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3 Companies Making Payments as Easy as ABC

By Matthew Cochrane – Oct 18, 2017 at 7:46PM

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These companies stand to make a fortune from taking the friction out of the checkout process.

Cart abandonment is the term used to refer to online shoppers adding items to their virtual shopping cart and then leaving the site without finalizing the purchase. This has become a huge problem for retailers. According to Listrak, a digital marketing and technical advisory company, today's cart abandonment rate is as high as 77%. In other words, for every 100 potential customers visiting a site, 77 leave before finalizing their purchase.

There are many reasons for this high rate of abandonment. Sometimes a person might receive an important text or email containing a hilarious cat video before making their purchase, ultimately distracting them from what they were doing. Other times, the checkout process is so long and arduous that a potential customer loses interest or doesn't have time to complete the transaction. The risk to retailers is that there's no guarantee these customers will return to complete the purchase. Sure, some might eventually come back, but we all know that one cat video often leads to a cute baby video which, in turn, can lead to a mildly funny meme and, well, once you're checking your Facebook feed, forget about it. The moment is gone, never to return.

Several companies have worked on this problem, and three have offered solutions that appear to be working in the real world. Given these companies' ability to leverage technology to take the pain and friction out of payment processing, it's little wonder that all three have crushed the market the last two years. Let's take a closer look at what PayPal Holdings Inc (PYPL -2.87%), Shopify Inc (SHOP -2.31%), and Domino's Pizza, Inc. (DPZ 0.20%) are doing to create a world with a seamless checkout experience and why this matters to investors.

Someone holding a smartphone displaying PayPal's app's homepage.

TPayPal's One Touch makes it easy for customers to shop online and on their smartphone. Image source: PayPal.

PayPal's One Touch drives mobile commerce growth

The phenomenal success of PayPal's One Touch is nothing new. In 2016, comScore released a study that showed PayPal's One Touch converts 87.5% of online sales while the closest competing platform converted just 51% of online sales. One Touch keeps you logged in to PayPal so it's easier to check out when you're ready to buy on a participating site.

The conversion difference is staggering and explains One Touch's rapid expansion: It is now offered by 5.5 million merchants and used by 60 million of PayPal's 200 million account holders. PayPal's management has largely credited One Touch with driving the company's stellar mobile commerce growth. In the second quarter, PayPal processed approximately $36 billion in mobile payment volume, a 50% increase year over year.

PayPal's One Touch allows PayPal account holders to opt-in on different devices, like smartphones, tablets, or PCs. Once a device is part of the program, users never have to enter their log-in credentials again. Every time account holders purchase a product or service on a website that accepts PayPal as a payment option, they click once and PayPal takes care of the rest of the checkout. The consumer doesn't have to enter a name, billing or delivery address, credit card number, or any other piece of personal information. Simple!

Shopify's checkout-less vision

Shopify provides small and medium-sized online businesses with a cloud-based commerce platform. As such, it has devoted lots of time to the cart abandonment problem.

One interesting solution it has implemented is Shopify Pay, a platform that asks customers after completing a purchase from a Shopify vendor if they would like Shopify to save their information. If users agree, the next time they make a purchase from a Shopify-powered merchant, they merely have to enter their email address and a six-digit verification code sent via text.

But Shopify CEO Tobias Lutke hopes the checkout experience gets even better than this as new solutions are found. In the company's second-quarter conference call, he said:

We think checkout is an anachronism, and we want to get rid of it. And we are looking for ways to do this now and get into this future quicker and that's Shopify Pay. And maybe in the long-term, that ends up being the dominant perfect solution for this, depending on how high we can climb this particular mountain. ... [But] the truth is we might be happily turning it off in 2 years.

Shopify has clearly seen much success with this model. When the company reported its second-quarter results, total revenue had risen to $151.7 million, an incredible 75% year-over-year increase. Monthly recurring revenue, another key metric for the company, came in at $23.7 million, a 64% increase year over year. 

Order a pizza from "Anyware"

Smartwatch? Check. Connected home device? Check. Preferred social media platform? Check. Connected car? Check. Emoji? Check. Texting "pizza"? Check. Smart TV? Check. Those are just some of the ways Domino's pizza enables its customers to order their favorite pies. Of course, customers can still call their nearest location and order pizza over the phone, but why do that when tweeting pizza emojis is so much more fun and quicker?

Domino's "Anyware" program allows any customer with a saved "pizza profile" to order from virtually any device or platform. The profile saves customers' names, addresses, payment information, and favorite meals for future reference and convenience.

Domino's digital innovation also includes industry-leading apps. The company's primary app allows for voice commands and a popular "one click" feature that allows customers to order their favorite meals with just one press of a button. And if that sounds like too much work, you can download Domino's Zero Click app for a truly effortless experience. Once the app is opened, a 10-second timer begins. When time expires, the customer's favorite meal is automatically ordered.

This attention to customer convenience has paid off handsomely for Domino's investors. In the past three years, the company's stock price has risen more than 130%. This incredible growth has been driven by the business's great fundamentals. While most restaurants have struggled as of late, in Domino's most recently reported quarter, diluted EPS was up 22.9% and global retail sales were up 14.5% year over year. 

A Foolish takeaway

E-commerce and mobile commerce are not going away anytime soon and should experience years of explosive growth. Therefore, companies that can offer these solutions to cart abandonment will be in high demand for a long time. In the cases of PayPal, Shopify, and Domino's, they have already proven to their customers that their solutions work. Given the above, don't be surprised if investors in these companies continue to see market-beating returns in the years ahead.

Matthew Cochrane owns shares of FB and PYPL. The Motley Fool owns shares of and recommends FB, PYPL, and SHOP. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Domino's Pizza Stock Quote
Domino's Pizza
$383.06 (0.20%) $0.77
Shopify Stock Quote
$37.15 (-2.31%) $0.88
PayPal Holdings Stock Quote
PayPal Holdings
$77.64 (-2.87%) $-2.29

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