Paid partnership with FreedomPay
New research from FreedomPay and DynaTrace, in partnership with Retail Economics, shows that UK retail, hospitality and leisure businesses are losing up to £1.6 billion in potential sales annually due to payment system failures.
It’s a staggering amount.
From extreme weather and power failures to cyber-attacks and system outages, disruption is becoming the norm. To help merchants navigate this complexity, FreedomPay and DynaTrace hosted a breakfast roundtable in Westminster this week. Here’s what I learned.
Six minutes or bust
First up, we heard from Richard Lim, CEO of Retail Economics, who talked us through the research. Most consumers will only tolerate up to six minutes of payment disruption, Lim said, with 22 minutes being the absolute limit. The average outage, however, lasts 84 minutes.
Lim noted that, perhaps unsurprisingly, younger consumers were even less patient, expecting retailers to resolve outages almost immediately. This intolerance is exacerbated by the fact that younger consumers are less likely to have cash is in their wallets: just 19% of Gen Z and Millennials say they always carry cash with them, compared with nearly half of Baby Boomers. No cash safety net means abandoned purchases.
Time is money
Lim therefore stressed the urgency for retailers to be able to restore payment systems as quickly as possible. In fact, doing so within the first ten minutes can mitigate over 80% of the potential financial impact.
However, the research showed that one in five retail and hospitality businesses still lack a secure digital backup for when systems fail. And they do fail: on average, businesses report five major outages a year and the majority (61%) of those disruptions occur during peak trading period, when the cost of failure is greatest.
Digital dependency and erosion of trust
Lim also noted how higher-income consumers are disproportionately impacted by payment disruptions, given their reliance on digital payments and more frequent visits to retail and hospitality venues. When these outages occur, it’s not just about mitigating the financial impact but also ensuring that consumer trust remains intact.
“It’s really about three things,” Lim said. “Firstly, speed. You need to resolve things as quickly as possible. Secondly, redundancy. You need to take a multi-layered approach. And thirdly, trust. Every payment failure is potentially damaging to the brand.”
Societal impact and customer comms
Allison Hutchinson CBE, Chief Executive of Pennies, highlighted the societal impact of these outages. Retailers can’t accept charitable donations when their systems are down, and staff must contend with disgruntled customers which can unfortunately lead to abuse in some cases.
Everyone agreed that keeping the customer in the loop was critical during these incidents, as we’ve witnessed with M&S, Co-op, and Harrods navigating the recent spate of cyber-attacks. It’s also critical that retailers clearly communicate any contingency plans to customers. For example, if contactless payments are down, can retailers still accept chip and pin? How else might shoppers be able to complete the transaction?
One of the merchants in the room – a major high street brand – noted how during a power outage, they would give away refrigerated food to customers. They couldn’t avoid the financial loss, but they could at least reduce food waste, keep their customers happy and avoid any reputational damage.
Improving payment resilience
It’s clear that disruption is not going away any time soon, so how can retailers improve their payment resilience in today’s uncertain world? As a start, retailers must invest in integrated systems that provide redundancy, failover capabilities, and real-time monitoring.
The room was optimistic about the impact of AI here, with faster detection and speedier response times. However, as one of the participants reminded us, “As much as we’re using AI, so are the hackers.”
Partial preparedness is no longer enough.
Check back in for my conversation with Richard Lim – coming to the podcast next week.