Optimizing online

payments to
boost profitability
5 Best Practices to enhance consumer
experience and payment processing
Contents
4 5 10 14
Introduction: Best Practice 1: Best Practice 2: Best Practice 3:
Optimizing payments Optimizing mobile Localizing payment Implementing a global
is essential for payment experience method selection acquiring strategy with
growth to increase checkout to unlock customer a local approach
conversion segments

19 22 25 27
Best Practice 4: Best Practice 5: What should About Adyen and Edgar
Leveraging payment Using intelligent, merchants Dunn & Company
data insights to increase data-based approach do next?
conversion rate and to minimize risk and
reduce cost of acceptance maximize revenue
Tables and figures
5 6 11 12
Figure 1. Overview of Figure 2. Average Figure 3. Examples Figure 4. Share of
transaction volume, split transaction value of customer payment local payment methods
by device type among among Adyen’s preferences across in selected countries
Adyen’s merchants merchants the globe

15 23
Figure 5. Example Figure 6. Impact from
on cross-border Adyen’s RevenueProtect
acquiring versus Functionalities (Illustrative
domestic acquiring example of actual impact
for an Adyen merchant)
Optimizing payments
is essential for growth
Spurred on by the rapid advancement of technology,
consumer preferences and expectations from merchants
have evolved at a seemingly breakneck pace.

Consumers, especially tech-savvy Millennials and How to optimize payments?

Generation Z, live in a largely digital world. They expect their
The objective of this white paper is to share multiple best
entire shopping experience and checkout process to be
practices that answer one key question: how to optimize
simple, frictionless and relevant to their personal needs. This
online payments to increase overall merchant profitability?
means they expect to be able to make a purchase and pay for
it using any device or channel, whenever and however
In partnership with Adyen, Edgar, Dunn & Company (EDC), a
they want.
global strategy consulting firm specializing in payments, has
identified five best practices to increase overall profitability
As the world becomes more digital and borderless, payment
based on merchant and subject matter expert interviews and
is an increasingly important success factor for merchants.
on quantitative analysis.
It is one of the key elements that can directly impact
conversion rates. For example, consumers often abandon
These five best practices include:
their purchases if the payment process is too cumbersome
or their preferred payment methods are not available. • Optimizing mobile payment experience to increase
Merchants need to have a robust payment strategy in place checkout conversion
and be quick to leverage payment innovation to stay ahead
• Localizing payment method selection to unlock
of competitors. Today, with the emergence of new payment
customer segments
instruments and methods, consumers have no shortage of
options. Merchants need to understand what this means to • Implementing a global acquiring strategy with a local
their business and how they can optimize their approach approach
to payments, both to control costs and to drive
• Leveraging payment data insights to increase
incremental sales.
conversion rate and reduce cost of acceptance

• Using intelligent data-based approach to minimize risk

and maximize revenue

4
Best Practice 1

Optimizing mobile payment

experience to increase checkout
conversion
The reason to take a mobile-first approach is simple: the
consumers of the world are increasingly tied to their mobile
devices. Today, according to GSMA Intelligence, over half of
the world’s population (more than 3 billion people) are mobile
internet users, and that number will continue to grow. The
increased usage of tablets, smartphones and other mobile
devices has naturally led to the growth of m-commerce.
To illustrate, Figure 1 shows that transaction volumes on
tablets and other mobile devices have increased significantly
in Brazil, France, Germany, the U.K., Nordics and the U.S.
over the past year. According to Statista, worldwide mobile
payment revenue will surpass $1 trillion USD in 2019.
More and more consumers are turning to their mobile
devices and native mobile apps to shop. As such, the
question now facing businesses large and small is not
“Why mobile?” but rather how best to optimize the mobile
customer experience to increase checkout conversion.

Figure 1. Overview of transaction volume, split by device type among Adyen’s merchants

Brazil France
100% 100%

90% 90%

80% 80%

60% 60%

50% 50%

40% 40%

30% 30%

20% 20%

10% 10%

0% 0%

June 2016 June 2017 June 2016 June 2017

Germany UK
100% 100%

90% 90%

80% 80%

60% 60%

50% 50%

40% 40%

30% 30%

20% 20%

10% 10%

0% 0%

June 2016 June 2017 June 2016 June 2017

Tablet Computer 5
Mobile
 Nordics US
100% 100%

90% 90%

80% 80%

60% 60%

50% 50%

40% 40%

30% 30%

20% 20%

10% 10%

0% 0%
June 2016 June 2017 June 2016 June 2017

Nordics: Sweden, Finland, Norway, Denmark, Iceland

Tablet Computer Mobile

Importance of optimizing for mobile

With the significant growth in m-commerce, optimizing
the design of the payment page for mobile devices has
become even more important. Figure 2 indicates that iPad
and Android tablets tend to see substantially higher average
transaction values than smartphones (Android, iPhone, or
otherwise) across different countries. This suggests that
consumers may be more comfortable making expensive
purchases on large-screen devices.
To enhance the customer experience and improve
conversion rates across multiple mobile devices, merchants
should offer a dedicated interface for each device. For
example, consumers should not struggle to see the whole
range of payment options on a smartphone. Merchants
should implement responsive design (i.e. fully dynamic
payment skins that automatically detect the screen size of
the device used by consumers and adjust accordingly).

