates, and basket sizes.”
Some payment services may charge a subscription fee, in which case retailers should assess their individual consumer base’s preferences first to ensure they’re responding to a demand. But many only charge a processing fee per transaction; merchants will only pay when their customers opt to use that service. Additionally, these fees are hopefully offset by the growth in revenue and reduction in the need for markdowns.
“Current payment solutions do little to help merchants attract and retain customers, forcing merchants to turn to discounts or promotional gimmicks, which can dilute their brand,” said Fisher. “It’s critical that merchants remove obstacles for consumers at checkout and offer a seamless experience online to ensure consumers convert at checkout and drive revenue.”