1. The Rise of Alternative Payment Methods
Traditional payment methods such as credit and debit cards are cumbersome for spontaneous online shopping. That’s why consumers are looking for more flexible and hassle-free solutions. According to the WorldPay Global Payment Report, 2017, over half of all online transactions will be made using alternative payment methods by 2021.
So what are these alternative payment methods, you might wonder? The most basic answer is: ways of paying for goods or services outside of the mainstream credit card schemes. So we’re talking everything from cryptocurrencies to mobile wallets and automatic installments. Read more about the different alternative payment methods in our Klarna Confidential Report, and learn more about how merchants can benefit from going alternative.
At the end of the day, there is money to be made by adapting to consumer desires. In one study, 56 percent of shoppers said they would buy more if there were more varied payment options available. In the US, 75 percent of millennials say they want more diverse payment options that are better suited to their needs and lifestyles.
2. Pay Later in Installments
It’s clear that credit card debt is something that the modern shopper is steering away from. For example, 67 percent of millennials in the US don’t own a credit card, according to one study. Other research has found that 59 percent of US consumers view credit card debt as bad debt. And how about this for a fact: A survey of 18-34-year-olds revealed that those with credit card debt find their debt to be scarier than climate change, the threat of war, not being able to retire, and even dying.
At the same time, debit cards are quickly rising in popularity. Something is beginning to shift in the way people manage their cash flow and it’s having an effect when it comes to making mid- to large-size purchases. This, in turn, has massive implications for businesses that only offer credit card payment options to their customers.
Of course, consumers still want the option to spread the cost of a purchase or delay a payment to better manage their cash flow. As human beings, we all want to be able to afford the things we dream of and desire. But for most people, large purchases can’t be covered by a single paycheck.
The need to spread purchases over a longer period of time hasn’t really changed; it’s how people want to do it that has. That’s why solutions like Klarna’s Pay Later in Installments are proving so popular with both consumers and retailers. It allows shoppers to pay in four equal installments, automatically collected bi-weekly, with no interest and no fees when paid on time. For example, a pair of $100 jeans can be paid for in four $25 installments over a six week period instead of all at once.
The result? Merchants using the solution have seen a 68 percent increase in average order value from shoppers paying with installments. And 44 percent of users say they would have abandoned their purchase if Pay Later wasn’t available.
3. Try Before You Buy
We’ve said it before; try before you buy is the hottest feature you can offer this year. One of the great things about brick-and-mortar retail is the ability to try garments on before you decide to buy them. But try before you buy is a relatively new e-commerce phenomenon that helps retailers improve the overall online shopping experience. For the customer, this means they can use their living room as a fitting room and only pay for what they decide to keep. And for the retailer? Today’s top flexible payment options always pay you right away, even if the shopper is late or defaults on their payments.
Research shows that when customers are put in control of their shopping experience, the chance of increased sales goes up. In fact, in a survey of 2,000 consumers from Klarna and Retail Connect, 71 percent said they would consider ordering goods and paying for them after they were delivered (and only if they decided to keep them), while 72 percent said they would consider ordering goods and paying for them later. Bottom line, the more flexible you are, the more confident your customer feels.
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4. Mobile Checkouts
In 2021, 73 percent of all retail e-commerce is expected to be generated via mobile devices, up from 59 percent in 2017. Yet a lot of merchants are lagging behind in this huge shift, with checkouts that are built for desktop. If you haven’t started to look into this matter, it’s time to get going. Only 12 percent of consumers find shopping on mobile to be convenient. Also, cart abandonment rates are the highest on mobile, averaging 81 percent in the US – much higher than on other devices. Needless to say, there are big opportunities for retailers who get this right.
Here, Klarna can offer a big advantage with a checkout that is optimized for lightning-fast mobile purchases. Because consumers don’t want a checkout process that takes forever. First, you have to enter your name, your billing address, your shipping address, your phone number, your… why is this so complicated? Note this: 75 percent of US shoppers state that speed of checkout is one of the most important factors when shopping online.
5. Instant Shopping
Is a multi-step shopping cart the only option for consumers to complete a purchase in your online store? Ouch. You’re losing sales. We have already written about the importance of instant shopping as a tool to convert an interested consumer into a customer.
“Many merchants mistakenly believe that consumers have plenty of time and patience to go through many steps to complete the purchase. The result is not only a lost sale, but also a lost customer,” says Arash Eftekhari, the product manager for Klarna’s Instant Shopping product; designed to meet the increasing demand for consumers to go from inspiration to shopping in one step, without redirects or pages of dreary registration requirements.
Another big trend that’s on the rise is social commerce, where people can buy products straight from their favourite influencer in their social media feed. Instagram, for example, recently launched its own checkout where users can purchase items without having to leave the app. You can be certain of more developments soon to come in this space.
6. The Omnichannel Approach
For a long time, experts said that brick-and-mortar retail was dead. But times are changing. What once looked like a dark future might not be so bad after all. Instead, the high street is evolving into a place where online merchants can open pop-up stores and give their brand a physical presence. These locations can also be used for logistical purposes, giving customers the option to pick up items that were ordered online and manage returns.
And the numbers don’t lie. Consumers are choosing an integrated, omnichannel shopping experience over a traditional one-channel approach. According to a study published in Harvard Business Review, 75 percent of all fashion purchases are made in physical stores. However, the same study concluded that consumers spend 25 percent more dough when shopping online, and that when you combine the two – shopping online followed by going into a physical store or vice versa – the final purchase is 64 percent more than the average spend.
A lot of effort is put into combining online and offline shopping in the best possible way, especially when it comes to payments. Klarna’s in-store checkout solution allows merchants to offer flexible financing right at the point of sale. The customer can then easily manage their purchases through their phones, whether made online or offline.
“We have developed a solution that combines the flexibility of e-commerce with the benefits of shopping in the physical world,” says Linus Sandberg, Key Account Manager at Klarna.
Read more about how the Swedish retailer Lager 157 is trying the new checkout here.