Figure 2. Average transaction value among Adyen’s merchants

$200

$180

$160

$140

$120

$100

$80

$60

$40

$20

$
Brazil France Germany Nordics UK US

Android mobile iPhone Android tablet iPad

6
Native in-app user experience
The emergence of mobile apps has driven the need for
specific payment solutions that deliver a convenient and
seamless in-app payment process. For instance, in some
emerging markets where internet infrastructure may
be unreliable or slow, creating a low-friction purchasing
experience means accommodating that reality (e.g.
reducing the number of images downloaded or developing
a retry strategy).
When it comes to the payment flow, consumers in many
markets prefer the ease and simplicity of a “1-click” or
“1-touch” model, wherein they enter their payment details
once, during sign-up or at the time of their first transaction.
That information is then stored securely within the app, and
for subsequent purchases, they simply press the pay button
to complete the transaction. This allows consumers to focus
on the shopping process rather than on checkout.
out of the car without having to worry about payment. The
fare is automatically charged to the primary card on file.
Establishing behavioral trends for individual users is a
popular theme for advertisers, fraud-fighters, and user
experience designers. But it is also a source of tremendous
value in a merchant’s approach to payments. For example, an
online food delivery marketplace knows what a user ordered
at the same time last month, and can therefore confidently
offer a 1-click flow for the same order made today. Holding
onto and understanding customer preferences, and
using that insight to continuously improve the checkout
experience, is the kind of payments innovation that sets
merchants apart and turns customers into promoters and
brand loyalists. In fact, interviews with merchants have
revealed that the implementation of 1-click is directly linked
to significant incremental sales.

That said, in some markets, such a low-friction approach

may give security-conscious consumers pause, eroding
their trust in the transaction. A further consideration: the
importance of swift and flexible customer service to respond
“With Adyen, BlaBlaCar can provide
to potential issues. Amazon, for example, allows customers to
a consistent experience across any
cancel orders that have not entered the shipping process in
device. Whether the user is paying in the
case they change their minds or have made a mistake.
native app, or via a mobile browser, the
checkout has been designed to delight
Another development in the domain of convenient in-app
the user and drive conversions on any
payments: wallets provided by major device manufacturers
screen size. And, as all payments feed
(e.g. Apple Pay, Android Pay, Samsung Pay, etc.). With
into the same system, BlaBlaCar can
these solutions, the card information is securely stored on
see transactions across all devices in a
a shopper’s device, and those credentials are shared with
single view.”
the merchant after review and authentication (typically via
biometrics or a passcode). Also, these solutions further Amélie Séguret, VP Marketing
enhance the shopper experience, making the experience of a
card payment more convenient and intuitive.

In the mobile world, merchants cannot afford more than

one click. Consider the Uber experience, where the entire
checkout process is “invisible.” At the end of a ride, users get

7
Optimizing local payment methods
to a mobile environment
Adding local payment methods (e.g. mobile wallets,
domestic card brands, bank transfer, etc.) and optimizing
the payment flow for a seamless mobile checkout is vital
for business success.

iDEAL and Alipay

Let’s take the example of iDEAL, which allows customers in
the Netherlands to pay for their purchases online through a
direct online transfer from their bank account. Because it is
mobile-friendly, about 50% of those payments were made on
mobile, and mobile apps that support iDEAL tend to have a
higher conversion rate.
Furthermore, Chinese payment method Alipay, with a
reported 520 million active users worldwide in 2017,
accounts for almost half of the $500 billion e-commerce
market in China and has become extremely popular in
markets where Chinese tourism thrives. In today’s world,
where mobile devices play a central role in virtually any
traveler’s journey, Chinese travelers are used to easily
checking into their flights, reserving hotel rooms and
shopping overseas, all from within the comfort of their
mobile apps. For merchants looking to expand into China
or to better serve the growing crowd of Chinese tourists in
other markets, Alipay is a must-have payment option, along
with other local payment methods such as WeChat Pay.
“Being able to accept multiple mobile
payment methods and mobile wallets
is the trend right now. To improve the
overall mobile payment experience and
increase conversion rate, you need to
simplify the checkout process, which
includes 1-click payment. It is not
enough to only offer customers their
preferred payment methods, you need
to reduce friction in order to provide
them the best-in-class experience.”
Michelle Frank, Senior Manager of
Global E-commerce

8
 What Adyen offers
Adyen has launched a new integration option, Adyen Checkout, which puts
a fully-optimized Adyen checkout flow into the merchant’s mobile app and
for web. It supports a full range of payment methods, including all major
card schemes and key local payment methods such as Alipay. Additionally,
Adyen Checkout dynamically lists the most relevant payment methods to
their customers based on their location and risk profile.

