Payments – The New Competitive Advantage

If you were competing in Le Mans, you wouldn’t take your racing car to the local mechanic to race prep it. You’d take it to a specialist shop that had the skills to create a high-performance machine capable of winning the race. You’d constantly be on the lookout for new ways to give your car the competitive edge, from fuels and materials to tyres and engine enhancements that make it faster and better.

Economists say that competition is an essential force in maintaining productive and efficient markets. We see competitive behaviour in politics, foreign relations, sports and even in the human quest for love. For most people, there is something inexplicably compelling about the nature of competition, and some scholars argue that competitiveness is a biological trait that co-evolved with the basic need for human survival.

Nowhere is this more apparent than in business. Organisations today do everything in their power to optimise performance and profits. Our desire to win compels us to optimise processes, squeeze supply chains, use technology and any other tools we have to build more efficient, effective organisations.

And yet despite our quest to maximise organisations competitive advantage, one stone remains stubbornly unturned: payments. Payments have historically been seen as an administrative back office of the finance department whose role is to reconcile payables with receivables, and manually handle payment disputes. As a business grows, the payments department grows with it to manage the increased numbers of transactions. In complex industries like consumer finance, a level of imperfect reconciliation is ‘normal’, disputes are ‘a cost of doing business’, and the payments department is simply seen as a necessary cost centre that is required to manage this, and not worthy of much attention.

People often say that the phrase “This is how we’ve always done it” contains the seven most expensive words in business. In the case of payments, that’s true, and it’s the reason that merchants continue to use legacy payment providers. Some of the more forward-thinking merchants see the opportunity to automate certain payment functions, reducing staffing requirements and saving costs. However, few have realised that modern payments technologies have the potential to be a silver bullet, providing the competitive advantage they’re looking for.

Disputes (previously known as chargebacks) are the bane of many merchants’ lives, especially in the complex world of consumer finance. Merchants battle to connect the dispute to its original transaction, and often it’s simpler to write off the transaction rather than carry the cost of sorting it out. As a result, instead of being black-listed, bad payers can carry on unnoticed. Payments technology has now enabled automatic dispute management. Each dispute can automatically be linked to its associated transactional data, and with one simple click they can be proactively and accurately managed. Merchants no longer have to carry these costs, and lost disputes can become a thing of the past.

Today’s payments technology can also enable perfect reconciliation. For many merchants, this is simply unheard of, and they’ve learned to be content with mostly-reconciled balance sheets, never completely sure how much has seeped out along the payments life-cycle. However, technology-driven payment providers can reconcile to exactly what hits a merchant’s bank account – to the penny. This removes the need for time-consuming reconciliation from multiple sources, saving back-office time and reduces the burden of reporting, compliance and testing. In fact, it turns the process into a transparent intelligence tool used to make critical business decisions.

Many e-merchants are well aware of buyers abandoning their shopping cart when they reach the payments page, often because its different visual appearance signals suspicious activity to shoppers who are looking for environments secure enough to hand over their credit card details. However, today, the right payment provider will allow the merchant to ‘own’ the complete Ux of the payments page. This ensures that its design identically matches the rest of the e-commerce environment, providing reassurance to shoppers that this is a seamless continuation of their shopping journey and is as equally safe and secure.

Using the right technology, payments can even be integrated into a merchant’s CRM system which means that the entire payments lifecycle can be automated, reducing the need for the payments team to be scaled as the business grows.

Some payments processers have also begun to focus on individual sectors. Payments products are being built specifically for the unique needs of the consumer finance industry, using technology to improve authorisation rates, remove customer friction, reduce costs and customer service challenges. Collections are the life blood of a consumer finance business and payment solutions are critical to sustained profitability and its ultimate success.

A recent success story saw a consumer finance merchant migrating to a new payment gateway using a system which is configured specifically for the consumer finance industry. Payments were integrated into the client’s CRM system and resulted in a 9% increase in conversions and 13% increase in collections compared to their previous gateway. The results were game-changing for the merchant, catapulting them ahead of the competition.

The past few years have seen technology disrupt category after category, unlocking value in areas previously not monetised. The payments industry is next in line. Once relegated to the back office, payments are now in the spotlight for their ability to add measurable financial and operational competitive advantage to a business.

In your efforts to build a faster and better race winning car for Le Mans, if technology could unlock a sustainable competitive advantage, providing improved performance and cost savings from a long-ignored component away from the engine, could you afford not to lift the hood and have a look for it?

Rob Clark, Managing Director, Acquired.com

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