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- Digital payment innovation has followed two distinct waves to achieve mainstream adoption.
- Now, many retailers are left with bloated payment channels that are expensive, complex, and overwhelming.
- The next wave of payments will see this move towards optimising payments solutions based on customer data that will increase ROI and the retail experience.
The payments industry has exploded in the last ten years - with much of the expansion and innovation coming from the African continent. This means merchants and customers currently have more choices than ever. And despite room for growth, the numbers are staggering.
In recent years, Africa’s electronic payments industry generated approximately $24 billion in revenue, the majority of which came from roughly 47 billion domestic e-payment transactions. This has led to more than $650 million invested in payments within the fintech sector since 2011. These billions of transactions have travelled through dozens of recognised gateways or channels that sprung up as fintech companies focused on increasing access.
However, as access expanded, it evolved into “choice”, and businesses sought to offer customers the largest possible selection of payment options in an effort to increase conversion rates. This strategy was based on the widely cited research that 56% of customers who do not see their preferred method at checkout “would be permanently put off shopping on a site” – representing a lost sale and lost potentially loyal customer.
This pursuit of choice has now reached a tipping point — the cost to integrate and maintain the full universe of payment options has skyrocketed, becoming unmanageable for many merchants. At the same time, the implementation of payment methods can hurt rather than help conversion rates by overwhelming consumers . As consulting firm McKinsey & Company points out, fintech in Africa is now at the end of the beginning. For payments, this means an unavoidable shift away from offering every possible payment option to data-driven payment optimisation that signals good news for both businesses and consumers.
From access to optimisation: the three waves of payment innovation
Historically, payment innovation focused on developing payment methods that could serve as an alternative to cash to foster greater financial inclusion.
During this “access” phase, technology like mobile money, vouchers, and buy now, pay later proliferated. It was particularly important for the adoption of digital payments within East and West Africa, with mobile money undoubtedly the hero during this time.
To capitalise on this increasing digital payment access, merchants started offering customers choices, and lots of them, of the various methods that had appeared to expand the base of potential customers they could reach.
Precium COO Nicole Dunn says there was a noticeable shift to a “choice” wave where businesses felt obligated to include as many payment options and channels as possible. But while this may initially have increased shopper conversion, it quickly became burdensome for many retailers and ultimately also overwhelmed shoppers.
“As a consequence of the choice era, many businesses have far too many payment methods that are seldom used by their customers. These merchants are often reluctant to retire payment methods, even when they clearly deliver negative returns on investment,” says Dunn.
As a result of this push to include as many options as possible, without focusing on relevance and optimisation of their payment capabilities, many businesses have seen an increase in the cost of transactions, especially for lower-value basket sizes.
“The operational cost and complexity of managing multiple methods is now frustrating many businesses – and ironically, at Precium we have found that too many methods on a checkout page actually decrease conversion,” says Dunn.
Optimising payments is a critical business priority
Until now, merchants have accepted that payments will be cost centres — necessary expenses, which were exaggerated during the choice phase.
Although historically, businesses have thought it important to cover all bases with as many payment options as possible, regardless of the clutter and cost, this is starting to shift. The third wave of payment innovation looks to transform payment technologies from financial plumbing to critical enablers of business strategy and customer experience.
“In the next five to ten years, we believe merchants will become more strategic about the payment methods they expose to their customers. Businesses are already consolidating their systems and customer data sources to streamline operations and enable end-to-end personalisation; we expect that payment experiences will soon follow,” says Precium CEO, Ruaan Botha.
Through optimising the checkout and payments experience, retailers can increase conversion rates by 10-20% and customer satisfaction by up to 20%. Mature businesses are already adopting solutions that help abstract the technical complexity of managing multiple payment options and offer greater checkout functionality – like selectively exposing payment methods based on predefined parameters. Many are recalibrating payment options to focus on payment performance, customisation, and reliability, in an effort to build consumer trust.
Inevitably, this leads to sunsetting payment methods with low ROI. In doing so, businesses are not only streamlining their checkout pages and saving costs, they’re also avoiding the pitfalls of the paradox of choice, which argues that the more options customers have, the less satisfied they feel with their decisions.
This paradox suggests that facing too many options, especially in a pressurised environment like a store checkout phase, requires unnecessary cognitive effort. This can lead to decision fatigue and, in the case of payments, abandoned carts.
During the third wave of payments, businesses are starting to lean on data to ensure customers see personalised payment options they recognise and want to use.
“The impact of this is shown to increase conversion, as well as reliability, speed, security and transaction efficiency. Businesses are doubling down on providers that can selectively expose payment options, while offering end-to-end redundancy to ensure their customers can checkout, even when a specific bank or payment provider is down,” says Botha.
How a payments strategy can help
The high-level theory behind the new wave of payments might be easy to understand. Still, its effective implementation relies on a sound payments strategy that incorporates customer data and business objectives.
“Consumers are increasingly showing strong appetites for personalised experiences across various business touchpoints, and it’s important not to leave payments behind. A well-crafted payments strategy is more than just a nice-to-have — it can help businesses focus their efforts on the initiatives that will drive business value, improve cash flow, enhance customer experience, mitigate risks, and remain competitive,” says Dunn.
As we leave the early boom phase of fintech and payments in Africa, merchants now have an opportunity to leverage customer data and make intentional, strategic choices about which payment methods to promote to improve conversion, ROI, and the customer experience.
“Merchants that combine customer and transaction data can capture additional value and otherwise lost revenue, and in doing so, payments can shift from a cost centre to a revenue enabler,” says Dunn. “It’s these deep levels of insight, and the opportunity for optimising custom, commercially viable payments solutions, that makes this next wave particularly exciting.”
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