September 29, 2010

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.

Join the conversation ( 5 )

• Julie Rains 1 year 4 months and 17 days ago

  

  I too have abandoned shopping carts for reasons other than ease and sophistication of the payment transaction. But in some situations, this checkout solution may help close the deal; recently, I spoke to an ecommerce business owner who has added PayPal to the checkout process and seen sales increase -- to a new type of client.

• Mike Periu 1 year 4 months and 25 days ago

  

  You are correct Teresa. Thanks for catching the typo. I'll have it corrected.

• Teresa Anderson 1 year 4 months and 25 days ago

  

  shouldn't that be 30/50.....20 complete and therefore 30 abandon???

• Mike Brice 1 year 4 months and 25 days ago

  

  PayPal suffers because it forces customers to join. Providing a more prominent option to use a credit card without having to sign up for a PayPal account will go a long ways to reducing the abandonment.
  
  I know I have abandon sales because PayPal made it such a challenge. If you are going to have an e-commerce site, you should use a credit card service that allows for self-branding and not use PayPal or Google Checkout, which I find easier than PayPal.

• Keith Strasser 1 year 4 months and 25 days ago

  

  While there is some validity to the analogy of the shopping cart, the analogy also breaks down quickly. On some sites, you cannot see the final price until adding the item to your cart, on others, that is just the quickest way to see the total cost.
  
  I have abandoned shopping carts online, but I don't recall that it was ever because the checkout process was too difficult. My reasons were that I had used the cart as a shopping tool, to calculate the cost of the purchase with shipping and any taxes. I will still do that no matter how easily the checkout works.