Traditionally, luxury retailers have been seen as late adopters when it comes to ecommerce. In part, this reflects the belief that the personalised, bespoke experience we associate with high-end retail simply can’t be reproduced online. But the costs and headaches associated with fraud and chargebacks have also held back merchants from scaling up their ecommerce offering.
Recent research by TrueLayer found that over a third (36%) of UK merchants rated ‘high fraud and chargebacks’ as their top pain point with their current payments setup.
Naturally these challenges are even more acute for high-end retailers, dealing in higher-value single transactions. Our research found 38% of merchants with an average order value greater than £500 reported costs of £100-500k a year on chargebacks alone, while 11% reported annual costs in excess of £500k.
This is backed up by anecdotal evidence too: one luxury retailer told us that they would phone up customers specifically to ask them not to pay with credit cards for the fear of difficulties and likely consequences.
We’ve also heard of instances where customers would have to go through the laborious process of setting up a manual bank transfer as a workaround, or where customers would have to be proactively contacted via email to be given an account number or sort code to pay into.
Given the lengths luxury retailers are going to in avoiding traditional payment methods, it is no surprise that they are turning to alternatives and looking at new technologies that get around the need for legacy payment systems like credit and debit cards altogether. During the holiday shopping season, which tends to be busier for expensive gifts, the cost of potential refunds and returns is exponentially higher.
Open banking enables customers to connect directly to their bank account so that payment can be taken within seconds. Payments are authenticated directly with the bank, eliminating card and direct debit chargebacks. From the customer perspective, there’s no need to enter card details or fill in forms – payment can be made in a few taps with face recognition or a fingerprint.
It is advantageous for the merchant too, as funds are received immediately allowing them to ship the goods with total confidence.
As a payment method built for the mobile era, open banking integrates seamlessly into the customer journey. So as well as addressing a pain point, it can play an important role in building a smoother checkout experience and purchasing journey – in turn, helping to increase conversion as luxury retailers create the beautiful and intuitive online experiences their customers expect.
The data bears this out: Open banking payments have an acceptance rate 15-20% higher than cards online across checkout, and after adding the Open Banking payment options, merchants achieve 30% share of checkout within a few months – sometimes as much as 80%.
The ability to process refunds promptly and in a seamless way, without the need for customers to jump through hoops – whether a purchase has been made online or instore – has become an increasingly important part of the customer journey.
This is particularly true for the luxury retail segment, where smooth customer experiences are essential, not a nice to have. Our research found that merchants with high order values receive the most complaints about slow or lost refunds. Over half of retailers with average order values of over £500 said they received frequent complaints, compared to just 10% among those with order values of £100 or less.
Shoppers spending more have also come to expect fast refunds – for larger purchases, the ability to offer instant refunds is a more significant driver of customer loyalty: 90% of shoppers spending over £500 say that the time taken to receive a refund would influence future spending decisions.
Refunds were often thought to be the Achilles heel of open banking because it does not include these as a native feature. However, upgrading the open banking experience as we have, has also improved the refunds process, removing friction and delay to make it as instant as the initial checkout payment.
For too long, luxury retailers have been left behind by innovation at the checkout – through Open Banking, we’re already starting to see how they are addressing the problems of fraud and chargebacks. Crucially they can also use these payment methods as a way of differentiating from competitors and delivering a customer experience that complements their brand.
The future of luxury retail doesn’t fit into a simple binary of bricks and mortar on one hand and online on the other – instead, we’re seeing a conversion of digital and physical presence, with better, more seamless customer experiences sitting across both.
Roger De’Ath, Head of ecommerce at TrueLayer