The payments industry is one of the most active areas of business finance today. I recently wrote about PCI compliance and about different methods of accepting payments like ACH. Now a popular tool for accepting payments from customers is getting a facelift. PayPal is currently rolling out a new online checkout process for buyers. This marks an important change for both businesses that use PayPal and customers that make purchases through PayPal.
Last year, PayPal facilitated $72 billion in payments and currently has over 87 million active accounts in 190 countries and 24 currencies. Any change to the user experience has the potential to affect billions of dollars in transactions.
Abandonment rates are rising. This change may help.
One of the biggest problems that companies face selling via ecommerce-enabled websites is “shopping cart abandonment.” This problem occurs when shoppers begin the process of purchasing items on a website (by adding them to the virtual shopping cart) but for some reason do not complete the process by paying for the items in the shopping cart. This is equivalent to someone walking into a supermarket, putting all of the items on their shopping list into their cart, walking to the cash register, letting the attendant ring up the order, and just before they hand over their credit card to pay, simply walk out of the store without saying a word. It’s not pleasant.
The shopping cart abandonment rate is typically expressed as a percentage of the total number of checkout transactions that commence, not the total number of users that visit the website. So if 100 people visit your company’s website and 50 people begin the process of purchasing something and only 30 people actually see it through to completion, your abandonment rate is 20 / 50 = 40 percent.
A recent study by Forrester Research, a leading independent research company in business and technology, indicates that 88 percent of online shoppers have abandoned an online shopping cart. The study indicates that this is the same percentage as five years ago. Despite significant investments in new technology, user interface analysis and other innovations, online sellers can’t seem to bring this percentage down. Any change to this percentage can have a significant impact on your sales.
Let’s say your company’s abandonment rate is 60 percent and you have a total of 10,000 website visitors that initiate a checkout process each month. Those are 6,000 people that may as well have left you standing at the cash register. A 5 percent reduction in this rate would mean an additional 500 sales transactions per month.
While the reasons for high abandonment rates are varied, among them is mistrust or lack of ease in actually paying. PayPal believes their new interface will help address these issues.
What are the changes?
Key changes include a more prominent positioning of your company’s logo and a more consistent look and feel with your existing website via additional design customization options. Additionally, a portion of the screen shows a summary of the transaction including item description, quantities, unit costs, tax, shipping and total costs. Customers who do not have a PayPal account will also have access to a more prominent option to pay with a credit or debit card.
The updates are being rolled out in batches. The first users had access in May and it is expected that all remaining users will have access over the next several months. If your company only uses the “Add to Cart” or “Buy Now” buttons, you don’t need to do anything to gain access to the update. If you use a third party shopping cart, the shopping cart developers are working with PayPal to address these updates. You should check for updates from your shopping cart provider.
Mike Periu is the founder of EcoFin Media, LLC an independent producer of financial, economic and entrepreneurial content for television, radio, print and the internet. Over the past ten years he has started three companies and advised over 50 companies on financial strategies including fundraising. Mike also hosts regular small business webinars on a range of topics relevant to business owners.