2018 MRC GLOBAL PAYMENTS SURVEY in partnership with CyberSource

Payment Management Strategies of Forward-Thinking Global Merchants See how your eCommerce payment management strategies measure up

Survey conducted by independent market research firm GfK Table Of Contents

About This Report 3

Executive Summary 4

Strategic Payment Management 5

Addressing Customer Preferences 7

Overcoming Payments-Related Hurdles 12

Realizing Benefits 17

Conclusions 23

2 About This Report

This report highlights findings from the 2018 MRC Global Payments Survey in partnership with CyberSource. Now in its third year, this survey goes to the next level in scale, scope and expertise, capturing a robust and representative global sample.

Using the expertise of world-class market research firm GfK, we captured the views of484 eCommerce payment specialists at mid-market and enterprise-level organizations—a substantial increase from previous efforts. Along with securing a range of vertical representation, we provided richer content and comparative trends at both the global and regional levels. This year, we expanded the geographic coverage to include interviews in 12 countries across four regions, including merchants in Latin America and Asia Pacific, in addition to North America and the United Kingdom/European Union. Additionally, we designed the sample to get views of both MRC members and non-members, as well as enterprise and mid-market organizations.

We put great effort into rethinking previous questions and adding a number of new ones. We set out to quantify a wide range of attitudes about the importance, efficiencies and challenges associated with eCommerce payment management. We also aimed to distill best practices regarding key performance indicators (KPIs) and payment methods supported now and planned for the future. We also collected data about using 3-D Secure and planning for the European Union’s Payment Services Directive (PSD2). Lastly, as part of our increased rigor, we enlisted GfK to help design and conduct the study.

3 Executive Summary

As payment management rapidly becomes more complex, eCommerce merchants risk falling behind. To help your organization keep up and even capitalize on current trends, we’re sharing valuable information about the strategies of those leaders that we’ve identified as “forward-thinking” merchants.

A consistent pattern emerged in the survey results: the payment professionals who called eCommerce payment management “extremely important” to overall strategy also performed better in the various aspects of payment management that we measured. As a result, we decided to call these merchants, “forward-thinking.” These leading global companies have developed a powerful set of payment management strategies that enable them to meet the challenges of the eCommerce landscape and reap a large share of benefits.

Through the 2018 MRC Global Payments Survey, CyberSource and the Merchant Risk Council (MRC) gathered information from hundreds of merchants around the world about the challenges and best practices of today’s payment management landscape. The majority of the merchants reported that eCommerce payment management is becoming increasingly challenging, costly, complex, and sometimes, inefficient. The forward- thinking companies are assessing and managing those challenges differently, and seeing better results.

In the following pages, you’ll get a look inside the payment management toolkits of these forward- thinking merchants, including how they:

• See a clear correlation between treating eCommerce payment management as strategic and experiencing positive payment management results • Are proactive with the lineup of payment methods they accept, and most have added payment methods in the past 12 months • Are more active in their use of 3-D Secure • Have been actively planning for PSD2 • Emphasize different KPIs and see stronger results because of it

We at CyberSource and the Merchant Risk Council hope this report provides you with a valuable set of comparison benchmarks to assess internal processes, identify challenges and develop a robust payment management strategy to help optimize your eCommerce business.

4 Strategic Payment Management

5 Forward-thinking merchants make payment management central to business strategy

A majority of merchants say payment management is important to their strategic decision-making. Among those, 62% say it is “extremely” important. These forward-thinking merchants make payment management central to how they operate their businesses. That enables them to remain agile in today’s marketplace, increasing competitive advantage and maximizing eCommerce revenue.

How merchants receive and handle payments was once an after-thought. No longer. Payment management has evolved from a back-office process into a key aspect of strategic planning.

How important is eCommerce payment management to your organization’s business strategy?

1% 8%

Merchant segments stating payment as extremely important to strategy

• MRC members • Enterprise • Travel, services, physical goods and retail 29% • Asia Pacific and Latin America 62%

Extremely important Important

Very important Not too important

Merchant Action For eCommerce businesses to grow and thrive, merchants should make payment management an integral part of strategic decision-making. Help your executive team understand the strategic value of payments in fueling business growth, improving customer experiences and reducing risk.

