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07/26/2021

The Payments and Returns Impact in Retail

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You may have seen the news of installment payment company Affirm acquiring returns payment platform Returnly, and the more recent announcement of PayPal acquiring Happy Returns. Interestingly, we called this at the start of the year in our five predictions, noting: "Whether it’s a buy-now, pay-later business like AfterPay, Affirm or Klarna or a more established payment provider (Mastercard, Visa, Paypal, et al), we see 2021 as a year where payment businesses will invest in delivery and returns to differentiate themselves in the very crowded payments space."

Why specifically would payments businesses like Affirm and PayPal be interested in companies like Returnly and Happy Returns, and what could the impact be in retail? 

In a survey we conducted in February of this year of more than 1,200 U.S. consumers, findings demonstrated that retailers’ e-commerce returns practices are not keeping pace with the increase in online shopping. Our research found that 75% of respondents felt retailers should be doing more to improve their returns experiences. The survey also revealed that a positive returns experience would encourage 86% of respondents to shop with the same online retailer again. Interestingly, the research also found that returns are as important as payment and delivery in the e-commerce shopping process (85%, 86% and 86% of respondents, respectively).

[See also: Evolution of How Consumers Shop]

The findings show that with consumers’ ongoing desire to shop online, e-commerce returns present a great opportunity for increased sales and reinforcing customer loyalty, but retailers are missing the mark when it comes to the returns experience.

So, what role can a returns solution play in helping payments businesses and the retailers they serve?

Customer Journey Insights Can Drive Purchases

As a buy-now, pay-later company, Affirm’s value to retailers is contingent on improving checkout conversion, but they own very little of the customer journey. Their competitor, Klarna, has started to encourage consumers to shop from within the Klarna app, making a sort of marketplace play, to increase their ownership of the consumer. Similarly, PayPal owns the payments process (and has launched a buy-now, pay-later service, too), but the retailer still maintains the actual customer relationship.

Through these acquisitions, Affirm and PayPal will now “own” the returns process and have a more holistic view of the customer journey, and can potentially use those insights to positively impact conversions.

The returns process is one of the most essential and impactful customer touchpoints, as our research highlights. Getting it wrong causes most shoppers to think twice before they come back to the same merchant. By acquiring returns businesses, these companies are going to obtain a vast wealth of valuable customer data that they can leverage to improve performance, both at checkouts and in returns.

On top of that, they become much more integrated in the customer experience post-checkout. The premise of buy-now, pay-later is similar to returns — it’s a convenience factor that gets consumers over the line when they’re hesitant to commit to a purchase.

Addressing the Pain Point of Returns for Retailers

Returns are also a significant pain point for retailers, especially as they continue to deal with the increasing volume of customer returns. This growth is primarily driven by the increasing proportion of items purchased online.

E-commerce return rates can be up to 40% in some categories, most notably in fashion and apparel. Returns are also sometimes associated with buy-now, pay-later offerings, because customers can order items without yet being charged, which while it improves checkout conversion by reducing hesitancy, can also lead to increased purchases of items they might not really want to keep.

[Related: Retaining the New Consumer Through the Power of Technology]

By addressing the challenge of returns Affirm and PayPal are making their overall value propositions much more attractive to retailers. An effective digital returns platform can help transform the returns program by speeding workflow, increasing repurchases, minimizing costs and improving the customer experience. For retailers, though, it will be important to keep an eye on ownership of the customer and the opportunities to make a great returns journey which is associated with their brand.

Certainly, fixing their returns processes can provide real benefits to retailers. They can transform their returns experience and bring visibility from the start of the customer journey to the end, enabling returns to not be an obstacle and rather a source of clarity and profitability.

Dan Nevin is chief revenue officer, global retail, at Doddle.

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