Transparency and reassurance

about security
The most effective payment page is one that reassures
“We have recently launched FavePay
consumers about security. This happens by providing
in Malaysia and Singapore, to make
encryption details, by giving information about partners
mobile payments easier. The whole
used to secure payment information, or by offering insight
idea is to make it convenient to our
into how payment details may be used throughout the
users, so they can shop and complete
relationship. With increased media coverage about online
their transactions all within the app. To
fraud and data breaches, consumers are wary of sharing
create a successful mobile app, you
sensitive payment information.
need to make payments as seamless
as possible, have flexible APIs and be
Everything a merchant provides “behind the screen” (e.g.
transparent. Customers should know
tokenization of stored payment data, 1-click flows for
exactly what to expect.”
subsequent purchases, or even use of account updater)
should be clear and transparent to the users in the FAQ Michael Cheah, Chief Architect
section. This is part of the setup flow that helps reassure Infrastructure
consumers, increase their confidence and encourage them
to enter personal payment details.

Edgar Dunn perspective

As mobile usage continues to grow, it is crucial for merchants to create
a native in-app payment experience to increase conversion rates. This
includes offering popular locally relevant payment methods and simplifying
the checkout process with 1-click payment in friction-averse markets.
Merchants also need to consider the impact to risk management and
customer service practices that a mobile-first strategy may create. 9
Best Practice 2
Localizing payment methods
to reach new customers
Outside of North America, international credit cards
(e.g. Visa, Mastercard, Amex) are not necessarily the most
prevalent payment methods. For example: according
to Adyen data, in China only 1% of shoppers pay with
international credit cards; and in Germany, less than 25% of
shoppers use credit cards for online purchases. Given these
market specifics, it is worth emphasizing that as merchants
(regardless of size or industry) grow their businesses
internationally, they need a payment acceptance approach
tailored to each country to increase market reach.
10
Consider local market needs when
expanding internationally
With an annual growth rate of more than 20%, cross-border
e-commerce represents a huge opportunity for many
businesses to expand internationally. Yet going global comes
with its own set of challenges. One of those challenges is
online payments.
While it is apparent that understanding the local market
(e.g. regulations, economics, culture differences, etc.) is
essential to drive local success, that same concept applies to
payments. Merchants need to take local habits into account
as customer payment preferences may differ significantly
from one country or region to another. Figures 4 and 5 show
some of those differences.

Figure 3. Examples of customer payment preferences across the globe

Region Examples of customer payment preferences among Adyen’s merchants

• In China, UnionPay, Alipay and WeChat Pay are the three major payment methods.
• In Indonesia and Malaysia, respectively, ATM payment and online banking are the
most popular payment methods.
• In the Philippines, mobile payments are gaining traction, with methods such as
Asia Pacific (APAC)
SMART Money and Globe GCash leading the pack.
• Although non-cash transactions are growing rapidly, cash on delivery is still relevant
and important in countries such as India and Indonesia, particularly for retail goods.

• In Brazil, up to 80% of all ecommerce payments are made in installments.

• While the majority of shoppers in Brazil prefer to use credit cards, many of those
cards are not enabled for cross-border payments.
• Cash-based methods like Boleto and OXXO are very popular in Brazil and Mexico,
Latin America (LATAM)
respectively. Not supporting cash-based payment methods in these markets will
be a major challenge for any merchant, but particularly for online retailers or those
targeting unbanked consumer segments.

• In Germany, SEPA direct debit (a Europe-wide Direct Debit system), SOFORT

(now Klarna), and Giropay account for the majority of online transactions.
• In the Netherlands, iDEAL is the most popular payment method. Direct debits
Europe and open invoice payments are also fairly popular.
• In Russia, cards represent less than half of online transactions. The most popular
local payment methods are e-wallets (Qiwi, Yandex.Money and WebMoney) as welll
as cash on delivery.

• About 90% of Canadian and 95% of U.S. shoppers are Visa / Mastercard
cardholders.
• But local payment methods still matter. According to the U.S. Travel Association,
North America
over 75 million visitors went to the U.S. in 2016, and 3 million were from China.
These Chinese visitors are shopping at America’s e-commerce sites expecting to
use their local Chinese payment methods.

11
Figure 4. Share of local payment methods in selected countries

US China

Visa Alipay

Mastercard UnionPay

American Express WeChat Pay

PayPal Other

Discover International cards

Germany Netherlands

SEPA direct debit iDEAL

Giropay SEPA direct debit

Open invoice Mastercard

Visa Visa

PayPal PayPal

Mastercard Open invoice

Sofort

American Express

Indonesia Brazil

Online Banking Visa

Other Mastercard
Visa Boleto
Martercard Other
E-wallets Elo

Carroer Billing

Note: Figures 4 and 5 are based on Adyen transaction data, market

knowledge and customer payment preferences. The actual mix will depend
on other factors such as type of business, goods or services sold, average
transaction value, customer demographics, and others.