6 Addressing Customer Preferences

7 Customer experience drives eCommerce payment management

Merchants across the globe know that making customer experience a top priority is a key to maximizing eCommerce revenue. Overall, 64% of merchants say the reason they add payment methods is to improve customer experience. Merchants in Latin America, the travel industry, enterprise-level businesses and members of the MRC are significantly more likely to name this as a driving factor. Customer experience also affects merchants’ decisions about the options they offer on their checkout pages. Nearly two-thirds cite improving customer experience as the primary reason for adding payment options over the past year. The second top reason—adopting mobile payment methods—goes hand-in-hand with improving the customer experience for mobile users. Merchants that removed payment methods from their checkout pages cited simplifying payment management as the reason.

Improving customer experience is the strategic underpinning to effective payment management. Forward- thinking merchants who strive to improve the eCommerce checkout experience know that formulating the right mix of payment options should be dictated by the needs of individual customers.

Reason for adding payment methods in the last 12 months

80

70

60 64% 50 51% 40 43% 42% 30 34% 20

10

0

Improve customer Adopt mobile Work toward Add new payment Avoid checkout experience payment methods more integrated method(s) according to abandonment commerce systems regional requirements

Merchant Action Understand your various global customer personas and the payment preferences of each. Do a gap analysis comparing their preferred payment preferences to the ones that you support, and consider adding any that consumers identify as preferred. Making it easier for your customers to pay will help increase sales conversions and customer satisfaction.

8 Cards and eWallets widely accepted, while other methods vary per segment

For now, cards remain the most common form of payment globally, with higher acceptance rates than digital payment methods. But forward-thinking merchants striving to satisfy mobile consumers’ appetite for digital payment options like eWallets and Digital Pays (e.g., PayPal®, Visa Checkout and Samsung Pay) have added alternative payment methods to their portfolio mix. While the eCommerce regions of Latin America and Asia Pacific (APAC) are less mature than North America, they are also faster growing and offer digital options, such as mobile apps, at much higher rates. Meanwhile, North American merchants benefiting from the vast majority of U.S. consumers with access to a credit or debit card, are behind their regional counterparts in adopting Digital Pay and eWallets.

The enormous rise in mobile device ownership and usage over the past decade has dramatically impacted how eCommerce businesses approach payment management. Merchants have added alternative payment methods to their portfolio mix in large numbers to meet the increased demand for digital. But this does not mean that merchants should arbitrarily add digital options simply to increase the variety of payment solutions they offer. By understanding the drivers behind consumer demand for digital (real-time, seamless, convenient and on-demand transactions), merchants can choose the right digital payment methods.

Payment methods accepted for different eCommerce market segments

TYPE North Latin Asia MRC Mid- Goods/ UK/EU Enterprise Travel Services ACCEPTED America America Pacific Members Market Retail

CARDS

eWALLETS

DIGITAL PAY

BANK/CASH PAYMENTS

MOBILE APPS

≥ 75% 50-75% 25-50% ≤ 25%

Merchant Action Keep abreast of new technologies and customer preferences for the markets that you serve. Proactively identify popular and emerging payment methods, and adjust your payment acceptance offerings to align to your target audience.

9 Mobile is a crucial channel that less than 50% of merchants offer

The ubiquity of smartphones has made mobile-friendly channels very important. While consumers are still spending more of their mobile device time shopping and reading than actually making payments on those devices, the ability to pay via mobile is attractive, especially for younger consumers. Merchants who understand and adapt to these mobile usage patterns are more likely to increase conversion rates, build loyalty and acquire new customers.

Type of mobile channel offered

MOBILE BROWSER MOBILE APP Total MRC Members

Enterprise Mid-Market

Travel Goods/Retail Services

North America UK/EU Latin America Asia Pacific

≥ 75% 50-75% 25-50% ≤ 25%

Merchant Action Use responsive design and make more services available through mobile devices. Evaluate whether your customers would use a payment app, and if so, make sure to provide one.

