Why payment-linked discounts are a checkout problem

Dan Surtees is vice president of strategy at XCCommerce, a retail technology company.

A shopper sees an offer for an extra 10% off when paying with a retailer’s credit card. But selecting that card at checkout doesn’t automatically guarantee the discount: The system calculating the price must recognize the payment method and apply the offer before the card is charged. When those systems don’t work together, the shopper may not get the advertised price. As retailers and payment providers use discounts to encourage particular ways of paying, getting that connection right becomes more important.

Retailers often use separate systems to manage online discounts, in-store offers and loyalty rewards. But when a discount depends on how a customer pays, those systems must work with the technology processing the payment to determine the correct price. As card issuers, wallets and buy now, pay later providers compete through these offers, retailers need consistent discount rules across checkout systems. Otherwise, they risk incorrect charges, lost sales and the cost of resolving errors. Retailers and payment providers need to connect discount rules with payment processing so the correct price is calculated before the customer is charged.

A University at Buffalo survey of 2,011 U.S. consumers found that 56% believed pricing errors were more common for sale items than regularly priced goods, while one-quarter reported being overcharged at checkout at least monthly. People are suspicious of how promotions get executed.

It’s as if consumers know just how complex the entire redemption process can be. At their core, promotions sound simple. They’re a price adjustment before any money moves. But these offers are layered. They’re coupons, loyalty rewards or card-linked incentives that change the amount sent for authorization, the tax calculated, the split across tenders and the record finance reconciles later.

As wallets, card issuers and buy now, pay later (BNPL) providers compete through payment-linked offers, promotions are becoming part of payments infrastructure. Getting the price right requires checkout systems to account for both the offer and the payment method before authorization. When those systems disagree, the consequences extend beyond a missed discount to lost sales, reconciliation problems and disputes.

One basket, different totals

Consider a consumer with $150 in a shopping basket, a $10 loyalty reward and a digital coupon for 20% off. Online, the e-commerce engine applies the percentage first, then the reward, for a total of $110. In-store, the POS system doesn’t allow the promotions to stack and only accepts the $10 loyalty reward. The final price jumps to $140.

These transactions are the same — by product, consumer and credit card — but the result is two different authorization amounts. The inconsistencies ultimately translate into lost sales, increased operational costs and declining customer loyalty. In fact, XCCommerce learned from its shopper study on retail promotions that 60% of consumers would abandon a retailer entirely if they encountered inconsistent pricing across channels.

The issue is that many omnichannel retail operations didn’t design their promotions logic to be part of the payment stack. It was inherited: one promotion engine built into a store POS system, another one bolted onto e-commerce, perhaps a third running loyalty and a fourth managing offers funded by a card issuer or wallet partner. Each engine was built at a different time, with its own rules for stacking, rounding, eligibility and qualifying payment methods.

Promotions in the payment stack

The real pressure point that retailers face at checkout is the payment method itself. A store card might earn bonus points, or a BNPL provider might subsidize a discount. Offers like these flip the traditional checkout sequence, in which price is settled first and payment is taken second. The payment method can change the price, and the promotion logic must know the tender before it can calculate the final amount.

Accurate payment requires consistent promotion rules across the systems involved in a transaction. Companies need data across channels running in sync, but it’s also about treating promotions as part of the transaction itself. Here are three principles for getting it right:

• Calculate consistently across channels. Every checkout experience (desktop, mobile app, store, call center) should apply consistent offer logic, so the same basket, offers and payment method produce the same amount for authorization wherever those offers apply.

• Treat promotion data as transaction data. Register each discount at the line-item level and carry it through settlement and reconciliation, so refunds, returns and reporting all work from the same numbers.

• Allow the payment method to inform the price. Build checkout so a tender-based offer is applied in real time, rather than relying on a post-purchase rebate or statement credit to make the shopper whole.

The last mile of payments

Retailers and the payments industry have invested heavily in reimagining checkout around speed, security and flexibility, creating an increasingly frictionless customer experience. That investment loses value if the numbers don’t match and companies operate siloed systems.

Promotion redemption is not a marketing problem that happens to bleed into checkout. It’s a transaction problem, and it deserves the same rigor the payments industry already applies to authorization, settlement and fraud. Getting checkout right requires more than processing payments quickly and securely. Retailers and payment providers must also ensure that every eligible discount is reflected.