12
Offering payment methods that fit
your business model
While keeping customer preferences in mind, merchants
should consider their own business model when evaluating
payment methods. For example, handling recurring
transactions with cards is easy, but there are pros and cons
to doing so with direct debit. “All our local payment methods are
driven by our regional teams and local
For instance, incorrect bank account details or “insufficient customer expectations. You need to
funds” responses may not be triggered until days after a empower your customers and let them
transaction was initially placed. Decline rates for transactions make the choice. If they cannot use
in sectors such as telecom can be as high as 6% in Germany what they want to use, they will go
or the Netherlands, due to wrong bank account details or somewhere else.”
insufficient funds in a consumer’s bank account.
Michelle Frank, Senior Manager of
Global E-commerce
Moreover, many of the world’s most popular payment
methods have no built-in support for recurring transactions
(typically because they require the user to authenticate every
single transaction). For subscription billers like utilities or
services like Spotify or Netflix, this is a serious consideration,
one that may prompt them to consider moving to a prepaid or
quarterly / biannual subscription model in some markets.

Depending on their size, merchants may have different

objectives. For instance, the key focus for a large merchant
in the U.S. may be on customer experience (e.g. checkout
look and feel). Since Europe and Asia Pacific are more
diverse, market reach and acquiring strategy tend to be more
important to merchants in those markets. Small and
mid-sized merchants may be more concerned about speed
to market via a quick and seamless integration across
different countries, where a larger enterprise may prioritize
an efficient entity structure for tax purposes.

Edgar Dunn perspective

Local forms of payment are essential to unlocking customer segments and

generating incremental sales in large e-commerce markets such as China,
Brazil, Germany and the Netherlands. Still, merchants need a payment
acceptance approach tailored to each country in which they operate.
“One size fits all” does not apply to payments: offering too many payment
methods or unused payment methods will clutter the user experience
and most likely decrease conversion rates. In addition, merchants might
consider A/B testing to fine-tune the relevant payment acceptance policy
for their business.

13
Best Practice 3

Implementing a global
acquiring strategy with a local
approach
Global online merchants need to consider country-level These benefits must be weighed against a host of other
specificities related to card acquiring. Local regulatory rules, considerations, chief among them tax, accounting, legal, and
payments infrastructure, and card types can have a direct regulatory implications. But ultimately, most large global
influence not only on conversion rates, but also on costs. merchants will go local in at least a handful of critical markets
to achieve the benefits outlined above.
In a nutshell, benefits of local acquiring (see below) for
merchants can include:

• Higher card authorization rates (i.e. more revenues)

• Lower interchange fees and scheme fees (i.e. lower

payment costs)

• Faster merchant settlement (i.e. faster access to funds)

Adopting local acquiring

Online merchants have two main options for card
acquiring:
1. Opt for a local acquiring approach (i.e. leveraging local
entities in key markets and working with a provider
who offers local acquiring in those markets), or
2. Opt for an international/cross-border acquiring approach
(i.e. centralizing payment processing from one entity and
accepting card payments from there)
Most global merchants will end up with some combination
of these two, but adopting a local acquiring approach has a
positive impact on authorization rates in most cases. Though
this varies by merchant and market, a merchant will typically
see as much as 0.5-0.6% in uplift after transitioning from
cross-border to local acquiring. In some markets, these
numbers are even more impressive. For example, Figure 6
from Adyen compares the authorization rate on
French-issued cards via cross-border acquiring versus
domestic acquiring.
14
Figure 5. Example on cross-border acquiring versus domestic acquiring

Authorization rate: French-issued cards

90%

85%

80%

75%

70%

Jan 15 Feb 15 Mar 15 Apr 15 May 15 Jun 15

Domestic acquiring Cross-border acquiring

Note: The above graph shows a slightly larger difference in authorization rates
than most merchants will experience if they shift to local acquiring. This is due
to fact that the merchants currently using cross-border acquiring are not the
same as the ones using domestic acquiring.

Going local in Brazil

Brazil is another market where local processing yields
significantly higher authorization rates compared to
cross-border processing (30-40% in many cases). The
following three obstacles to cross-border payments in Brazil
make it almost a mandate that merchants make the move to
local acquiring there:
1. 70% of Visa and Mastercard cards issued in Brazil are
restricted for domestic purchases only, so those cards
cannot be reached internationally.

2. Even considering multi-currency services or DCC, only

local acquirers can process transactions in Brazilian
Real. One consequence is that Brazilian shoppers are
very often charged in a different currency and pay more
than anticipated as a result.

3. In Brazil and some other Latin American markets,

burdensome taxes are levied on foreign purchases
(in Brazil, ~6.38% of the price).