10 Forward-thinking merchants are actively adding payment methods

The sheer level of payments-related activity among merchants confirms just how mission-critical payment management has become. Nearly eight in 10 merchants have added and/or removed payment methods in the last 12 months. Merchants in Latin America—the fastest-growing eCommerce region— and MRC members are the most active. While 79% of merchants overall have made changes, that number jumps to 89% among MRC members and to 92% in Latin America.

Underscoring merchants’ attentiveness to consumer demand, nearly half plan to add digital pay methods over the next year, and 43% plan to add eWallets. MRC members are ahead of the curve when it comes to planning for mobile adoption, and Latin American and Asian Pacific merchants have added and plan to add eWallets at much higher rates than their regional counterparts.

Merchants that added payment methods over the last 12 months

NET CHANGED ADDED REMOVED BOTH Total MRC Members

Enterprise Mid-Market

Travel Goods/Retail Services

North America UK/EU Latin America Asia Pacific

≥ 75% 50-75% 25-50% ≤ 25%

Merchant Action Simplify your payment management process to allow for the quick addition and removal of payment methods.

11 Overcoming Payments-Related Hurdles

12 Forward-thinking merchants address challenges head on

As eCommerce merchants face growing challenges, those who perform best face those challenges proactively. When asked to rank the top three challenges they face in managing eCommerce payments, merchants ranked fraud first, followed by cost of payment, accepting alternative payments and security.

While fraud is everyone’s top challenge, forward-thinking merchants combat it with a higher use of 3-D Secure. These organizations also tend to have other, more strategic concerns: those about Alternative Payments Acceptance, security and IT constraints.

The number of proactive companies using 3-D Secure to mitigate the effects of fraud jumps to more than three-quarters among MRC merchants and more than eight in 10 among travel-industry merchants. Meanwhile, European merchants seem prepared to implement PSD2 compliance. Only 15% of all merchants ranked regulatory impact as a top-three challenge, and among European merchants, that percentage was just 5%.

Merchant Action Identify your main payments-related challenges and dedicate a project team to focus on them. Prioritizing challenges and implementing changes will require interdepartmental cooperation between groups ranging from operations and development to marketing.

13 Payments-related challenges ranked

0 10 20 30 40 50

eCommerce Fraud 44%

Cost of Payment 35%

Acceptance of Alternative Payments 34%

Security (PCI, DSS, tokenization) 32%

IT Constraints 27%

Order Growth/Expansion 23%

Staff-Related Challenges 18%

Data Access 18%

Supplier Management 18%

Checkout Conversion 17%

Organizational Structure 16%

Regulation Impact 15%

Top five challenges for select merchant segments

MRC NON-MRC ENTERPRISE MID-MARKET

eCommerce Fraud eCommerce Fraud eCommerce Fraud eCommerce Fraud

Acceptance of Alt Pay Cost of Payment Management Security Cost of Payment Management

IT Constraints Security Acceptance of Alt Pay Acceptance of Alt Pay

Cost of Payment Management Acceptance of Alt Pay IT Constraints Security

Security IT Constraints Cost of Payment Management IT Constraints

14 Forward-thinking merchants are addressing increasing complexity and cost in order to be more efficient and profitable

More than half of eCommerce payment professionals agree that payment management is becoming more difficult with each new payment option they provide to their customers. Forward-thinking merchants say that eCommerce payment management is becoming increasingly challenging, costly, complex, and, sometimes, inefficient, showing that they are assessing the challenges in a more detailed way that enables them to focus their strategies more effectively.

For a sense of the spiraling complexity, consider these numbers: Merchants report an average of five gateway processors and four acquiring banks. On average, merchants accept 6.2 payment methods. Among MRC members and Latin American, Asian Pacific and travel merchants, that number jumps to 7.07 and higher.

