Guaranteeing seamless payments for an omnichannel future
Pre-pandemic, the traditional distinction between online and offline payments was becoming problematic. Post-pandemic, it is an anachronism. So, what more can be done to reflect the blurring of the lines between the two? And how can a seamless payment experience be guaranteed, irrespective of channel?
Here’s a statistic that may surprise you.
For some Visa clients, in some European markets, up to 20% of all e-commerce transactions are routinely declined1. Or to put it another way, that’s one-in-five online payments. At a time when e-commerce payments are racing ahead, that’s an unsustainable situation – especially when you consider that for face-to-face payments, assuming the card has not been reported lost or stolen and the consumer has sufficient funds, the equivalent figure is close to 0%.
For a lot of banks, the differential is not as wide. But, for almost all banks, there is a differential – which suggests that a proportion of transactions are needlessly declined, a proportion of sales are needlessly lost, and a proportion of consumers are needlessly inconvenienced.
Even before the pandemic, digital payments were spiking upwards. Between 2019 and 2020, for example, Visa payment volumes in Europe increased by 15%.2 Between 2020 and 2021, they were up by a further 20%3. And, as the pandemic recedes, the trajectory is set to continue upwards, with 58% of European consumers saying that they will continue using new payment methods, and 61% who say they will continue to use less cash4.
Meanwhile, many physical environments have become more digital. What started as contactless has morphed to encompass a mix of tap-to-phone, click-and-collect, and scan-and-go. In many hospitality venues, QR-enabled order-at-table solutions have become the primary way to pay. And in the future, it is easy to envisage more ways that physical and digital will merge – which will bring any differential in decline rates under scrutiny.
In terms of solutions, there are four main opportunities:
Identify – and wave through – the low-risk transactions
Similar to offline transactions, most online transactions pose very little risk. They are made by a legitimate account holder for a bona fide payment. And technologies like Visa Consumer Authentication Service (VCAS) can sift out the routine from the risky (alarm bells will ring if, for example, a new device is involved, or an unusually large purchase is being made). Those that truly warrant scrutiny can be authenticated, and those that don’t, can be waved through.
Desensitize the sensitive data
Why is it that e-commerce payments face such scrutiny – which, in turn, translates to higher decline rates and a user experience that is sometimes found wanting?
Simply put, it is because of the risks relating to sensitive account data (the PAN, expiry date and CVV2). If these details become compromised, or we cannot be sure that they are being used legitimately, things can go very wrong. Enter tokenisation – a technology which replaces the PAN with a 16-digit equivalent that is much easier to manage, restrict and, if necessary, disable.
The tokenisation journey is well underway. It began with EMV chip card technology, which has always used tokens in place of PANs. It was extended with the emergence of contactless payments. It was a prerequisite for the arrival of ‘the pays’. And, for the future, it enables us to envisage a world in which any item with a digital heartbeat could be used to securely initiate or accept payments across any channel.
Right now, the challenge – and the opportunity – is for tokenisation to become more deeply and widely embedded in the world of everyday e-commerce. In the wake of the pandemic, that’s where it is most needed and where it promises to bring the most value. For example, in Europe, the authorisation rate for tokenised e-commerce transactions is 2.5% higher5 and the level of fraud is 60% lower6. And with services like the Visa Token Service, the technique can be deployed at scale.
Delegate some of the responsibility
An added dynamic is the arrival of PSD2 and the requirement for Secure Customer Authentication (SCA) – which has increased the authentication burden for banks, as well as the need for elegant and frictionless authentication experiences.
One opportunity to relieve that burden is to entrust reputable retailers to conduct their own two-factor authentication. Often, they know the customer, pride themselves on the elegance of their user experience, are more than capable of conducting SCA, and have traditionally worked hard to keep fraud rates to the bare minimum. And, if they meet stringent standards, retailers can qualify for the Visa Delegated Authentication Program (VDAP), which allows for the delegation of SCA at scale.
It promises to be a win-win-win situation that improves the customer experience, lifts conversion rates, addresses fraud and enables higher authorisation rates – yet removes the SCA burden for banks. Visa will be expanding VDAP to support more delegated authentication use cases, while continuing to drive down fraud across the ecosystem.
Improve the guest experience
Another area of friction is the one-off purchases from online merchants – where the consumer does not have their card details on file, nor do they want to create an account.
A solution here is Click to Pay, the result of an industry-wide initiative that removes the hassle from guest checkouts. Once the consumer is enrolled, they can pay with an easy, smart, consistent and secure checkout experience, without bothering with form-fields or passwords, irrespective of scheme, merchant, device, or browser.
With issuer side enrolment, Click to Pay promises to have the same impact in digital as contactless did in face-to-face. Transactions are tokenised so the same benefits are extended: security, real-time account updates and card artwork.
The great thing is that the ecosystem already has access to many of the solutions. Much of the groundwork has been done, the innovation has been harnessed and the standards have been set. It is therefore a matter of encouraging and enabling more players in the ecosystem to implement proven technologies.
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Case studies, comparisons, statistics, research and recommendations are provided “AS IS” and intended for informational purposes only and should not be relied upon for operational, marketing, legal, technical, tax, financial or other advice. Visa Inc. neither makes any warranty or representation as to the completeness or accuracy of the information within this document, nor assumes any liability or responsibility that may result from reliance on such information. The Information contained herein is not intended as investment or legal advice, and readers are encouraged to seek the advice of a competent professional where such advice is required.
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1 Gross Approval Rate from Visa, Global Authorization Trends Tracker, 2019-2021
2 Gross Approval Rate from Visa, Global Authorization Trends Tracker, 2019-2021
3 Visa transactions in Europe, 2019-2021
4 Visa-commissioned quantitative survey, covering Germany, Italy, Poland, UK, 2021
5 Visa global card not present transactions for token vs non-tokenized credentials, May–July 2020
6 Visa Global Risk MIS: European CNP 12-month average for period Mar 20-Mar 21