15
Rationalizing payments complexity by
selecting appropriate payment partners
When considering card acquiring, online merchants
need to engage with two key actors:
1. PSPs (Payment Service Providers), which provide the
technical gateway infrastructure connecting online
merchants to acquirers and local payment providers
2. Acquirers that provide the connection to international
schemes such as Visa and Mastercard or to a domestic
scheme such as Cartes Bancaires (in France), and
manage settlement for the merchants
Still, the lines between these two actors are increasingly
blurry. Some payment providers (like Adyen) are focusing
strongly on the benefits of offering both PSP and acquiring
services on a single platform.
Consolidating partners
Selecting a different PSP and/or acquirer for each country
makes the payment processing management extremely
complex, from managing the different partners to reconciling
the different fund flows and reports into the merchants’
internal databases. It is no surprise, then, that interviews
reveal that many online merchants are in the process of
consolidating their international payment providers. Sending
most transaction volume to a primary payment processor
reduces merchants’ operational costs and allows them to
focus their resources on other opportunities such as
customer checkout experience, analyzing customer
data, etc.
Online merchants’ key requirements around uptime,
ease of integration, functionality (e.g. multi-channel
approach, reporting) and pricing include:
Stability (uptime) of payment partner’s platform. System
downtime is unacceptable, since merchants lose revenues.
Simplicity (ease of integration) without sacrificing insights.
While simple integration is necessary, payment partners
must provide highly detailed data insights on customer
behaviors and cost management.
Uniformity; a platform that can provide customers with a
consistent experience independent of geography and
channel across technical interfaces, reports, settlement
flows, etc. For example, from the consumer’s perspective,
a similar experience with Uber no matter where in the world
you take a ride.
“We were looking for a partner that
could offer all the different payment
methods, and make sure the approval
rates stacked up and maintained.”
Ksenia Kouchnirenko, Director of
Strategy and Business Development
16
A tailored five-pronged acquiring
approach
Payment solution providers such as Adyen are building
global acquiring coverage, providing acquiring services on a
worldwide basis for their online merchants. Adyen has
adopted an approach to acquiring with five key components.
1. Direct Visa and Mastercard acquiring license: With
direct connection to Visa and Mastercard, merchants can
process transactions via Adyen’s platform and get richer
data insights to improve revenue.
2. Local licenses in key countries: When cards are
processed locally with a domestic license, global online
merchants can compete on an equal basis with
domestic competitors and benefit from the same local
market conditions, which can be more attractive. For
example, the Reserve Bank of Australia (RBA) announced
new regulations that capped interchange fees on
Australian-issued Visa and Mastercard credit cards at
0.8%, effective on July 1, 2017. If merchants operate on
a cross-border model, they would not benefit from this
interchange fee reduction.
3. Partnerships with domestic acquirers in
selected countries: In selected countries like Brazil or
PSP
Merchant
the U.S., card authorization rates can be substantially
lower for card payments when acquiring is done with
an international license instead of a domestic license.
Payment providers such as Adyen have set up partnership
arrangements with local acquirers so that online
merchants can have their transactions processed as
domestic transactions, resulting in a higher card
authorization rate.
4. Multi-brand/multi-network (e.g. Carte Bancaire and
Visa) setup: When an authorization request is being
declined, retries are possible and can be automated, for
instance in the case of a technical issue or refusal reason.
This will help maximize online conversion by avoiding
unnecessary outages. Adyen’s Dynamic Payment
Switching functionality enables merchants to directly
control the switch of online credit card processing
between acquiring channels in the same region.
5. “One-stop shop” contract with the payment
provider: Many large international online merchants
have signed a single contract with Adyen. They only had
to complete one technical connection and benefit from a
single centralized back-office for all sales in all countries.
International
acquiring
Acquirer
Local
acquiring
Local acquiring
partnerships
17
 “As we grow and continue to expand
internationally, we can really benefit
from Adyen’s single global solution as
well as their experience and expertise
in payments. To enhance payment
processing, you need to be flexible with
technology and be quick to adopt to
changes. Adyen offers great UI, reliable
and flexible technology. It is a one-stop
shop – our local acquirer, payment
gateway, and technology advisor. It
helps us with fraud control, optimizing
our ecommerce site, and strategy for
new market entry.”

Michelle Frank, Senior Manager of

Global Ecommerce

Edgar Dunn perspective

There are many benefits to consolidating payment partners that can
provide the optimal mix of local and cross-border acquiring in countries
where merchants operate. Based on EDC’s experience, this has proven to
reduce payment processing complexity, improve consumer experience,
increase authorization rates and lower merchant fees.
18
Best Practice 4