Number of gateway/ Number of merchant processor connections acquiring banks

19% 34% 31% 1 to 2 43% MEAN MEAN 3 to 4 4.76 3.97 5 or more

26% 20+3545+z 3626% +3133+z

Average number of payment options

8 7.52 7.65 7.24 7.07 7 6.65 6.84 6.63 6.2 6 5.86 5.37 5.14 5.19 5

4

3

2

1

0

Total MRC Non- Enterprise MM Travel Goods/ Services North UK/ Latin Asia MRC Retail America EU America Pacific

15 Merchant relationships with acquiring banks and gateways/processors 7

6 5.96 5.82 5.53 5.40 5.33 5.23

5 5.08 4.95 4.97 4.87 4.64 4.62 4.34 4.34 4.14 4.16 4 4.12 4.19 3.36 3.34 3.22

3 3.07

2

1

0

MRC Non-MRC Enterprise MM Travel Goods/ Services Latin Asia UK/ North Retail America Pacific EU America Average number of merchant acquiring banks Average number of gateway/processor connections

©2017 Visa All rights reserved. Visa confidential

Merchant Action Evaluate your payment management investment and ROI, and then optimize the balance of in-house and outsourced payment operations to maximize profitability.

16 Realizing Benefits

17 Forward-thinking merchants run more pre-authorizations and retries

Forward-thinking merchants run more pre-authorization requests for credit-card transactions (86% of MRC members and Latin American merchants do), and of the initial attempts that fail, 82% retry.

While more than half of all retries result in acceptance, 45% of these transactions go unverified— meaning merchants potentially forgo substantial amounts of revenue. When all attempts fail, the most common first step is to launch an internal collection process, followed by using an account updater and launching an external collections process.

% Running pre-authorization to verify credit card information

97%

86% 86% 86% 82% 81% 82% 81% 82% 78% 80% 78% 76% 75% 75% 76% 75% 73% 73% 71% 66% 68% 68% 63% 57% 57% 56% 56% 58% 56% 55% 54% 54% 55% 53% 45%

Total MRC Non-MRC Enterprise Mid- Travel Goods/ Services North UK/EU Latin Asia Members Members Market Retail America America Pacific

*Base=all respondents N=484 Run Amount* Yes Yes and Retry** Acceptance Retry Rates+ **Base=pre-authorize N=351 +Base=retry N=273

Merchant Action Actively use tools like pre-auths, retries, account updater and merchant-initiated transactions. Consider 3-D Secure 2.0.

18 After all attempts to process a payment fail...

40% 33% 32%

40Start internal +60+Y+F 10033Use account +Y+F Refer10032 to external+Y+F collections updater collections 1002929% +Y+F 1002727% +Y+F 1002424% +Y+F Refer to external Internal Retry after risk aggregator blacklisting 6+ months

Forward-thinking merchants are planning much more extensively for PSD2

% That have done Planning for the impact of the recently enacted PSD2 helps merchants stay ahead of the curve. By 81% to 68%, MRC merchants are more likely to have planned than their PSD2 planning peers. Of those, 45% say they’ve planned extensively.

When asked about the possible effects of PSD2 implementation, about half say it 35% will increase the complexity of customer authentication, fraud and conversion rates. Additionally, a third think PSD2 is more likely to increase the complexity of payment options offered. Interestingly, the forward-thinking merchants felt much more strongly about the PSD2 impact, with twice as many saying that it will increase complexity in 45% the number of payment options. As such, 74% of forward-thinking merchants have initiated planning, with 39% actively conducting extensive planning and analysis. 39% Extensive planning overachievers tend to include MRC members 45%, enterprise 72% 11% and travel at 55%. Bottom line, this is a massive initiative, and there will likely be many “bugs” along the way. Forward-thinking All other merchants merchants

Extensive planning & analysis Some planning

Merchant Action Double up on your user experience KPIs, and work with your payment provider partners to ensure compliance.

Full question wording: Start internal collections process; Use account updater; Refer to external collection service; Refer to external data source pro- vider/risk-reputation aggregator (e.g., fraud provider - iovation, Risk Ident, etc.); Internal blacklisting; Retry after prolonged timeframe (e.g., 6-months).

