October 4, 2016As e-commerce businesses scale, the expertise required to operate successfully begins to expand. From the user experience to logistics, to payment, to fraud prevention, the amount of ground midsize companies need to cover as they grow into large enterprises can get daunting. A growing number of merchants are seeking an all-in-one capability. Stefan Weitz, chief product and strategy officer and general manager of payments and fraud at e-commerce solutions provider Radial, understands the desire merchants have to secure an e-commerce platform that covers all the bases. But, he contends, merchants must make sure the provider they choose can deliver more than just a great looking Website. Weitz, a former executive at Microsoft, recently sat down with CardNotPresent.com for a wide-ranging discussion that touched on the one-stop-shop dilemma many growing merchants face. He also addressed the current state of e-commerce, the challenges of implementing an omnichannel experience, the most important trends in card-not-present fraud and how to compete with Amazon. CardNotPresent.com: How are consumer expectations impacting merchants as they choose an e-commerce provider? What should merchants be looking for? Stefan Weitz: If all retailers are focusing on is the front-end experience, they’re actually risking much of their business to competitors. It’s important, don’t get me wrong, but some merchants devote 80 to 90 percent of their spend for their e-com operation on that piece and neglect the back end, which is about 70 to 80 percent of the total order. The front end is important, obviously, but if you look at what consumers actually expect today, they expect to have perfect package delivery, they expect choice, convenience and control. But, if you take 3 to 5 days to deliver, or don’t offer expedited shipping, or you hold their card too long for an unnecessary fraud check, or you screw up the packaging, or you miss the engraving, or you have a bad return process, all those things can either engender customer loyalty or turn them away to your competitor. And in many cases, that competitor is Amazon. CNP.com: There have been recent studies showing e-commerce growth could be slowing down in the U.S. as the market matures and that merchants are having problems with profitability because of consumer expectations. Are you seeing data that supports that, or not? SW: We’re still seeing double-digit growth in e-com. It’s definitely slower than it was, but things slow down naturally when the numbers get bigger. But you still have pretty high growth rates. At the same time, you have consumers who expect a certain experience—partially due to Amazon, partially due to other factors. And that has led to some retailers struggling. But, those retailers are still seeing great top line growth. What’s killing them is the margin compression that comes from having to deal with 30 vendors to make that growth happen. I talked to one retailer recently, a great quality retailer. They had a front end that looked gorgeous, a couple companies doing logistics, they had a provider for payments and a separate fraud provider as well. Then they had a return provider, and then they had an omnichannel solution provider. These are all different providers. It’s totally rational how it got there. Over time, people want to add capabilities and they bring someone else in. But, each time they cobble together some other vendor, some other product, some other technology, they’re paying a price, whether it’s a physical cash price, a price in efficiency or a price in operational complexity. CNP.com: Is it the same for smaller retailers? SW: If you’re talking below $10 million in sales, you’re not dealing in enough volume to make it crushing at that point. The complexity is in that middle tier. Many of the largest companies are taking the technology in house. But we even see some fairly large retailers that are struggling with things like dealing with shipping companies from multiple distribution points, handling duties, customs, fees and local taxes in thousands of districts. That’s just not in their wheelhouse. Even the big guys who choose to spend money on these complex implementations are struggling. So you can imagine the complexity at the lower end. CNP.com: You mentioned omnichannel in passing. How important is omnichannel to merchants and how much of a challenge is it to implement systems that truly allow for the experiences you say consumers are demanding? SW: It all depends on the merchant. For multi-brand retailers with 500 stores, omnichannel starts to get interesting. For retailers with 3,000+ stores, now you’re talking about a competitive advantage over Amazon. If you have 3,000 distribution points in your network, with inventory at the exterior node level, suddenly you are not only competitive, you are superior to Amazon. So it depends on the customer type. Once you realize you are the right target for an omnichannel experience like that, I don’t know how it couldn’t be critical to your business. If you think today’s customer is going to be happy with default five-day shipping for $7.95, you’re simply misreading the customer base. The beauty of omnichannel is, if you have 800 stores scattered around the top 250 DMAs (editor’s note: designated market area or television markets), suddenly same-day delivery isn’t that far off. Certainly next-day delivery is practically guaranteed. But to do that well, to be able to route the order to the appropriate node, and make sure you don’t deplete stock at the local store, to make sure you’re not allocating to the wrong node so you incur multi-zone shipping costs, to get that determination right is a non-trivial computer science problem. I came from Microsoft where we did a lot of work in this space trying to optimize networks and routing across different types of services. It’s a tough, tough problem. So the thought that a retailer that has so many skills in so many areas can accomplish that with any sort of efficacy is not realistic, nor is it something they would want to or should work on themselves. CNP.com: What are the most important fraud trends you see? SW: The effect of the shift to EMV seems to be even greater than expected. We, along with most industry observers, were estimating around a 60-percent increase in CNP fraud this year. We’re now seeing almost 100-percent increase, which is just staggering. Certainly, you’re also seeing a lot of money being raised by the fraud providers, which is great. Along with a huge uptick in fraud, and an increase in the effectiveness of antifraud technology, another trend is an increase in rejected orders. Order rejects are directly impacting to your top line. It’s not just about stopping the bad guys. It’s making sure the good guys have that frictionless experience. Just yesterday, I was put in a fraud queue on a $350 order at a retailer I have been shopping at since 2001. I have bought a lot of stuff from these guys. I immediately left that retailer and went to another one where I placed the same order for a dollar more and I’ll have it at my house tomorrow. That top line reject rate I don’t think enough retailers understand. If you are turning away good customers, you are really jeopardizing your top line business.