OSTHAVEN Practice: Optimising the eCommerce payment infrastructure for an omnichannel future

Posted on April 14, 2023 By Simon Lammerding

Payment processing in e-commerce is subject to constant change. Merchants are repeatedly confronted with the question of how to position themselves properly for the future. OSTHAVEN’s experts are therefore often called upon for the market analysis and tendering of payment services. Today we give you an insight into one of our exciting projects, which is exemplary for many other similar projects. 

A large omni-channel retailer is faced with the challenge of putting the processing of PayPal and credit card payments on its e-commerce platform on a new footing. The client’s previous payment service provider (PSP) has taken over several competitors, including their PSP technology, in the course of market consolidation. In order to simplify the PSP’s internal processes, the interface previously used by the merchant is to be put to bed. The change to the alternative chosen by the previous PSP as future-proof is to be made palatable to the dealer with a small advertising cost subsidy (WKZ). Since system failures and errors in payment processing have occurred from time to time in the past anyway, the merchant is certainly willing to make the switch. However, after intensive testing, the alternative offered by the PSP turns out not to be 100% suitable, as important and frequently used functions cannot be covered. Consequently, the retailer decided to search for other possibilities and commissioned OSTHAVEN GmbH for the market analysis and tendering of the PSP service.

During the preparation for the project, the following points were identified as particularly relevant for the selection of the new PSP interface:

In addition, internal processes between the web shop and ERP should continue to run as identically as possible, so that the need for internal adjustments in IT development and accounting processes is minimised.

 

Functional requirements

Particularly important for the retailer’s business model is the delayed settlement of transactions with two-step authorisation and redemption (capture) over a longer period of time. For the processing of subscription models, PayPal accounts and credit cards require the storage of the means of payment and the customer’s consent for permanent use. The storage should take place entirely at the PSP in order to ensure the lowest possible PCI requirements (the shortest questionnaire SAQ-A is the target) at the merchant.

The service provider to be selected must be able to process credit card and PayPal transactions from all of the merchant’s webshops in three countries as well as PostFinance transactions in the Swiss webshop. The merchant handles prepayments, SEPA direct debits and payments against open invoices as well as the scoring of customers and the payment type control based on this to prevent fraud.

Since omnichannel business is becoming increasingly important and is also a major priority for the retailer, the omnichannel capabilities of the potential service providers are queried in detail.

 

Technical requirements

Payment processing should be integrated as seamlessly as possible for customers in the merchant’s web shop. A jump via redirect as in the past is no longer desired. The look and feel should be influenced 100% by the merchant. Due to the growing popularity of e-commerce, performance guaranteed at all times (24/7) and a corresponding guarantee by means of a service level agreement (SLA) are essential. In addition, the permanent availability of a test environment is required, via which all relevant business transactions can be tested analogue to the productive environment.

 

Selection process

All service providers in question receive tender documents prepared by OSTHAVEN together with the dealer. This includes a detailed description of the functional and technical requirements and a questionnaire on further features in the provider’s offer which may be used in the future. All PSPs are given the opportunity to ask questions themselves. The answers to these will be made available to all providers. All payment service providers who return the tender documents in full are given the opportunity to present their offer in detail in a digital workshop.

Following the workshops, the various stakeholders on the trader side prepare their evaluations of the suppliers using a detailed evaluation matrix that was jointly developed prior to the tender. In order to make the different price components comparable, an extensive simulation of the costs for the next 5 years is created, incorporating scenarios for different business developments.

Further talks and negotiations will be held with the two best-rated companies in the following. With both of them, the technical and business requirements are examined in greater depth. IT experts from the retailer look at the interface documentation of the competitors in terms of feasibility, technologies used, effort and risks from an e-commerce and ERP point of view. Questions and problems arise at various points, but these can be solved between the experts of the retailer and the providers.

In the end, the retailer’s management decides in favour of the minimally more expensive provider, especially for the following reasons:

 

Implementation

Immediately after signing the contract, the various teams of the retailer (IT e-commerce, IT ERP, accounting, customer service, fraud prevention) start to conceptualise the interface connection. In the process, special emphasis is placed on ensuring that all changed processes are designed to be future-proof and performant. For example, the processing of the settlement files of the PSP must be adapted. Since a change is pending anyway, instead of the batch processing used in the past, the processing of individual transactions via an interface (API processing) will be changed. This leads to a higher degree of automation, accelerated processing and permanently lower load on the systems. In e-commerce, a significantly improved monitoring of customer interactions will be implemented so that problems can be detected much more quickly with the help of automated monitoring and rule-based alerts.

For customers, the process will become much simpler, as the improved use of tokenisation means that they no longer have to enter any payment data if they agree to their data being stored. For example, there is no need to enter the three-digit CVC code for credit card payments or to log-in to PayPal.

The go-live of the individual webshops, i.e. the changeover from the old to the new PSP, takes place successively starting with the smallest, which also has the lowest process complexity. This helps to identify and eliminate errors with the least possible customer impact.

 

Measuring success

In the end, almost all goals can be achieved. The technical requirements can be completely covered by the new service provider, the processes between web shop and ERP only have to be changed slightly and the price of the service is at a similar level as before. By switching to modern technologies and through improved processes in the interface from the webshop to the PSP, further improvements can also be achieved: PayPal and credit card transactions are processed much faster and with a higher acceptance rate of credit card payments by the acquirer. For customers with saved payment methods, the abandonment rate also decreases.

Only the internal effort is slightly higher than previously estimated, since the PayPal connection via the interface of the new PSP and the migration of the tokens from the old to the new PSP requires more coordination effort from the parties involved than assumed (Merchant, PSP and PayPal or Merchant, old and new PSP respectively). However, the slightly higher implementation costs are more than compensated for by the higher conversion and the resulting increase in turnover.

 

Success factors

Key success factors of the project are the development of the requirements and the preparation of the tender documents by all departments involved. Through the direct involvement of the latter, a greater commitment to the project was also achieved. It was also crucial to look at the future viability of the provider, especially with regard to technologies and processes, which facilitated the subsequent implementation.

 

Conclusion 

E-commerce merchants are reluctant to change functioning payment processes because customers are particularly sensitive to changes and especially to errors at this critical point in the checkout process. However, with a thorough assessment of the requirements and a careful selection of the appropriate service provider, merchants can avoid problems, improve the processes for their customers and improve relevant and result-impacting key figures while making their payment processing fit for the future.