The $100-Billion Question

About three-quarters of online shoppers walk away when they get to checkout, erasing more than $100 billion a year in potential revenue. What is to be done?

Most people celebrate December because they’re expecting to enjoy the season’s good cheer—as well as some long-expected gifts. Merchants, of course, like the month because of all that spending.

But there’s a big lump of coal awaiting online retailers, and what’s more, they know it. It’s the tens of billions of dollars in sales they lose when customers walk away, often in the middle of checking out.

And a lot of them walk away. It’s called cart abandonment, and fully three out of four customers do it, according to a study by Coresight Research. And the walkaway rate rises to 81% if you focus just on mobile devices like tablets, according to Crone Consulting, a San Carlos, Calif.-based consultancy.

Whether desktop or mobile, the cost in lost sales rings up a fearful toll—anywhere from $111 billion to $136 billion per year, according to Coresight’s estimates.

Don’t think sellers aren’t aware of the problem. “Eighty-four percent are tracking abandonment, getting those rates,” says Primel Konok, a retail and tech analyst at Coresight. “A lot of retailers are thinking about it, especially coming into this year’s holiday season.”

But some payments players say too many merchants are still too blasé about the extent of the problem. Indeed, some e-commerce processors have grown frustrated with their clients’ vague grasp of abandonment rates. “You’ve got to wake up and see what’s going on. We show this to people, and they’re just shocked,” says Ralph Dangelmaier, chief executive of BlueSnap Inc., a Waltham, Mass.-based payments provider. “I don’t get it.”

There’s a Hitch

The question is, what are sellers doing—or can they do—about it? The answer lies in the reasons for abandonment, as well as with what approaches address those reasons, and which don’t. The expected avalanche of customers traditionally seen in the fourth quarter may concentrate some minds. “A lot of retailers are thinking about it, especially coming into this year’s holiday season,” says Konok.

So, what triggers shoppers to abandon their carts, even when they’ve got to the point of checking out and paying? Coresight’s research found the top three factors—those cited the most often by consumers—are: unexpected costs, such as shipping fees or taxes; an absence of alternative payments; and a complicated checkout (chart). “Extra costs are by far the biggest reason,” says Konok. “It’s that shock [customers] get at the end.”

How merchants can address fees and taxes may depend, at least in part, on requirements in their home state. But if there’s no leeway to reduce or even eliminate the costs, then the key, experts say, is to make them more obvious so they’re not such a shock at checkout that the customer simply clicks to another site.

On the other hand, there is more merchants can do regarding alternative payments and clunky checkouts. Visa and Mastercard several years ago introduced Secure Remote Commerce (SRC), a token technology intended to authenticate customers and smooth the payment process for online checkouts.

You can think of SRC—also often referred to as click-to-pay— as the card-not-present version of EMV, the chip technology introduced some years ago to secure in-store transactions for the major-brand credit and debit cards. Indeed, some experts say the effectiveness of EMV in combatting physical-store fraud is in part what has driven up fraud attempts online.

But there’s a hitch. “In order for SRC to really have an impact, it has to be ubiquitous, and it’s a long way from ubiquitous,” says Thad Peterson, a strategic advisor at the Boston-based consultancy Aite-Novarica Group.

Processors like ACI Worldwide Inc. are testing the technology and seeing some good results in the early going. “There’s a benefit from SRC but we need to do extended testing,” says Basant Singh, global head of merchant products at Coral Gables, Fla.-based ACI.

Similarly, BlueSnap’s Dangelmaier says SRC is sound technology, and the company has implemented it. But, he says, no single party or set of concerned parties are promoting SRC to the wide range of online sellers. “We have no incentive at BlueSnap to market it,” he adds.

Another slick approach, Peterson and others say, involves eheckout in one click with technology that links to a previously designated card in an approach called embedded payments. Users of Facebook Pay or shoppers on Amazon or Shopify are likely familiar with this technology.

Trouble is, smaller merchants on their own may be put off by the coding, time, and expense in adopting embedded payments. “It’s pretty easy to do if your name is Meta [the parent of Facebook Pay], harder to do if you’re a smaller merchant,” Peterson says. A payment facilitator like Stripe Inc. can offer the same technology, he notes, directly or through a platform like Shopify.

‘Measure of Intent’

Still, the idea of a customer who has effectively checked in before he checks out is “the key to solving” the abandonment problem, notes Richard Crone of Crone Consulting.

Once the merchant knows who the customer is, he can link communications to that potential buyer with an inducement to go through with the purchase. “When somebody puts something in a shopping cart, you have the ultimate measure of intent,” Crone says.

Accepting the so-called Pays—Apple Pay, Google Pay, and Samsung Pay—can offer the same benefit, Crone advises. The mobile-wallet transactions will trigger a higher acceptance cost for the merchant. But the reduced abandonment, increased conversion, and “monetization” of the shoppers’ shopping list, he argues, “offsets the higher transaction fees for the Pays.”

Another approach harnesses the increasingly popular buy now, pay later checkout option. Customers who arrive at checkout expecting to break their purchase
into installments may walk away if BNPL isn’t available. So ACI has launched ACI Pay After, working with “most” of the BNPL providers to offer prime and subprime choices, says Singh.

In the end, the psychology behind converting the sale, Singh adds, is “how to reduce the thinking process to buy or not to buy.”

Currency Mismatches

But many times customers will reject their cart because a processor has rejected their card. Insufficient data for issuers and a major hike in cross-border shopping, leading to currency mismatches, are the big culprits, says BlueSnap’s Dangelmaier, who says his company has recently seen a “massive” jump in such rejections among the processors it links to.

Proponents of e-commerce like to point to the steady and substantial rise in online sales. U.S. e-commerce in the second quarter this year, the latest for which the Department of Commerce has numbers, totaled $257.3 billion, nearly 7% higher than the same period in 2021.

With some technology, and some finesse, in addressing cart abandonment, it appears that number could be measurably higher.