The Merchant's Guide to the Payment Acceptance Maze: Avoiding Hidden Fees and Maximizing Profits

Retail sales in the US & Canada totalled approximately $6.2 trillion in 2023, according to the US Census Bureau and Statistics Canada. The US secured the top spot in total global retail sales, outpacing China's $3.9 trillion, and Japan's $1.28trillion. With the ongoing digitalization of payments and the rise of new payment methods, retailers are adapting to encourage consumers to spend using their preferred payment options.

*Europe-5 includes France, Germany, Italy, Spain, and the United Kingdom

Accepting digital payments has become increasingly complex as consumer expectations for easy checkout online or in-store continue to grow. Consumers have numerous choices and preferences on which method of payment they use to pay for products and services. New sales channels appear regularly; old channels face changes to their requirements and processes, and technological innovation changes the way consumers shop in-store and online. Immersive retail is emerging to blur the physical and the digital worlds and is further changing the way consumers shop and how merchants accept and process payments. While enhanced functionality can bring added value, it often comes at the price of increased operational costs and complexity.

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The estimated savings are based on EDC’s experience working with merchants implementing strategies focused on optimizing payment routing, improving authorization & conversion rates, and minimizing losses to fraud, among others, across different industries, and are calculated from the US Census Bureau Data¹. With so many factors influencing sales and all with differing payment acceptance costs, it is challenging to know where you should focus your payment acceptance strategy, particularly if you are a retailer with multiple lines of business and/or offer multiple sales channels.

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Multiple Channels and Unified Commerce

The heart of “unified commerce” is the tenet of placing the customer at the center of an integrated multichannel strategy, enhancing the customer experience and providing greater speed and convenience. A content-rich experience has started to transcend beyond online-only retailers, creating truly omnichannel retailers of the future that unite mobile commerce, e-Commerce and the in-store shopping experience. Notable developments in unified commerce include:

• Deployment of in-store kiosks and self-service kiosks.
• Use of mobile POS and tablet devices with value-added services for enhanced in-store customer experience.
• NFC(Near Field Communication): consumers tapping their phone or payment card on contactless readers is already widespread, but advancements like tokenization and biometrics provide additional security layers.
• Scan-to-pay: Customers scan QR codes displayed in-store or online to initiate secure payments from their mobile devices.
• Mobile Wallets: Apple Pay, Google Pay, and Samsung Pay leverage NFC for in-store payments, often offering loyalty program integration and faster checkout.
• Numerous omnichannel customer journeys such as Click and Collect, Buy Online Pick-up in Store (BOPIS), and Buy Online Return in Store (BORIS).
• Buy Now, Pay Later (BNPL) Solutions: Offering flexible payment options like Klarna and Affirm directly at checkout, attracting new customers and increasing basket sizes.

The total cost of acceptance including operations, payment processing, and potential fraud losses differs significantly depending on the channels, technologies, and approaches used. For example, EDC estimates that almost 7 in 10 fraud losses of all credit card fraud losses were tied to card-not-present transactions. However, card-not-present transaction volume accounted for less than 20% of total transaction volume in North America.

Over the next 10 years, even more change is expected to impact both the usage and processing of retail payments. As our ability to innovate continues to increase, there will be many trends facilitating a change in the way we shop today. Each of these will have significant implications for how retailers will use payment methods, accept consumer payments, interact with financial institutions, and process payments.

Multiple Payment Methods

Consumers have more choice now than ever on the types of payment methods they own and prefer to use for purchases – between electronic versus cash payments, localized payment methods versus international brands, debit cards versus credit cards, and the like. Each payment type has different processing structures and costs, including the prevalence of fraud.

The real challenge that retailers have is that it’s an industry that keeps inventing new payment methods and rarely abandons the old. Cash and cards are unlikely to disappear anytime soon, not even within the next 20 to 30years, even with cash gradually being replaced by digital payment methods and plastic payment cards being digitalised and stored within a smartphone wallet. As more payment methods emerge, both online and at the physical point of sale, acceptance costs are rising due to new implementations and operating expenses. Although new payment methods are being onboarded rapidly, “old” payment methods are rarely retired or replaced, which means that payment optimization is more relevant today than ever before.

