“It is vital for merchants to provide a variety of payment methods such as credit cards and local direct debit complemented by mobile payments to cater the needs of each possible end-user. Yet adding a new payment method always presents a risk to merchants. If the new payment method does not work or is unavailable to some users, it ruins the purchasing experience and they might switch to a competing service instead.” write Fortumo in their white paper, How to avoid cannibalization between online payment methods?

The white paper highlights merchant concerns on how, if a new payment method is added, users who are already making purchases simply switch to the other payment method which:

• does not result in additional revenue for the merchant
• moves the merchant’s existing payments into a more expensive fee structure.

Also, the costs of carrying out the development to set up and operate a new billing method is not cheap, e.g. TransCentra estimate that the annual cost of each channel is at least $90K/annum, see.

Cannibalization is a key aspect that merchants need to think about when adding new payment methods, whether it’s pre-paid vouchers, mobile wallets or direct carrier billing. 

Four solutions

The white paper outlines four solutions for merchants to resolve or reduce the impact that cannibalization can have on their business. Fortumo explain that, “These tactics can be used in any market globally as there is no single payment method that covers all end-users in any given country.” Fortumo recommend using:

1. geographical and demographic targeting of payment methods: segmenting out those countries and demographic groups who you know are statistically less likely to have access to your existing payment methods
2. behavioral and service based targeting: study end-user payment behavior over time to see which method they are happy with
3. revenue based targeting: define markets where credit cards are performing well and testing whether alternative or local payment methods can bring a positive impact in revenue
4. device-based targeting: check experience on a mobile device with credit cards and carrier billing to find out which would have an impact.

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CTMfile take: Online merchants have to offer multiple payment system options, using these solutions from Fortumo merchants will be able to choose the most effective combination in for each country and each type of consumer.