Leveraging payment data insights

to increase conversion rate and
reduce cost of acceptance
Payment data is inarguably an important and valuable tool
to increase revenue with incremental sales and reduce costs
through a lower cost of acceptance. Analytics and insights
drawn from relevant payment data can help merchants
“Retention is obviously our primary
increase authorization rates, improve customer acquisition,
goal, and the optimum outcome for that
reduce fraud and save money under a more transparent
would be a successful authorization
pricing model (e.g. interchange++).
on the first rebill attempt… But if you’re
looking for one key metric to base
Leveraging data to optimize your rebill strategy around, country is
definitely the most important and where
authorization rates you’ll find the most consistent trends
On average, 5%-15% of ecommerce credit card transactions in behavior.”
are declined by issuing banks, and of those declines, 25%
Alastair Morris, Payments Product
lack valid reasons, usually due to old and inefficient systems.
Manager
Also, in some markets (e.g. Latin America), authorization
rates across issuers tend to be lower due to suspicion of
fraud. Therefore, it is extremely important for merchants to
select a payment partner that can leverage data to analyze
the root causes of those declines and take corrective actions
to help its merchants succeed (e. g. addressing
issuer-specific authorization rate trends). These actions may
include optimizing the type of data submitted, suggesting
corrective changes to the issuer through the global
relationship network, or identifying optimal routing for a
given transaction.

What Adyen offers

Issuers’ response processes for declined transactions are often a black box
to merchants; a decline is a decline, and that is the end of it. For example,
some transactions fail simply because of a temporary glitch or transmission
issue on the part of the issuing bank. To optimize conversion rates, one of
Adyen’s RevenueAccelerate components (auto retries) uses data to
selectively retry the declined transactions that are likely to be successful
with a follow-up attempt. Account Updater, another component, is a tool
that enables merchants to ensure they have the most up-to-date card
information for customers’ recurring transactions. This reduces churn and
ensures a seamless one-click or recurring payment experience. 19
Moving toward a more transparent
billing structure
While a higher authorization rate means higher revenue, “With Adyen’s data tools, we gain
merchants should also consider the cost of acceptance. valuable insights into how transactions
There are typically three cost components related to card are behaving, which we then feed back
acceptance for merchants: into the system to generate an uplift
in conversions.”
• Interchange fees (paid to the cardholder’s bank)
Nastassja Gilmartin, Payments & Fraud
• Scheme fees (paid to the card network)
Manager
• Mark-up (paid to the merchant’s payment
processor / acquirer)

Interchange is usually the biggest component, and its

structure and fees vary across different markets.
Traditionally, merchants had little visibility into how these
fees were calculated, but efforts have been made to
standardize interchange with stricter rules, fee caps and
greater transparency. The map below gives an overview
of regulated markets around the world.

Merchant interviews reveal that many large companies are
moving away from traditional blended-rate pricing models
(the same percentage of X% applied to every transaction)
towards the more transparent “interchange++” model,
whereby merchants have separate visibility into each of
the three cost components highlighted above. Under the
interchange++ model, the fees a merchant pays are driven
chiefly by its country of domicile, active sales channel(s), card
type mix, and business model. For example, in the U.S. and
Australia, merchants such as travel agencies and streaming
services can qualify for lower rates.
With the interchange++ pricing model, payment service
providers are heavily incentivized to leverage data
analytics to help merchants qualify for lower rates.
For example, Adyen constantly monitors fees, data quality
and regulations across the globe and intelligently routes a
transaction via a local network to ensure merchants get
the lowest possible processing costs.
20
Leveraging payment data to improve
customer acquisition
Big data can be a source of competitive advantage, and
payment data is no exception. Transaction records can now
paint a detailed picture of the customer’s needs, wants, and
shopping preferences. Getting appropriate insights from
payment data allows merchants to uncover information
that helps them better target specific customer segments
and deepen existing relationships. Examples include the
spending habits of returning customers and their preference
between making purchases online vs. in-store.
While leveraging payment data in this manner is incredibly
powerful, information today is mostly represented to
merchants at an aggregated level. In the future, Adyen is
building out capabilities with shopper-centric reporting
(i.e. providing shopper-level information including shopper
ID, card token, etc.). Armed with that information, merchants
may be able to accurately predict what a customer’s next
purchase will be, and when and how the purchase will
be made.

Edgar Dunn perspective

Merchants should look at their payment processing from both revenue
and cost perspectives. Merchants should leverage data to assess and
improve their payment strategy whether to increase authorization rate
or reduce acceptance costs, selecting the method that can help optimize
overall profitability. 21
Best Practice 5

Using intelligent, data-based

approach to minimize risk
and maximize revenue
The growth of ecommerce also comes with the threat
of fraud. To minimize fraud losses, online merchants are
working with various forms of risk management to block
fraudulent transactions. But many of these systems,
especially the more conservative ones, are also blocking
genuine transactions, thereby preventing legitimate
shoppers from checking out and yielding a net loss in
revenue (the so-called “false positive” problem). Risk
management is both a science and an art, and it is important
for merchants to find the right balance between security and
conversion.
merchants. A fraudster can test a credit card at a music
streaming site in the U.S. and then use it to purchase an
airline ticket from Germany to Japan. For this reason,
providers that play a more expansive role in the global
payments industry (e.g. by playing multiple roles across
multiple markets and channels) can provide more robust
fraud management solutions because they have access
to more data.

