A slow or complicated checkout process can lead to cart abandonment, lost sales, and frustrated customers. In fact, 55% of shoppers quit a purchase due to payment friction because of clunky online checkouts, limited payment options, high service fees, or other barriers in the checkout process.
“Customers expect a fast, frictionless, secure purchase,” said Scott Talbott, Executive Vice President of the Electronic Transactions Association (ETA). “If a customer has a bad checkout experience, it’s possible they may not shop at that store again.”
As consumer expectations for seamless, secure, and flexible checkout experiences rise, payment friction is a serious barrier to growth for small businesses.
The friction factor
Digital payments can increase sales, accelerate cash flow, and reduce administrative and labor costs, and they represent a broader shift toward more flexible, immediate payment tools, according to new ETA research. But data from PYMNTS found that small businesses tend to offer fewer digital payment options and are more likely to experience payment processing errors, leading to greater payment friction.
“For a lot of small business owners, it's that tension between wanting to offer as many [payment] choices as possible and knowing that most are going to come with some fee,” said Brian Clarke, Deputy Director of the Regional and Community Outreach Department at the Federal Reserve Bank of Boston. “It's going to be a financial trade-off and weighing how many different forms of payment that a small business is comfortable accepting versus the costs.”
Recent research from Federal Reserve Financial Services (FRFS) showed that more than half of Gen Z and millennials now use digital wallets, and 80% say mobile payments are important. “As instant payments become ubiquitously available, we’ll likely see new use cases for streamlining checkout, ” said Todd Albers, FRFS’ Senior Payments Consultant.
Future use cases like paying with a QR code are expected to play a key role by enabling seamless and secure payments and have the potential to help reduce friction at checkout.Todd Albers, Senior Payments Consultant, Federal Reserve Financial Services
5 strategies for closing the checkout gap
More than half of customers consider the ease of the checkout experience when deciding where to shop, and exceptional checkout experiences can increase checkout completion rates up to 43%. Consumer expectations have led small businesses that are losing revenue to payment friction to look for opportunities to close the checkout gap. Some of the remedies include the following:
Optimizing checkout design
Online retailers should examine site analytics to identify where shoppers abandon their carts and streamline the process by storing order histories, offering guest checkout, or integrating one-click payment options.
Expanding payment options
Accepting multiple payment types from credit and debit cards and digital wallets to buy now pay later programs can reduce friction, but Clarke warns that business owners must weigh the cost and complexity. “It’s really about balancing not wanting to lose the sale versus the pain of managing multiple payment streams,” he said.
Finding the right payment mix
Payment preferences vary by industry. Digital wallets, credit cards, and cash are more common in retail, while check and Automated Clearing House are used most often in the service industry. “You want to invest time and resources into those payment options that your customers want the most,” Talbott said.
Shopping around for providers
The payment space is highly competitive. Talbott suggests talking to multiple payment providers to get the best deal based on your business. Some providers specialize in servicing small merchants or specific industries, potentially offering lower fees or better service integration.
Leveraging instant payments
Albers emphasized that newer technologies like QR code-enabled payments could reduce costs, improve security, and accelerate cash flow. “Future use cases like paying with a QR code are expected to play a key role by enabling seamless and secure payments and have the potential to help reduce friction at checkout,” he said.
By investing in efficient, customer-friendly payment systems, small businesses can close the checkout gap and transform payment friction into cash flow.
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