In the space of a decade, e-commerce has gone from 7.4% of all sales in 2015 to 20.8% today and is estimated to rise to 24% in the retail sector by 2026.

The pandemic that began in 2020 certainly accelerated the process, jumping ahead by 4% in a single year. However, we have been seeing a steady 1% increase every year for quite some time.

Does this mean the death of in-store retail?

Nobody is making that claim: physical (or ‘bricks and mortar’) shopping is still an enjoyable activity for many people and there are plenty of instances in which shopping in-store is actually more convenient than e-commerce such as buying a pint of milk on the way home from work or trying on clothes.

We’ll likely soon reach a point at which e-commerce sales overtake in-store retail, but until then, there are still plenty of improvements to make to improve the online experience, making it smoother for customers and a more profitable option for businesses.

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In 2022, 47 UK shops closed every day, up 50% from 2021. This comprised a total of 17,145 shops, 11,090 from independents and 6,055 from retail chains. This led to the loss of 15,000 jobs, with household names such as Boots, B&Q and Lloyds Pharmacy closing multiple stores.

This trend isn’t confined to the UK – US retail institution Bed, Bath and Beyond recently declared Chapter 11 bankruptcy, citing its inability to adapt to an increasingly digital marketplace.

It is difficult to find similar stories in the e-commerce space, which tends to be dominated by a small number of extremely large companies and a much larger stratum of niche retailers, drop-shipping operations and so on.

What can be done? Some major chains will survive until retail and e-commerce stabilise and the current cost of living woes that are driving down sales abate. Others may go entirely online – something that is easier than ever and for many much more cost-effective than maintaining physical locations and the staff to run them, particularly when utilities and retail space rent can be so variable. Most will have to find ways to exist partly online and partly in physical stores.

We have seen in the past years (particularly since the pandemic) how retailers can create hybrid digital experiences – touch screen menus, click-to-collect, and Buy-now-pay-later options at the checkout. This has gone some way to stop falling retail profits, but there are other ways to find savings on every single transaction in ways that are invisible to the customer.

Payment orchestration and e-commerce

Payment orchestration has emerged in the last few years and already made a huge impact on the e-commerce space. GlobalData’s sector ranking analysis finds that e-commerce company Shopify leads on digital payments while Visa and Mastercard are second and third respectively.

In a typical payment, a cardholder’s data is sent to a payment gateway that encrypts it and performs any anti-fraud checks; the payment gateway provides this information to the purchasing and issuing banks, which interact to approve the payment. The payment gateway then receives a notification of whether the payment was successful or unsuccessful.

Payment orchestration changes the beginning and end of this process: software intelligently chooses the best payment services provider for each transaction, making sure that each payment is as low cost as possible and has the greatest chance of being accepted.

This is important in e-commerce because 6-18% of all card transactions are declined. E-commerce retail merchants need to reduce this number as far as possible without compromising on anti-fraud measures – every declined transaction isn’t just a potential lost sale, it’s a potential lost customer.

E-commerce sites are also much more likely to receive payments from foreign accounts, which may not be easy or inexpensive to process if a merchant is using a payment service provider (PSP) that is optimised to process transactions in a merchant’s own country.

They also face an epidemic of fraud and the need to comply with new regulations like PSD2, so anti-fraud protection needs to be baked into their payment systems.

Fees are also important: every transaction costs merchants and payment orchestration allows merchants to receive data on the cheapest processing routes to help reduce costs. This is also exacerbated by product return rates, which cost e-commerce retailers $600bn every year.

Most important of all are conversion rates, the metric that online retailers live or die by. Being able to provide the payment option that a customer wants to use and being able to know that it has a high chance of it going through is vital.

The pain points that brick-and-mortar retailers face aren’t profoundly different. They too have to process a wide variety of payment types: shoppers are using a greater variety of cards and accounts due to the explosion in neo-banks and digital wallets.

They can no longer count on payments coming from debit cards from high-street banks and a small number of credit cards. This is particularly true if a retailer can count on a larger than normal number of transactions coming from non-UK cards – a retail chain based in tourist areas could save a great deal of money on each transaction and be able to offer customers payments in forms they are used to, like Alipay, which has 1.3 billion users around the world.

Integrating payment orchestration into POS systems has the added benefit of increasing fraud protection. In-store card fraud is less common than e-commerce fraud and the introduction of chip technology has reduced it by 75%, but it still happens and retailers need to do what they can to prevent it.

Payment orchestration doesn’t just find ways to make transactions easier, it can also make them more secure if the card shows signs of being fraudulent. Whether it is being used for an online or in-store payment, a payment orchestration system will always be able to balance cost, the likelihood of conversions and fraud protection.

Making every penny count

If current economic conditions continue and the percentage of commerce done online continues to rise, businesses will need to look at even more ways to reduce costs while keeping up with current trends.

That doesn’t mean that in ten years’ time our high-streets will only comprise a small number of large businesses that managed to survive – it can be an opportunity for mid-sized chains to improve their payments systems to make the most of every transaction. Although it seems contradictory, blending e-commerce and in-store retail is the way to achieve this.

Payment orchestration will be a major part of this – the small amounts saved on every transaction mount up, and the improvement of customer relations through being able to accept any kind of payment and know that it will almost certainly be approved will build trust between consumers and brands.

About the author: Jeremy Nicholds held roles at Visa, Mastercard and Natwest before becoming CEO of mobile payments platform Judopay.