The Outlook for eCommerce in 2023

  • T.R Newcomb, VP, Strategy and Corporate Development at Riskified  

  • 28.03.2023 06:30 am
  • #eCommerce

Emerging from the challenges of the pandemic, 2022 was meant to be a fresh start for retailers. But the year was marked by rocketing inflation and climbing interest rates. As a result, businesses operated in an environment of economic uncertainty and looming recession. 

This uncertainty combined with the ongoing cost-of-living crisis in the UK severely dented consumer confidence, resulting in 2022 being one of the worst years recorded for ecommerce. The latest figures from the IMRG Online Retail Index show that the value of UK ecommerce fell by a record 10.5% last year compared to 2021, while online sales collapsed in December, falling by 12% year-on-year.  

Now in 2023, online retailers face exceptionally tough circumstances as they attempt to grow their revenue while navigating these challenging economic waters. Here are three other trends that merchants must be aware of in order to best chart a course through these stormy times: 

Rates of policy abuse will climb   

In 2023, online retailers will need to prioritise the battle against policy abuse – or risk losing millions of pounds.  

Policy abuse occurs when customers take advantage of a merchant’s terms and conditions, such as by misusing promotion codes, falsely claiming an item was not delivered, or returning used or worn products. It has become increasingly common, especially as cash-strapped consumers look for ways to save or make extra money amid the cost-of-living crisis. Given the ongoing economic downturn in 2023, it is highly likely that this trend will continue, and consumers will carry on looking for loopholes to abuse in retailers’ policies.  

Preventing policy abuse requires online retailers to balance financial losses with the customer experience. For instance, some retailers may overlook suspected instances of abuse rather than risk losing a loyal customer who has made dozens of legitimate purchases in the past. Retailers need the right tools in place to combat policy abuse, including sophisticated fraud prevention solutions that can analyse data from multiple customer interaction channels to help retailers identify when customers are abusing a policy. 

If retailers fail to adapt to these new risks, policy abuse threatens to cut profits and increase losses throughout 2023.  

PSD2 issues will continue to arise   

After multiple delays, the deadline for full compliance with the EU’s second Payment Services Directive (known as PSD2) finally came into force in March 2022 in the UK.    

Building up to the deadline, the online payment space had been racing to accommodate the regulation’s requirement for strong transaction authentication. Card issuers introduced the new 3D Secure (3DS) 2 protocol to manage both risk and the customer experience during a PSD2-compliant authentication process, with the aim of improving successful approval rates.    

While the deadline for compliance has now passed, PSD2 and specifically, its authentication mandates, will still be in the minds of retailers who want to improve their approvals and transaction UX beyond simply ‘ticking’ the box of compliance. One major change to anticipate will be the launch of new authentication technologies, including delegated authentication for merchants. Qualifying retailers will be permitted to authenticate transactions within their own platforms, aiming to increase revenues by offering a better customer experience, reduce cart abandonment, and achieve higher transaction approval rates.     

However, only larger retailers and enterprises are likely to be able to offer delegated authentication, while smaller and mid-sized merchants will be required to continue using more established solutions. The most effective solution for these smaller retailers to leverage exemptions will be to use Transaction Risk Analysis (TRA). However, the uneven landscape across the EU market regarding the usage and acceptance of exemptions will continue to prove a headache for retailers reliant on TRA. For instance, while card issuers in the UK are broadly aligned on exemptions, issuers in southern Europe are lagging.    

As well as dealing with 3DS-related technical issues and attempting to leverage exemptions, retailers in 2023 must also pay attention to the debate concerning the next version of these regulations: PSD3.    

While PSD3 is likely to be years away, the EU Commission has already opened consultations into revising PSD2, offering industry representatives the chance to take part in this conversation. The scope of PSD3 could be expanded to address emerging trends, include new payment methods such as cryptocurrencies, and prevent new types of fraud.   

Retailers will focus on personalisation to save consumer loyalty 

To make up for the fall in consumer confidence experienced last year, retailers will be doubling their efforts to increase and maintain customer loyalty in 2023. Cementing ongoing loyalty and improving customer lifetime value will be of paramount importance, especially in such a competitive ecommerce environment. 

Key to securing this loyalty is to offer an excellent shopping experience to consumers, so that customers are more likely to return and shop again in the future – and personalisation is the magic ingredient missing from many customer journeys. 

Most retailers have already personalised the early stages of the customer experience, such as by creating customised content or serving customers with more relevant product recommendations based on their previous shopping activity. But many merchants are missing out on compelling opportunities to maximise loyalty and retention by personalising and customising every touchpoint along the shopping experience, especially the later stages of the customer journey.  

A holistic, end-to-end approach to personalisation should include the post-purchase customer experience by offering ongoing customer support and a consumer-friendly process for making return and refund requests. Retailers could even tailor their return policy decisions to block abusers while rewarding loyal customers with greater leniency.   

In 2023, the key to success will be moving away from a one-size-fits all approach to the customer experience. Retailers who can come up with creative ideas, remain consistently agile, and adapt to the changing consumer landscape will be more likely to succeed and achieve long-term growth this year and beyond. 

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