Key Takeaways:
- As 2023 unfolds, the retail industry faces a multitude of challenges compounded by the aftermath of COVID-19, ongoing geopolitical uncertainties, and mounting inflation.
- The enforcement of Strong Customer Authentication (SCA) has introduced friction in the ecommerce journey, impacting customer experience and retention.
- The changing payments landscape, post-pandemic returns dynamics, cross-border expansion opportunities, and SCA complexities are the four pivotal challenges businesses must address for success.
The retail sector stands at a crossroads, with 2023 poised to be a year of formidable trials. Echoes of the COVID-19 pandemic, coupled with geopolitical instability and surging inflation, paint a complex landscape for businesses. Amidst these complexities, four distinct challenges have emerged as decisive factors that will shape the destiny of retail in 2023. These challenges are explored in the comprehensive ecommerce report by fraud protection platform Signifyd.
The retail industry finds itself on the cusp of transformative challenges, and the year 2023 seems set to put businesses to the test once more. As the aftershocks of COVID-19 and a devastating war in Europe continue to reverberate, a looming specter of high inflation further compounds the hurdles that businesses must surmount. These challenges are further magnified by the enforcement of Strong Customer Authentication (SCA), which seeks to curb online fraud but has inadvertently created friction in the ecommerce customer journey.
To emerge victorious in 2023, businesses must address four pivotal challenges that possess the potential to redefine the retail game.
1. Transforming Payments: Mastering the Art of Diversification
The realm of payments has long been an essential facet of the customer journey, and those retailers who grasp this truth and adopt a strategic approach stand poised for success even amid turbulent times. In an evolving landscape, consumers are gravitating towards diverse payment methods, with traditional debit and credit cards losing their shine. Notably, ‘buy now, pay later’ options have surged by 68% over the past year, as per Signifyd’s report. The rise of PayPal and Apple Pay by 274% and 70% respectively underscores this shift.
The urgency for retailers to diversify their payment methods has never been clearer, as failure to do so risks alienating customers. A survey by UK Consultancy Merchant Advice Service underscores this reality, revealing that one in five consumers would abandon a purchase if their preferred payment method wasn’t available. Merchants who neglect to expand their payment methods portfolio risk incurring substantial losses, with a staggering £1.8 billion annually in the European Economic Area.
To thrive, retailers must scrutinize the payment methods favored by their target audience and integrate them seamlessly into their operations.
2. Maximizing Data for Optimal Payments
The effective utilization of data holds the key to unlocking optimal payment processes. Merchants are urged to embrace data integration across the entire customer journey, enabling them to enhance risk management and approve more valid orders. A study by CMSPI exposes that merchants faced losses of £21.7 billion (€25 billion) annually due to false declines and £1.9 billion (€2.2 billion) to fraud in 2021.
Data-driven insights are instrumental in driving machine-learning adoption, enhancing authorization rates, fostering loyalty, and enabling a profound understanding of customers. These factors are pivotal in the ecommerce arena, particularly as SCA continues to introduce checkout friction that risks cart abandonment.
3. The Post-COVID Returns Era: A Delicate Balancing Act
The pandemic ushered in a surge in online shopping, and with it, a corresponding rise in online returns. While 38% of customers became more comfortable with returns during the pandemic, this trend is a double-edged sword for retailers. The cost of handling returns escalates, and businesses are bracing for diminished annual revenue in the wake of the cost-of-living crisis.
The dynamics of post-pandemic returns are fraught with challenges, both genuine and fraudulent. As SCA tightens the checkout process, fraudsters are finding novel ways to exploit ecommerce. This ranges from falsely claiming items haven’t been received to misleading descriptions and damaged goods. Achieving equilibrium between safeguarding against fraud and retaining legitimate customers demands a delicate touch. Machine-learning and data-driven fraud solutions offer a pathway to discerning between genuine and malicious returns.
4. Seizing Cross-Border Expansion Opportunities
Despite prevailing economic headwinds, global ecommerce stands poised for exponential growth in the coming years. With online sales surging by 33% year on year in 2021, the online shopping landscape is a formidable force that’s here to stay. This presents a promising avenue for businesses to expand their reach and revenue by tapping into international markets. Cross-border sales have surged by an impressive 45% this year compared to pre-pandemic levels.
Consumers’ appetite for seamless online shopping transcends borders, opening a gateway for businesses to offer foreign goods at optimal value. This represents an opportunity for businesses to invigorate growth, especially if they’ve encountered stagnation in their domestic market.
However, global expansion is a nuanced endeavor, demanding careful consideration of market characteristics, content localization, payment method diversification, and local fraud trends. By leveraging data insights and meticulous research, businesses can formulate strategies that capitalize on the immense potential of cross-border markets.
The enforcement of Strong Customer Authentication (SCA) brought about seismic changes to online payments, representing the most significant shift since 2007. Intended to counteract escalating online fraud and elevate ecommerce security, the two-factor authentication mechanism introduced a new layer of friction in the customer journey.
Modern consumers demand swift and seamless online experiences, making even the slightest disruption a potential catalyst for dissatisfaction. As Signifyd’s report unveils, a staggering 71% of UK consumers rank SCA-induced checkout difficulties as a five or higher on the frustration scale.
This friction has dire consequences for retailers, ranging from abandoned shopping carts to customers seeking alternatives from competitors. The impact of SCA enforcement has varied across different regions, with countries leveraging the EMVCo’s SCA authentication protocol faring better due to a more streamlined experience. Countries persisting with outdated versions of 3D Secure have witnessed transaction declines, amplifying the urgency for an SCA-friendly strategy that mitigates friction.
Paving the Path to Prosperity
As 2023 unfolds, retailers are on the precipice of an eventful year. While challenges loom large on the horizon, the right strategies and tools can enable businesses to overcome hurdles and harness them for growth. With an agile approach, businesses can harness diversification, data insights, international expansion, and informed navigation of the SCA landscape to stride confidently into the future of retail.
Source: https://www.signifyd.com/uk-state-of-commerce-report-2023/
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