Report: Poor Payments Practices Could Cost Top Online Retailers Potential Sales

More and more shoppers are turning to e-commerce, but online merchants’ payment practices leave them poorly positioned to exploit this trend for sales, according to a recently released report.

Notably, the biggest online and multichannel retailers meet on average only 36% of criteria for payment options, according to Javelin Strategy & Research, which produced the report. The same merchants provided only 40% of what the research firm was looking for in payments information, while meeting just 48% of payments-security criteria. On a fourth category, customer support, they did better, satisfying 68% of Javelin’s requirements, on average. Pleasanton, Calif.-based Javelin evaluated 20 sites from among a list of the 50 biggest online merchants for its report, called “2011 Online Retail Payments Scorecard.”

In payments information, the firm looked for such items as lists of payment methods accepted, spelled-out payment offers, and policies covering liability, shipping, and returns. For payment options, it searched for both established and alternative payment methods, including prepaid card acceptance and PIN debit. For security, sites were evaluated according to whether they offered electronic receipts, secure logins, and privacy and liability policies. And in customer support, Javelin looked for contact information, an FAQ page, purchase guarantees, rewards programs, and social-media integration, among other criteria. The firm scored sites according to what a customer would see when visiting, as well as information gleaned from retailers’ call centers. Sites were evaluated in July and August.

The lackluster payments performance comes as consumers are increasingly adopting online shopping. Consumers spent $249 billon with online retailers in 2010, up 18% over 2009 despite a recession and anemic recovery, according to Javelin. The report projects $285 billion in spending for this year, a 14% increase, though Javelin says it will release an updated projection in December. Some 34% of consumers say they made an online purchase in the past seven days, up from 27% in 2009, according to a Javelin survey.

But such factors as inadequate disclosure of payment methods or the absence of methods favored by consumers could lead to customer frustration and shopping-cart abandonment, keeping merchants from tapping into this trend as fully as they might. “Merchants that enhance their online shopping websites have the potential to collect a greater share of revenue from frequent online shoppers,” the report says.

Among Javelin’s recommendations for online merchants: spell out accepted payment types on the home page, product pages, and shopping-cart page, either listing them or using a link to a page that lists them; don’t limit payment methods to credit and signature debit (Javelin found most merchants that go beyond these standbys offer only PayPal and Bill Me Later; only one merchant in its group, Amazon.com, offers PIN debit); adopt authentication technologies such as Verified by Visa and post an FAQ page addressing fraud and security concerns, including phishing and identity protection.