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Chargebacks and other costs from incumbent payment methods an increasing burden for retailers

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Chargebacks and other costs associated with card payments are one of the biggest financial drains on increasingly online retailers a new study suggests.

Research by YouGov released by open banking platform TrueLayer – Change at the checkout – ecommerce payments after the pandemic – finds that the high cost of card payments is the biggest pain point today for half of retailers (49%). This cost comes from the processing fees and high number of chargebacks associated with the increasing volume of returns, as well as the high risk of fraud. 

For those with high average order values, namely, orders that often exceed £500 (eg. electronics, furniture and household goods), annual chargeback costs can be a significant financial burden. Half of those businesses (49%) report annual chargebacks above £100k, with £235k being the average cost for each retailer.  

At the same time, the study has found that consumer behaviour is highly influenced by methods of payment, with the availability of diverse payment options emerging as a top criterion for 48% of UK shoppers when choosing a specific retailer. 

Debit and credit cards have remained the most popular payment method, although as many as 60% of consumers have abandoned finalising an online order due to concerns over potential lack of payment security. 

Online sales now represent 30% of total retail in the UK, having grown by a third in the last year alone. To meet demand, UK retailers are under increasing pressure to optimise their online storefronts in a way that helps attract customers and drive sales without further eroding already-thin profit margins. 

“Debit and credit cards remain a default choice for online payments, however their design is falling short when it comes to successful digital commerce at scale while increasingly compromising crucial card details. Traditional bank transfers are no better, taking shoppers away from a seamless checkout,” says Ossama Soliman, Chief Product Officer at TrueLayer. “The result is both direct financial implications on retailers’ bottom lines, as well as poor customer experience and low conversion.”

Greater efficiency around refunds presents a clear opportunity to save costs and drive loyalty for retailers. Two-thirds (67%) of shoppers said that a quick refund is an important factor affecting their decision of whether to return to a retailer. The majority of people (81%) expect a refund from an online purchase within a week or less, however ‘instant refunds’, which are also desirable for retailers, are not feasible within the incumbent system of payment methods. 

Soliman adds: “The opportunity and need to create the ultimate online shopping experience, where payments aren’t just retrofitted for the online world, is huge. But it clashes with the current reality, where retailers face the challenge of mounting costs from transaction fees and chargebacks and attempt to balance it with evolving consumer expectations. This is a good example of where instant bank transfers via open banking can make a material difference in the future of e-commerce and help to deliver digitally-native payments with conversion rates up to 40% higher than cards, at a cost that is much lower than cards. It’s evident that shoppers are ready to embrace the trend of instant transactions if it can improve the cumbersome process of refunds and in turn, improve their financial lives.”

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