The next level of E-commerce payment processing
By Jack M. Germain

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E-commerce merchants are literally at the mercy of the digital checkout systems tied to their web stores. For retailers, what happens on the other side of the “pay” button is critical to avoiding denied approvals.

Online sellers cannot survive without a strong checkout page. Meanwhile, the payment system that runs much of the online transactions is 40 years old. Some investors have taken notice. A new behind-the-scenes payment system is slowly taking over.

For instance, Fast, a startup that provides online checkout and identity products, announced recently that it closed a $102 million Series B funding event led by Stripe, a previous investor in the company. Stripe, an online payments giant, also led Fast’s Series A last year, a deal worth $20 million. Fast says it has raised $124 million to date.

Credorax, a payment provider for cross-border processing of e-commerce and omnichannel payments, peeled back the curtain for the E-Commerce Times to reveal the ins and outs of what happens behind the pay button.

The process can be a dizzying integration of numerous moving parts. Authentication, currency conversions, and approval rates all must work together to ensure a quick and complete transaction so merchants can bring their business to the next level.

How fast money moves in a transitioning digital economy is a sign of efficiency and health. So what does it mean when $18 trillion in U.S. business-to-business payments takes days to clear and land in bank accounts?

For merchants, it means lost efficiency and lost time to put cash to work. For consumers, such delays mean they do not have access to funds that many of them need right now. For both parties, it also means failed transactions.

“Unsurprisingly, payment acceptance and authorization are among the most significant hurdles that any merchant must overcome,” Igal Rotem, CEO of Credorax, told the E-Commerce Times.

Money in Slow Motion

This process is changing slowly. However, big movements this year could start to happen as the first new payment system to be unleashed in the U.S. in 40 years picks up momentum.

Developed by The Clearing House, RTP (Real-Time Payments) is backed by major U.S. banks and has been adopted by nearly 40 percent of large enterprises in the U.S., according to Dimitri Dadiomov, co-CEO and founder of payments operations platform Modern Treasury.

RTP represents the new frontier for payments and will likely become the new standard. Already, more than one-third (36 percent) of large enterprises in the U.S. use Real-Time Payments, which was launched in 2017 in the United States. However, beyond U.S. borders, RTP is in much bigger use.

Modern Treasury supports RTP and enables companies to more easily work with banks. The process results in automating and speeding up payments. Modern Treasury recently secured $38 million in venture funding and is growing more than 24 percent a month, according to Dadiomov.

RTP’s prominence is likely to expand, he predicted. Levvel Research’s “2021 Real-Time Payments Market Report,” showed that 66 percent of companies in the U.S. indicate they are likely to adopt RTP in the next two years. The technology has already gained momentum in other countries.

Modern Treasury supports RTP for corporate customers looking to speed up Automated Clearing House (ACH) or wire payouts. ACH is a banking network that coordinates electronic payments. ACH, wire payments, and checks account for 76 percent of all money flow in the U.S., said Dadiomov.

“Those are technologies that have not had major updates for decades. Payments are slow, cumbersome to process, and do not enable real-time views into cash. RTP is a big step to speeding up and modernizing payments, accounting, and money movement,” he explained.

New Benefits, Less Risk

RTP enables financial institutions and businesses to send and receive payments in real time. The process is much faster than checks, ACH, or wires, which can take up to three days to clear. Each year, more than $18.5 trillion in B2B payments are sent in the U.S., and half of them are still via paper check, noted Dadiomov.

Other than speed, RTP differs from the way B2B payments are made today in that it enables three new processes.

One is better data to drive better insights. With non-RTP transactions, vendors, at best, may see their clients’ payments post to their bank account. RTP enables data to transfer with the payment, so companies get visibility into invoices, dates, purchase orders, and more.

“This gives companies an advantage in responding to customer needs and has potential to improve their finance function and decision making,” said Dadiomov.

The second new process provides for continuous availability. RTP is always available. This provides merchants with more flexibility than traditional banking hours that constrain non-RTP payments.

The third benefit is the mitigated risk of payment failure. RTP payments are irrevocable. Payment instructions are not sent unless there are sufficient funds. This reduces the risk of payment exceptions.

Making Online Checkouts Seamless

From a merchant’s viewpoint, three levels of optimization are needed for a seamless checkout experience. They are improvements to checkout, integration, and issuer responses, offered Credorax’s Rotem.

They can provide a customer with the most seamless experience, increasing the likelihood of completing a purchase. This also will make it easy for merchants to keep track of their transactions and get the most from their shoppers.

Checkout optimization reduces the number of steps a consumer needs to take when paying for goods online. Fewer steps mean less frustration and fewer abandoned baskets.

“Offering customers preferred local payment methods and multiple currency options is vital to ensuring customers have a convenient and familiar checkout experience, no matter which country they are shopping in,” said Rotem.

Integration optimization means not making consumers insert their credit card details into a website they do not trust. So ensuring a payment gateway that is properly configured and integrated into the checkout process with the same look and feel as the rest of the experience is critical.

That optimization should include the authorization process and structured data that informs merchants about their business transactions. This way, merchants can quickly identify where any declines come from in the processing chain, what the reason for it is, and oversee the smooth flow of transactions.

Issuer optimization is the final cog in the payment wheel. Once payment has passed through the gateway and the acquirer, the final decision on whether to authorize a transaction ultimately sits with the issuer.

“Interestingly, each issuer has its own rules. They are complicated and change regularly, which makes them difficult to keep track of,” Rotem observed. “To combat this, merchants must continually educate themselves on how issuers think and understand their reasons for declining the transactions in the territories they trade.”

Behind the Pay Curtain

What happens on the other side of the pay button is critical. A maze of steps must execute without glitches to complete transactions successfully. Even if a customer commits to a purchase, enters the details, and clicks the pay button, the order will not necessarily be successful, as all sorts of variables such as authorization rates come into play here, Rotem cautioned.

Multiple parties are involved in every transaction. Each has the power to cause a transaction to fail and impact a merchant’s approval rates. That is why it is so vital that merchants work with a payments partner that looks after this process for them.

“However, this is the part of the process that customers never see. They do not understand why their transaction was declined has nothing to do with the merchant or retailer. But unfortunately, at this point, as far as the customer is concerned, the damage is done,” he explained.

Customers cannot be expected to go to the effort of trying to shop again with a merchant with whom they could not complete the transaction process, he reasoned.

“That is why it is critical that merchants optimize their payments process. Because, by not doing so, they risk losing out on conversions, and the cumulative impact of those conversions further down the line,” he said.

The RTP Edge

RTP is inevitable because the speed of business and economies is only getting faster. RTP is all about expediency as payments occur instantly, noted Modern Treasury’s Dadiomov.

Companies cited immediate access to funds as the most appealing benefit of RTP, the Levvel report found. Also, 76 percent of companies believe RTP will provide them with a competitive advantage.

As more companies adopt, others will, too, in order to stay competitive. In addition to RTP, the Federal Reserve is forging ahead with its real-time payment system, FedNow, which is expected in 2023 or 2024.

For consumers, real-time payments will mean instant access to funds with no more waiting for checks to clear. For some consumers who live paycheck to paycheck, that could reduce the need for expensive, short-term loans or reduce chances of bank overdrafts.

In addition, RTP will speed up operational requirements of foundational back-office processes like accounts receivable and accounts payable, potentially leading to lower costs. It goes without saying that these savings can result in increased incremental value for their customers. 

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