EDC has worked with retailers globally over our 45-year history and it is clear there are differences in payment methods used and preferred, including some which are domestic and internationally accepted. Furthermore, unified commerce has evolved at different speeds in different merchant verticals, such as fashion, luxury retailing, department stores, electronic goods, speciality stores, which have all innovated faster than other verticals, such as grocery stores or pharmacies.

Consumers have their payment preferences, they could be international or domestic payment cards, mobile wallets, credit or debit bank transfers, prepaid, cash on delivery, BNPL, Direct Carrier Billing, and so on. All these must be incorporated into a payment acceptance strategy that takes into account different consumer preferences will vary by market. 

Making purchases via mobile phones has become commonplace, whether that’s through scanned QR codes or Near Field Communication (NFC) usually depends on many different factors. There are examples of cashier-less, cashless stores, touch-screen kiosks, vending machines, and mobile points of sale (POS).

The US, which was at the forefront of retail consumer payments, now lags other markets when it comes to unified commerce. Implementation of EMV is underway however card swiping, Chip & PIN are expected to be around for a few more years. Amazon-Go may be a cashier-less store with a unique customer experience, but some US states are making the acceptance of cash a legal requirement.  

True Cost of Payment Acceptance

The payments industry is growing increasingly complex and inefficient to manage for retailers. With local issuing, local acquiring, cross-border acquiring, multi-layered array of technology solutions supported by multifaceted data-driven pricing regimes, each of which differ for each payment scheme and payment method, life has never been more complicated for retailers who simply want to facilitate a transaction. This is partly fuelled by the unpredictability of which payment method consumers will first pull out of their wallets.

Surprisingly, the Cost of Payment Acceptance (CoPA) is a metric that many merchants do not understand or measure. The relationship between electronic payments and cash payments, or between debit cards and credit cards, the number of declined transactions, the value of chargebacks and fraud, or the split between internationally issued cards and domestic cards, are a few of the key performance indicators that every merchant ought to understand and track regularly. However, it is recognized that capturing the full spectrum of all electronic and non-electronic payment arrangements is a complex and time-consuming task for any merchant. With so many components to consider –card processing relationships, acquiring banks, foreign exchange and treasury management, cash management, network fees, PIN and PIN-less debit routing solutions, payment gateways, PSPs, dispute management, and fraud management –it is difficult for merchants to know where to spend their internal resources and in some cases where to start.

As sales grow, particularly in the online sales channel, retailers have typically expanded back-office operations, even acquired similar businesses locally or internationally, and inherited their acquirer and gateway payment providers. This growth has resulted in several legacy processes and inefficiencies within the operational infrastructure which have gone largely unnoticed.

Proven Approaches to Reduce Payment Acceptance Costs

EDC uses a proprietary methodology called the 360° Payments Diagnostic that assesses the payments strategy of a retailer to identify and prioritize cost reduction and revenue enhancement opportunities. The 360° Payments Diagnostic encourages the smart use of payment information as a valuable tool and is a proven process to reduce operational costs, increase revenues, and engage customers across all channels, regardless of their preferred payment method.

Through this holistic approach to payments, EDC empowers our clients with tangible cost-saving opportunities for payment acceptance strategies, regardless of the type of payment combination, sales channel, digital, or cash.  

Different Verticals, Same Result

With over 45 years’ experience, EDC has developed unique knowledge and a database of payment optimization scenarios which has been applied to different retail verticals – including, hotels, online travel agents, rail operators, airlines, gaming operators, general merchandise, department stores, luxury goods retailers and so on. The list continues to grow as do the results.

Don't let the intricacies of payment acceptance across various industries, sales channels, and geographies hold you back. Our powerful 360°Payments Diagnostic cuts through the complexity, regardless of your vertical or reach. This proven methodology uncovers hidden costs and inefficiencies, unlocking significant savings that improve your bottom line. With EDC's collective expertise catering specifically to merchants like yours, you can finally simplify payments, maximize returns, and focus on what you do best: serving your customers.

¹ Merchants included in the analysis includes airlines, furniture and home furnishing stores, electronics and appliances stores, building materials and garden equipment and supplies dealers, food and beverage stores, health and personal care stores, accommodation, clothing and accessories, sporting goods, hobbies, musical instruments, and book stores, general merchandise stores, miscellaneous stores, and non-store retailers.

‍The content of this article does not reflect the official opinion of Edgar, Dunn & Company. The information and views expressed in this publication belong solely to the author(s).

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