INTERVIEW WITH ADYEN

Seamless retail places new demands on payments

The way we make online purchases has changed. According to Tobias Lindh, more than 60 percent of e-commerce today takes place via mobile, where mobile-optimized payment methods such as Swish, Apple Pay and Google Pay have made it easier to complete the entire purchase. But a smooth checkout is not just about speed. The payment methods must also fit the customer and the purchase situation.

“The biggest source of friction we see is that the customer isn’t offered the payment method that suits them,” says Tobias. “That’s why it’s crucial to understand which industry you’re in and what type of product the customer is buying.”

The order value also matters. For larger purchases, BNPL (Buy Now Pay Later) or credit card might be better, and for smaller purchases, Swish or debit card. Purchasing furniture with a long lead time is a clear example. The customer does not necessarily want to pay the full amount before their item has been delivered. If instead the same customer makes a smaller purchase from the same company, speed and simplicity may weigh more heavily. The trend is therefore shifting towards more dynamic payment flows.

“Instead of showing the same list of payment methods to all customers, the checkout can be customized according to product, amount, market and customer behavior, for example,” explains Tobias.

There is also a financial trade-off for the retailer. Payment methods have different fee models and impact conversion in different ways. A digital service with a very high margin can more easily carry a higher transaction cost if the payment method simultaneously drives conversion. In home electronics, order values are often high and margins are lower. In the case of such products, both payment costs and the risk of fraud become more important. Tobias therefore thinks it is important for the retailer to carefully consider all the factors.

“So you need to ask yourself: what’s important to me as a retailer?” he says. “Where’s my sweet spot?”

The choice of payment solution also impacts how well the customer journey functions between different channels. Digital and physical commerce are increasingly merging, and with unified commerce, both the purchase and payment can follow the customer between e-commerce and the physical store.

“The major trend now is for e-commerce and the physical store to become increasingly integrated,” says Tobias.

An area in which Tobias sees a distinct change is how the line between e-commerce and physical store is gradually blurring. Where consumers are concerned, the channel in which the purchase is made is becoming less relevant. Instead, many people expect to be able to move seamlessly between different touchpoints: from online purchase to collection, return or service in store.

For the retailer, it is a question of linking together the e-commerce system, point of sale system and payment system so that the customer can move between channels without the purchase needing to be dealt with as separate transactions. An online purchase, for example, can be collected or returned in store, while the same payment and transaction accompany it throughout the entire flow.

“This blurs the lines between e-commerce and the physical store,” explains Tobias. “You can buy online and return in store but still get a refund for the same transaction.”

This process becomes particularly clear with returns. The refund can be made via the same payment method used for the purchase, even if the item is returned in a different channel. This also applies to partial refunds, partial returns, when only part of the order is returned.

“If the customer has bought three items and returns two, you can issue the refund for that item only and via the same payment method used for the purchase,” says Tobias.

According to Tobias, these developments involve much more than smoother returns. When the different retail systems are integrated, companies gain a better overall picture of the customer and can create a more cohesive purchase experience. He also sees how many e-commerce companies are establishing their own physical stores, while traditional retail chains are continuing to digitize both sales and payments. Even in physical retail, self-service solutions and contactless payments are becoming increasingly common. The result is that the differences between physical stores and e-commerce are becoming less distinct and that retail is increasingly viewed as a cohesive experience rather than separate channels.

In other words, the basic principle is that a refund should be issued via the same payment method used for the purchase, and preferably as quickly as possible.

“Returns are super important because everyone wants them to be as smooth as purchases and preferably take place as quickly as possible,” says Tobias. “Because if you don’t handle it correctly and offer a quick and simple solution, it can create quite a bit of badwill.”

The same requirement for convenience applies to security. The e-retailer must therefore be able to prevent fraud without making the checkout unnecessarily complicated for legitimate customers. An effective way to prevent money laundering is for payments and refunds to take place in the same way.

“Let’s say you receive a payment from a customer with one payment method and handle returns with another,” explains Tobias. “This opens up the possibility of a lot of problems behind the scenes, including high transaction costs.”

Systems such as 3D Secure, 3DS, are used for card payments to verify that the correct person is making the purchase. 3DS is used to meet the requirements for Strong Customer Authentication, SCA, as stipulated by the EU’s second Payment Services Directive, PSD2. The security layer can create extra friction at checkout, but newer 3DS flows have made authentication a significantly smoother process than before. But customers’ attitudes have also changed, according to Tobias Lindh.

“Before, they could get more irritated about verification,” says Tobias. “I think people are more aware of the need for security today.

The problem arises when the risk system becomes too strict.” False positives mean that legitimate transactions are stopped because they are incorrectly assessed as suspicious. According to Adyen’s global data, up to nine percent of customers are erroneously denied purchase in global markets. In the Nordic region, Tobias estimates the level to be one or two percent.

Lowering the security level to reduce the risk of false positives is not an option, however, because this risks increasing fraud instead. The challenge is therefore to determine which purchases require extra checks and which can pass through the system without further steps.

Here, AI is assigned a central role. By analyzing transaction data and behavior patterns, the systems can better distinguish legitimate customers from suspicious transactions. Tobias states that Adyen has been able to reduce false positives by almost 42 percent.

But the technology is being used by both sides. Even scammers are using AI to an increasing extent to automate tests of card numbers and vulnerabilities in retailers’ risk systems.

“The scammers use AI and we use AI to identify fraud, so it’s a bit like trench warfare,” says Tobias.

According to Tobias, around five percent of the scammers on Adyen’s platform are responsible for more than half of the fraud, both in terms of the number of attempts and in financial terms.

AI is also used to reduce friction for legitimate customers. Adyen Uplift uses the technology for things such as risk management, authentication and checkout optimization. Products, amounts, regions and behavior thus affect which payment methods the customer encounters and in what order they are displayed.

This means that security and conversion do not need to be treated as two separate issues, says Tobias Lindh, pointing out that the same data can be used both to stop a suspicious purchase and to make a legitimate purchase easier.

“The most important thing is to be able to offer the right payment method – there’s no reason to put a payment method at the top of the list or try to force it on the customer if it’s not relevant,” he says.

When Tobias looks ahead, he sees above all continued integration between e-commerce and physical stores rather than a single payment method that changes the market.

“The main issue is that e-commerce is starting to merge with physical stores,” says Tobias. “We’re seeing more, it’s becoming more integrated.”

AI agents, Click to Pay and digital currencies are hot topics, but Tobias thinks there is a greater likelihood of payments becoming progressively more mobile, integrated and situational. AI agents may play a bigger role in the purchase journey, but he believes that retailers will also want to maintain control over their brand and customer relationship in the future.

A more tangible change concerns the new consumer credit rules. They are not expected to change the customer’s payment experience in any significant way, but may require e-retailers to review their payment setups and partnerships regarding things such as commision on credits.

“Ultimately, it is retailers who will be responsible for this, not the payment service provider,” says Tobias

Payments are therefore becoming increasingly advanced behind the scenes, while the customer’s aim is the opposite: a simple, relevant and secure purchase experience. Where retailers are concerned, it is a question of ensuring that level of convenience without forfeiting security or control over the customer relationship.