"Since implementing Dynamic 3D

Leveraging data to detect fraud and Secure in Germany, we have seen 60%
fewer chargebacks. Importantly, it has
minimize false positives had zero impact on our conversion
Fraud detection is a difficult process. EDC, in partnership rates. It is an effective way of blocking
with the Merchant Risk Council (MRC), conducted a Global fraud without unnecessarily disrupting
Fraud Survey in 2015 and found that 24% of merchants the order process.”
reported false positive rates greater than 10% of total
Kathrin Renner, Senior Payment
rejected transactions. For those merchants, false positives
Manager
are a significant obstacle to the growth and success of their
business.

To optimize fraud risk management, the best practice is

leveraging data from multiple sources. The more data that
is collected, analyzed and linked, the more likely merchants
can stop fraudsters. For instance, it is not uncommon
for fraudsters to use stolen credentials across multiple

What Adyen offers

Adyen’s RevenueProtect leverages device fingerprinting, behavioral analytics and
advanced algorithms to build a history of the shopper behind the transaction – the
ShopperDNA. It then uses dynamic rules and logic based on a merchant’s specific
industry as well as fraud trends across the Adyen’s network to filter out high-risk
transactions for manual reviews or for 3D Secure authentication while allowing
good transactions to pass through. While the results vary case by case, Figure 7
shows the impact on one of Adyen’s merchants after applying the RevenueProtect
functionalities (e.g. lower decline rates and more genuine transactions). 22
Figure 6. Impact from Adyen’s RevenueProtect functionalities
(Illustrative example of actual impact for an Adyen merchant)

Jan
Refused by risk
May

Jan
Refused by bank
May

Chargebacks Jan
May

0% 5 10 15 20 25

Genuine transactions Jan

May

0% 10 20 30 40 50 60 70 80

A dynamic approach with 3D Secure

Developed by the major global card networks, 3D Secure
is an extra layer of security that enables strong customer
authentication for online card transactions. While 3D
Secure involves a liability shift to card issuers for most
fraudulent card-not-present transactions, its deployment
is still limited to certain markets. The additional step in the
purchase process can make it more difficult for consumers
to complete a transaction, leading many merchants to see it
as a conversion killer.
Nonetheless, to minimize risk and maximize revenue,
merchants should consider implementing a dynamic
3D Secure approach, which includes:
1. Customizing fraud prevention strategy based on their
specific business situation (industry, business model,
countries of operation, sales channels, customer
payment preferences, etc.). For example, rather than
applying 3D Secure to all transactions, merchants can
use it selectively on high-value or high-risk transactions.

2. Educating consumers on the benefits of the extra layer

of security.

3. Regularly monitoring and re-assessing strategy as

market conditions change.

4. Closely coordinating with payment partners to gain a

better understanding of the potential positive or negative
impacts of 3D Secure in specific countries or for specific
issuing banks.

23
3D Secure 2.0
To optimize 3D Secure as well as adapt to the fast-growing As mentioned in the MRC Global Fraud Survey,
connected devices, in October 2016, EMVCo (collectively a merchant needs to focus its fraud prevention
owned by Mastercard, Visa, American Express, Discover, practices on three items:
JCB and UnionPay) published the specifications for 3D
• Know your data: i.e., collecting and leveraging internal
Secure 2.0. This new version of 3D Secure comes with
andexternal data such as chargeback data to undertake
many improvements including SDKs to support app-based
root cause analysis.
authentication and integration with digital wallets, and
eliminating the need for a redirect. The goal is to use richer • Know your tools: i.e., running tests with new tools and
shopper data during the transaction and fewer password measuring their impact.
interruptions to promote a frictionless shopping experience
• Know your people: i.e., hiring the right people and
across all devices.
setting up the right KPIs and compensation system.
Visa announced that while the new rules will take effect at the
beginning of April 2019, early adoption will begin during late
2017. This provides time for merchants to pilot and test the
new system.

“To minimize false positives, you need

to understand the user pattern – how
Finding the right balance between much they spend, how frequently,
etc. You should remember the user’s
optimized acceptance and security last local payment method. Also,
Merchant interviews have shown the near universal value of inform users that 3D secure is for their
balancing optimized acceptance and security (i.e. providing protection. As a matter of fact, some
maximum convenience to consumers while keeping fraud users actually prefer 3D Secure for
at low levels). But this is not an easy task. It requires multiple security purpose.”
fraud prevention tools and constant monitoring and
Michael Cheah, Chief Architect,
fine-tuning of rules to keep up with rapidly evolving market
Infrastructure
conditions and fraudster behavior.