19 1003434% +Y+F Overall Impact of PSD2 474047% +F+60+Y More complexity in number More complexity in of payment options authentication/fraud/conversion

MRC Members 48% MRC Members 44%

Enterprise 35% Enterprise 51% Mid-Market 34% Mid-Market 42%

Travel 60% Travel 26% Goods/Retail 30% Goods/Retail 50% Services 35% Services 50%

North America 36% North America 44% UK/EU 29% UK/EU 50% Latin America 32% Latin America 61% Asia Pacific 40% Asia Pacific 32%

20 Forward-thinking merchants measure their efficiency at performing key initiatives

Of the five key global commerce initiatives that merchants should measure for efficiency, we found that merchants consider their current payment management performance as more efficient at integrating payment processing with business applications and providing centralized reporting, but less efficient when adding new payment options or expanding into new countries. Latin America reports the highest levels of efficiency on all counts—especially when it comes to adding payment options. Across the board, forward- thinking merchants evaluate their high-priority results using KPIs that are specifically tailored to those results, and regularly optimize those KPIs.

Top 5 business initiatives driving success for merchants

Integrating Providing Tracking Adding new Expanding processing w/ centralized payment KPIs payment into new business apps reporting of in different options countries payments channels

More efficient Less efficient

Merchant Action Define the important KPIs to monitor for your initiatives and make necessary adjustments.

21 Forward-thinking merchants rank KPIs differently

Overall, the most important KPIs in the survey are cost-per-transaction, acceptance rate, total orders per day/ month, conversion rates, and chargeback and fraud rates. While cost-per-transaction is ranked highest over- all, the importance of various KPIs differs across businesses and regions. Among MRC members and travel merchants, conversion rate is ranked as the most important KPI. Forward-thinking merchants were the only segment that ranked cost per transaction, total orders per day/month, and conversion rate.

Cards remain the most common eCommerce payment method offered, and they reward merchants with higher conversion rates than digital pay and eWallets—51% to 38%. Merchants in more mature eCommerce markets—North America and the UK/EU—have significantly higher conversion rates across all methods than merchants in the Asia Pacific and Latin America.

Top 5 KPIs for select segments

TOTAL MRC ENTERPRISE TRAVEL

Cost per Transaction Conversion Rate Cost per Transaction Conversion Rate

Acceptance Rate Cost per Transaction Conversion Rate Acceptance Rate

Total Orders per Day/Month Total Orders per Day/Month Acceptance Rate Total Orders per Day/Month

Conversion Rate Acceptance Rate Chargeback and Fraud Rates Total Visits

Chargeback and Fraud Rates Chargeback and Fraud Rates Total Orders per Day/Month Conversion Rate

Conversion rates by method 60

50 51%

40 40% 38% 38% 37% 34% 30 28% 20

10

0

Cards Bank Transfer/ Digital Pay eWallets Gift Cards/ Mobile Apps 3rd Party Cash Vouchers

Merchant Action Adopt a robust set of KPI metrics in order to accurately assess how payment management changes are performing, as well as to identify inefficiencies that are hindering optimization of eCommerce revenue.

22 Conclusions

23 Conclusions

Forward-thinking companies no longer view payment management as a back-office utility. These eCom- merce leaders see payments as a strategic function and competitive differentiator that impacts customer experience and drives revenue. They also face payments-related challenges proactively and see better results because of their approach.

These survey highlights give merchants an actionable set of comparison points to assess internal processes, identify top challenges and develop robust payment management strategies. Take a page from the payment management playbook of today’s forward-thinking companies, and develop a powerful approach to your organization’s eCommerce business.

24 Appendix

This report highlights findings from the 2018 MRC Global Payments Survey in partnership with CyberSource. Now in its third year, this survey captures a large, representative sample of mid-market and enterprise-level organizations throughout the world. To learn more about the 484 eCommerce payment specialists we surveyed, see the charts on the following pages.

