Delayed Payment Options Will Boost Online Conversion but also Return Volumes, says GlobalData

With an increasing number of clothing & footwear retailers offering delayed payment options in an attempt to drive conversion, retailers who offer ‘try before you buy’ options and are well placed to cope with processing returned goods will be most likely to make the service a success, according to GlobalData, a leading data and analytics company.

Retailers including H&M, Finery and Arcadia brands Topshop and Dorothy Perkins now offer a ‘pay later’ online payment option to encourage shoppers to purchase when they might not have the funds readily available. ‘Try before you buy’ payment methods often appear more straightforward as a short term solution compared to traditional credit accounts.

Sofie Wilmott, Retail Analyst at GlobalData, comments: “Delayed payment methods will break down barriers to purchase online and boost average order value, but retailers will be hit with a higher returns rate. Undoubtedly shoppers will purchase more readily, supporting volume growth, but once the realisation of paying for items sets in, a higher proportion of items will be sent back.

“Offering delayed payment options to consumers therefore comes with risk. More items will sit in the warehouse unavailable to be purchased, there is a greater chance of stock being soiled and a higher cost of fulfilling and processing returned goods.”

A recent GlobalData survey revealed that 52% of online shoppers often buy more items than they expect to keep when purchasing online, and ‘pay later’ options will only encourage this shopping mentality. This makes it essential for retailers to test delayed payment options on their own websites to measure the impact on their customers’ shopping behaviour, which will vary considerably based on target demographic and product type.

Wilmott continues: “Returning goods purchased using the delayed payment option will be a more seamless process for shoppers, since the need to wait for refunds is void, but retailers will have a higher volume of items to process and quickly make available for sale once again. This puts additional pressure on an already costly operation, particularly those which rely on outdated systems and fulfilment centres.

“While customer facing initiatives are at the forefront of retailer investment plans in 2017 and 2018, players introducing delayed payment methods must focus on enhancing back-end operations to reduce the time product is spent offline so sales opportunities are not missed.”

About GlobalData

4,000 of the world’s largest companies, including over 70% of FTSE 100 and 60% of Fortune 100 companies, make more timely and better business decisions thanks to GlobalData’s unique data, expert analysis and innovative solutions, all in one platform. GlobalData’s mission is to help our clients decode the future to be more successful and innovative across a range of industries, including the healthcare, consumer, retail, financial, technology and professional services sectors.