Edgar Dunn perspective

Being able to collect rich shopper-level data (e.g., location, device used,
purchase frequency, transaction amount, preferred payment method, time to
check out, refusal rate, etc.) and apply appropriate logic to data analytics is
the key to separating genuine customers from fraudsters. However, to avoid
lowering fraud at the expense of customer experience, merchants should
adopt a dynamic approach, finding the right balance between security and
conversions based on their unique business situation and risk tolerance. 24
What should
merchants do next?
This report has identified five payments-related best practices
to enhance the consumer experience, improve payment
processing, and ultimately increase merchants’ overall
profitability.

So what should merchants do next? EDC suggests

a three-step pragmatic approach:

Step 1: Where are you now? Step 2: Where do you want to go? Step 3: Are you getting there?
Understand your current Engage with payment partners Implement and continuously
situation. to define a payment optimization monitor to further optimize.
plan.

25
Step 1: Where are you now?
Understand your current situation
The first step is to complete a diagnostic of the current
situation, covering all aspects of payment in order to
identify and prioritize key payment issues. For instance,
some merchants might benefit most from improving fraud
practices while others benefit from broadening the range of
payment methods they accept.
Analysis of the current situation should include:
• Reviewing existing payment acceptance policies,
refund cancellation policies, payments-related tools
and processes, and organizational structures
• Understanding market trends (e.g., consumer
expectations and needs, new technologies, fraud
trends, changes in regulatory rules)
• Conducting comparative analysis of peers
This analysis typically takes four to eight weeks, depending
on the geographic reach and the complexity of the
merchant’s operations. This diagnostic will be the foundation
upon which online merchants can define a payments
optimization plan.
Step 3: Are you getting there?
Implement and continuously monitor
to further optimize payments
After implementing these initiatives, merchants should
regularly monitor and fine-tune them by testing different
features for potential improvement. In addition, they should
frequently reassess based on market trends such as the
emergence of new technologies (such as mobile payments),
regulatory changes (like Payment Services Directive in
Europe), new players and changing consumer behaviors.
In order to continuously monitor and improve payment
performance, merchants often benefit from appointing
a Payments Manager internally, or at least a payments
committee that meets regularly and involves key internal
stakeholders (finance, operations, IT, etc.). Larger merchants
may have entire teams dedicated to payments.
Implementing a payment optimization plan will deliver
significant value to merchants. Engaging with one’s payment
partners will contribute to building a better understanding of
best practices in payments, which will help further optimize
payments in the long term.
Step 2: Where do you want to go?
Engage with payment partners to
define a payment optimization plan
Current-state analysis provides the underlying rationale
to identify and prioritize improvement initiatives. This can
be complemented by engaging with payment partners
throughout the value chain. Based on their knowledge and
experience, payment partners can often provide additional
factual background (e.g. benchmarking information) and
make sound recommendations for potential improvements
(adding relevant local forms of payment, implementing a new
fraud prevention feature or a new card acquiring strategy).
The outcomes of the initial diagnostic and engagement with
payment partners will allow online merchants to identify a
(likely long) list of potential improvement initiatives. Initiatives
will need to be prioritized based on a set of criteria, including:
Enhancing consumer experience: How does this
suggested initiative improve the consumer experience and
strengthen the relationship between the online merchant and
its customers?
Optimizing payment processing: How does this potential
improvement contribute to optimized payment processing
flows or structures?
Increasing online revenues: What will be the contribution
of this potential improvement to the merchant’s bottom
line (increasing conversion rates or generating incremental
revenues)?
Reducing costs: What will be the appropriate fraud
prevention policies, process and tools, interchange pricing
structure, and partnerships (renewing or consolidating the
relationships with third party payment providers)?
Internal criteria specific to each merchant: Does this
suggested initiative fit with the online merchant’s
overall strategy?
This payment optimization plan should include both
revenue-increasing initiatives (adding relevant local forms
of payment, implementing a new card acquiring strategy)
and cost-reducing initiatives (like leveraging data to mitigate
risks and to reduce cost of acceptance).
26
About Adyen and
Edgar Dunn & Company
This report has been commissioned by Adyen to the
independent consultancy firm Edgar, Dunn & Company.

About Adyen
Adyen is the payments platform of choice for the world’s
leading companies. The only provider of a modern
end-to-end infrastructure connecting directly to Visa,
Mastercard, and consumers’ globally preferred payment
methods, Adyen delivers frictionless payments across online,
mobile, and in-store. With offices all around the world, Adyen
serves thousands of businesses, including 7 of the 10 largest
U.S. internet companies. Customers include Facebook, Uber,
Netflix, Spotify, L’Oreal and Burberry.

About Edgar, Dunn & Company

Edgar, Dunn & Company (EDC) is an independent global
financial services and payments consultancy. Founded
in 1978, the firm is widely regarded as a trusted adviser
to its clients, providing a full range of strategy consulting
services, expertise and market insight. From locations
in Frankfurt, Istanbul, London, Paris, San Francisco and
Sydney, we deliver actionable strategies, measurable results
and a unique blend of global perspective and local market
knowledge for clients in over 45 countries.

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