E-commerce today is incredibly personalized. Consumers know that if they search for a particular product, they will most likely see ads about that product; if they visit an online store, they’ll receive follow ups with the items they already viewed; if they frequently visit an e-commerce site, they’ll get email offers with the items they’re likely to want.
However, personalization often stops when it comes to the checkout process. This means that regardless of the customer journey they underwent, all consumers have the same checkout experience.
The latest payment regulations, namely the Revised Payment Services Directive (PSD2), have targeted the checkout experience, negatively impacting the checkout process. This, in turn, has forced merchants to reconsider how they look at the checkout process. Merchants can no longer view the checkout button as the end of the shopping experience, but instead must treat it as the start of the payment process.
Until recently, only merchants looking to optimize conversion and improve profitability considered personalizing the checkout process. This enabled them to provide their customers with a better checkout experience and increased the transaction value. However, merchants that didn’t personalize the checkout process didn’t pay a price.
COVID-19 forced consumers to turn to digital sources, and as a result, digital competition has grown. This, in turn, led merchants to optimize the entire customer journey, and many extended that to the checkout process.
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PSD2 also changed the way merchants view the checkout process. Under the new regulation, merchants in the European Union (EU) or operating within the European Economic Area (EEA) must use Strong Customer Authentication (SCA) on all transactions. This means that consumers must undergo multi-factor authentication and present two out of three verification methods. This is most often done by routing all transactions via 3D-Secure (3DS).
The incorporation of SCA, and particularly 3DS, into the checkout journey drastically transforms the process for consumers and requires merchants to change the way they view the checkout process and the importance they give to personalization.
A primary goal of marketers in general and e-commerce brands, in particular, is to reduce friction points and make online shopping as seamless as possible for consumers. 3DS does the exact opposite.
When merchants choose to use 3DS to comply with PSD2 rather than personalize it, they introduce an additional step to the checkout process. This adds touch points to the consumer journey and negatively impacts their shopping experience.
The additional friction leads to higher checkout abandonment rates resulting from the fact customers are not familiar with the 3DS challenge process and get frustrated along the way. Abandonment can also occur since customers have more time to think about their purchase and decide not to complete it.
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When a consumer completes a 3DS challenge, this triggers an additional authentication stage just to confirm that the challenge was completed successfully. The 3DS authentication verifies that the consumer input the correct information such as CVV and expiration. To do that, the information is routed through a payment gateway. This leaves room for technical issues that can lead to the transaction failing.
If there is a technical issue or a consumer inputs incorrect information, they must start the entire 3DS process from the beginning. Many consumers who experience an error here will drop off and abandon the checkout process.
Transactions where consumers input information correctly and for whom the authentication step was successful then need to be authorized.
To authorize a transaction, multiple parties from the payment ecosystem must successfully process the transaction. Transactions may be declined at the authorization step if it’s deemed high risk, even if the customer is legitimate. This can occur because a bank doesn’t want to take liability for a transaction or increase their risk ratio. As a result, the issuing bank will decline the transaction, causing financial and reputational harm to the merchant.
Personalization changes everything, and the checkout process is no exception. We live in an age where information about consumer behavior and preferences is abundant and it’s the role of merchants to use that information to benefit their consumers. Merchants can use this data to provide their customers with a checkout experience that’s uniquely catered to them:
Personalized checkout becomes particularly meaningful in light of the Revised Payment Services Directive (PSD2).
While SCA is required under PSD2, there are ways to gain exemption and process transactions without adding friction. Merchants can do this by using an exemption engine to request SCA exemptions for eligible transactions. If a transaction is eligible for an exemption, the consumer will automatically enjoy a seamless checkout experience and not have to complete a 3DS challenge while the merchant will remain PSD2 compliant.
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While the best thing for merchants is to completely forego 3DS by requesting exemptions, sometimes SCA is inevitable. However, even here, personalization can make a difference in the overall shopping experience of consumers.
Integrating dynamic 3DS enables merchants to route consumers through the SCA method that’s most likely to drive conversion with the least friction for their particular purchasing journey.
For example, providing a consumer who’s trying to checkout via a mobile device with anything other than an SMS verification code or sending a desktop consumer to their mobile phone will have an adverse effect. Other consumers may prefer alternative payment options and others may frequently shop from a particular store and already have their information stored in their mobile devices’ keychain.
The only way to know this is by incorporating artificial intelligence (AI) and machine learning (ML) based solutions that can accurately examine information in real-time and automatically make critical customer checkout solutions based on dynamic information.
The merchants who stop thinking about the checkout button as the last step in the customer journey and start seeing it as the first step in the payment process will provide their customers with the experience they want, creating a win-win situation for everyone involved.
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