One of the recent innovations in retailer payments is the advent of contactless. Contactless is an innovation requiring investment from all stakeholders (issuers, acquirers, retailers and other key stakeholders such as POS terminal manufacturers) and needs to be supported by the whole payments industry. EDC believes this would explain why the development of contactless varies significantly by country.
The low rate of adoption can be explained by two key reasons. Retailers indicated that contactless is expensive (33% of retailers surveyed) and rolling out a high number of contactless-enabled terminals would be costly. However, contactless is gaining some recognition as a third of respondents plan to invest in contactless by 2014, highlighting that contactless is growing, albeit slowly. Contactless can bring significant benefits to retailers. For instance, one large French supermarket group has indicated that the use of contactless has decreased the time to complete a payment and has provided a 15% time saving on the end-to-end checkout process.
Smartphone PaymentsThe increased penetration of smartphones in developed markets creates new opportunities for retailers. 2012 has seen an explosion in the number of mobile wallets or retail services using smartphone features. This includes mobile wallet pilots or launches such as Google wallet, PayPal, ISIS, PassBook, EasyPay or the rollout of V.me by Visa or PayPass Wallet by MasterCard. There will be more announced in 2013/4.
Retailers have also been active in the development of mobile wallets, particularly in the US market, with more than a dozen large retailers, including Walmart and Target, participating in the Merchant Customer Exchange (MCX) initiative. There are also an abundance of mobile apps providing loyalty, retail discounts or added-value services such as SavvyShopper, RedLaser Milo, FidMe or Shopmium (the list is almost endless). The significant increase in the number of smartphone-related initiatives highlights the potential of mobile and it comes as no surprise that 76% of retailers surveyed consider mobile payments either important or very important.
Retailers are expected to combine a range of services using the rich functionality of smartphones and payments to generate additional sales and increase conversion rates. For instance, retailers such as Tesco in South Korea and the UK or Carrefour in France have launched virtual stores projecting images of their products complete with their barcodes (or QR codes), effectively converting urban metro stations or airports into a shopping aisle.
Commuters can scan barcodes using their smartphone app and complete their daily shopping while waiting for the metro. These are examples of new use cases created by the mobility and increased functionality of smartphones.
The future is very likely to see an increase of m-wallet propositions developed by a variety of retailers and suppliers to retailers offering white label solutions. As with the busting of the dotcom bubble, not all m-wallets will survive. Only time will tell. The race to become the first mass-market m-wallet will depend on the value proposition and what is included as part of its offering. Payment alone is not justifiable for the business case and who owns the customer relationship will be key to success.
Before and after the payment Non-payment services before and after the payment can be key to providing relevant and timely information to customers. Store finder, product list, product information and price comparison tools give customers relevant information to plan a purchase. Pre-purchase marketing will increase the likelihood of generating additional sales. ‘Social marketing’, such as push marketing messages, location-based offers and direct interaction with customers creates a new channel of communications using smartphone features (e.g. SMS, in-app messages) and can directly influence shopping behaviour.
Pre-payment services need to be combined with additional services at the time of payment. For instance, retailers would need to provide a seamless integration of payments with loyalty cards or other coupons to ensure that the customer benefits from appropriate and timely discounts. Marketing messages such as “You have just saved EUR 3 or earned additional 30 miles with this purchase” will provide a positive impression and strengthen brand loyalty. This could also be an opportunity to drive repeat sales by providing limited time marketing offers such as Buy another product today and receive an additional 15% discount.
Post-payment services also need to be considered, such as a digital receipt (via an SMS, in-app, or email). PayPal offers the possibility to select another card for a payment made with its wallet, offering the flexibility to customise the choice of payment methods depending on the type or amount of purchase. Other services could be linked to specific purchases: a supermarket could provide recipes based on ingredients purchased, a department store could provide an electronic copy of assembly instructions and warranty for electrical goods, or a do-it-yourself store could provide advice and tips, via a YouTube video, e.g. how to use the latest power tools. Post-purchase services can strengthen brand loyalty and offer additional points-of-interaction. For instance, a mobile app could provide customers with the possibility to be contacted by a call centre at their preferred time to discuss potential issues after a purchase.
Combining services beyond payments will have a stronger impact. The creation of new services (some of which are yet to be defined) will hopefully address specific customer problems and could make a difference in the way customers shop in the future. This highlights that the value proposition of m-commerce needs to include concrete value-added services beyond payment. A better understanding of customer behaviour will be strengthened if retailers have also developed an integrated multichannel strategy. A multichannel and multi-service approach will provide retailers with additional behavioural data and will encourage the smart use of payment information as a valuable tool, helping to improve revenues, engaging customers online, on-the-go or in-store, regardless of their preferred payment method. Retailers can be guilty of bolting on something new that already exists and thinking about integrating it later. ‘Click and collect’ and using social media are two examples of this hit-or-miss approach. There ought to be a clear roadmap and building blocks in the development of a multichannel management solution. For some retailers this will require major cultural and organisational programme of change, from senior executive through to the shop floor.
Social Media One area that retailers have been quick to engage and create a new customer channel is social media. The combination of social media and an integrated multichannel strategy provides retailers with the possibility of creating multichannel communications and improving brand perception. For instance, customers could conduct conversations across multiple channels that can stop and start again over hours or days and in a sustained context. Transactional messages or automatically generated notifications could prove to be beneficial. Beyond the message I bought something on Amazon or I paid for something online through PayPal, notifications can be the starting points of answers or comments and reflect trends in the way customers shop.
As retailers grapple with a difficult economic market and rising costs, the payments piece for any retailer has to be strategic, supported at strategic commitment, covering the issuance (where applicable) of payment methods (e.g. gift cards, m-wallets), payment acceptance and payment processing, all within an integrated multichannel strategy.
EDC has refined its 360° Payments Diagnostic methodology by working with multichannel retailers. A change management process that is designed to build an organizational consensus, encourage the smart use of payment information as a valuable tool, helping reduce operational costs and improve revenues across all sales channels.
The 2013 EDC retailer survey is planned to start in March 2013 and if you are a retailer and would be interested in participating, please do not hesitate to contact mark.beresford@edgardunn.com.
You can find Part 1 of this contribution here.
About Mark Beresford:Mark Beresford has over 20 years consulting experience in the financial services industry and payments sector. At Edgar, Dunn & Company (EDC), he is a Director based in the London office where he supports a variety of payment providers and multichannel retailers based across Europe. Mark’s areas of expertise include Merchant Acquiring, gift cards, prepaid, loyalty, mobile payments and the impact of the various European regulations such as SEPA, e-money Directive (EMD) and the Payment Services Directive (PSD).
Every day we send out a free e-mail with the most important headlines of the last 24 hours.
Subscribe now