23/10/2020 Risk management
Ethan Magnet

Influence of payment method control on the return rate

With rising sales, online shops are now struggling with high return rates. With an average return rate of around 16 per cent, there are more and more customers, especially for selection orders, who consciously plan to return the goods during the purchase process. (ibi Research, 2017) While returns are already part of normality for customers, above all they are one thing for retailers: expensive. In highly competitive online retailing, customer-friendly return processes often represent a decisive competitive factor, especially for first-time orders. It is therefore hardly surprising that a large proportion of retailers voluntarily bear the cost of returns, although they would not necessarily have to. (EHI, 2018) It also becomes particularly cost-intensive if returned goods cannot be resold or only after extensive testing. In addition to damaged original packaging, returned items often have various defects and damages. (Händlerbund, 2016) Depending on the type and extent of the damage, online retailers sometimes accept high discounts.

To master the balancing act between customer orientation and cost optimisation, many companies rely on targeted returns management. However, in order to efficiently master return quotas, it is necessary to start before the actual return. If online retailers want to get to grips with their return management, this starts with the description of the goods. Detailed product descriptions and images ensure that the customer is spared a possible return. In addition, retailers are turning to ever better packaging and thus ensure a high level of product quality assurance before shipping. The integration of customer service is also indispensable in order to ensure cross-channel advice. (ibi Research, 2013) Despite many measures taken by online retailers, returns cannot always be avoided. The associated costs arise along the entire returns processing chain.

A frequently neglected factor here is the checkout process. It has now been proven that the range of payment methods offered can have an impact on the respective return rate. Despite these interactions, however, only a few retailers record the returns per payment method. (ibi Research, 2013) This shows that the correlation between payment method control and returns is not yet sufficiently perceived as a success factor. Depending on the industry, certain payment methods can have a positive or negative impact on potential returns. For example, it is not insignificant that the purchase on account, which is popular with customers, can lead to a tendency towards high returns. If, on the other hand, advance payment is considered, a positive effect can be assumed from the retailer’s point of view. (Asdecker, 2014) Online shops must therefore ask themselves to what extent they can optimise their return rates by using effective payment method management. Depending on industry-specific conditions and customers, retailers would do well to clarify the following aspects for themselves:

  • Which product groups have a high return rate?
  • Is there a discernible correlation between certain payment methods and return-intensive products?
  • Can returns be reduced by offering other payment methods?

Online shops that manage their own payment methods can thus not only manage the financial risk but also contribute to a better return rate. In concrete terms, for retailers this means a reduction in the volume of returns and the optimisation of fulfilment costs – an advantage in online trading that should not be neglected.