25 Profile of 2018 CyberSource MRC Global Payments Survey respondents

Broad mix of eCommerce merchants for robust analysis and comparison

13% 10% 3%

8%

49% REGION 25% 56% INDUSTRY

23%

12%

North America (N=239) Physical goods/retailer (N=271)

APAC (N=65) Services (N=110)

UK/EU (N=121) Telecom/utilities/insurance (N=14)

LA TAM (N=59) Travel (N=38)

Other (N=51)

57% MRC 43% 52% SIZE 48%

Non-MRC (N=278) Enterprise (more than $50 million annual revenue) (N=236)

MRC (N=206) Mid-Market (up to $50 million annual revenue) (N=222)

Appendix

26 Top 5 eCommerce markets of survey respondents

US remains the top eCommerce market, followed by Canada, the UK, Germany, and France

0 10 20 30 40 50 60 70 80

North America Regional Totals United States 70%

Canada 44% North America 78% Europe 61% Latin America Asia Pacific 40% Mexico 13% Latin America 24% Brazil 11% Middle East 8% Africa 3% Argentina 6%

Chile 4%

Colombia 4% Europe United Kingdom 35%

Germany 27%

France 22%

Spain 12%

Italy 6%

Netherlands 5%

Belgium 5%

Russia 4%

Denmark 3%

Austria 2%

Switzerland 2%

Sweden 2%

Poland 2%

Norway 1% Africa South Africa 2% Asia Paci c China 17%

Australia/New Zealand 12%

India 10%

Japan 9%

Singapore 7%

Indonesia 2%

South Korea 2%

Middle East United Arab Emirates 6%

Saudi Arabia 3%

Q6: Please select the countries that represent your organization’s five largest markets by eCommerce sales. Base: Total respondents N=484; totals exceeded 100% due to multiple responses Appendix

27 Merchant size

Breakdown of mid-market and enterprise organizations

Total annual revenue (in US dollars)

0 10 20 30

Mid-Market - 46% <$10M 21%

$11M-$25M 14%

$26M-$50M 11% Enterprise - 49% $51M-$100M 15%

$101M-$500M 16%

$501M-$1B 8%

Over $1B 10%

Proportion of total annual revenue comprised of eCommerce

0 10 20 30

25% or less 11%

26-50% 23%

51-75% 20%

75% or more 19%

Unable to share 26%

Q16: What is your organization’s total annual revenue? Base: Total respondents N=484 Q17: What proportion of your total annual revenue is eCommerce revenue? Please include revenue for all countries from which you accept eCommerce orders. Base: Total respondents N=484 Appendix

28 Full list of payment types offered by merchants

Cards • Worldwide credit/debit/T&E cards (Visa, Mastercard, American Express, Discover) • Country/region-specific cards outside of North America (Carte Bleue, CartaSi, Solo, etc.)

Digital Pay • Apple Pay • Android Pay (Google) • Samsung Pay • MasterpassTM • VisaCheckout eWallets • PayPal • AlipayTM • WeChat Pay • Tenpay • Skrill • MercadoPago, QIWI • Amazon • Other electronic wallet payment methods (i.e., MOL, CashU, Yandex)

Gift Cards/Vouchers • Gift cards/certificates or other pre-paid cards • Other

3rd Party • Cash on Delivery • Carrier billing (via ISP, phone provider, etc.) • Cryptocurrencies (e.g., Bitcoin) • Other

Bank Transfers/Cash Options • SOFORT Banking • Invoice • SEPA Direct Debit • iDeal • Giropay • Paydirekt • Konbini® • Boleto Bancário • Electronic checks or automated clearing house (ACH) payments • Other bank transfers (consumers push payments from their bank accounts) mCommerce Channel Supported Mobile Payments (aka Mobile Apps) • mCommerce checkouts (e.g., Amazon one-click, PayPal mobile, etc.) • Branded app/wallet (registered customer checkout using payment details on file (i.e., your own mobile app wallet) • Direct carrier billing • In-app payments via iTunes or Google Play accounts • Other third-party mobile wallets (e.g., PayPass Wallet, Google Wallet) • Other mobile payment types

All brand names and logos are the property of their respective owners, and the above-mentioned reference does not imply product endorsement or affiliation with Visa.

Q7: What types of payments and payment methods do you accept for each of your largest eCommerce markets? Appendix Base: Organization’s five largest markets by eCommerce sales (variable-based)

29 Ready to optimize your business?

Contact us for help ensuring that your payment management strategy drives your overall business success.

1-888-330-2300 • [email protected] • cybersource.com

2018 MRC Global Payments Survey, in partnership with CyberSource

Survey conducted by independent market research firm GfK