Facing the new retail payments reality
By Raja Ray, Director, Products and Solutions, Verifone
Contrary to popular belief, we Brits don’t much like queuing; we’re increasingly less likely to go to the shops, especially when the traffic or weather is bad; and we don’t like banks that much either, not since the last recession (though we do still seem to kind of trust them). What we do like is change; we were the first country in the world to use the ATM; the first to adopt chip and PIN and then tap and pay; the first with mobile wallets. We have also embraced the payments revolution.
For the first time in 2016, cash and coins accounted for less than half of all transactions in the UK, according to the Money Advice Service. All retailers will know that the face of shopping is changing. It has never been an industry to stand still, but the challenge now is the pace of change. It is dizzying.
We don’t like shopping; we love it!
Brits continue to spend more money on goods than ever before. What’s changing is the way we’re shopping and buying. Figures from the UK Card Associationin April 2017 show that UK households make more online purchases than any other country in the world. Almost everybody is buying more online; people are buying on phones, they’re buying on tablets, they’re buying in-store on phones, they’re buying at retailers on Amazon while they’re in stores. For a retailer, that’s pretty challenging.
It means that offers in the online store must be the same as the physical store; the loyalty rewards the same. And crucially, staff in the real-world store need to know what the customers have been looking at, and their preferences, from the online world as soon as they open the shop door. But this change does come with an advantage for the retailer - data.
Data has become the new marketing currency. Every online digital interaction - a keystroke - allows the retailer to build a profile of the customers’ needs and wants. It also shows them when customers spend, what they spend and how they spend their money. In bricks and mortar stores, secure use of a payment card allows identification of individual customers, and insight into their spending habits.
Before, when retailers handed out physical rewards, such as stamp cards, they had no idea what their customers did with them. Now, they can measure and respond to individuals, providing loyalty schemes that are married to consumer preferences. For savvy retailers who have the tools to tap into these new opportunities, it’s a marketer's dream.
The risk vs reward
While consumers may drive change, it is tech companies that enable it. A whole raft of new apps have delivered innovative ways of making and taking payments. No longer are we tied to the retailer’s till or have to join a queue to pay for goods and services. In fact, we don’t need banks or payment providers at all; friends are turning to peer-to-peer networking to split restaurants and taxi bills. Convenience store Amazon Go, which launched this year, is checkout free. Taxi provider Uber takes mobile phone payments upfront prior to receiving the service.
But retailers won’t change the way they take payments on a whim. They need to keep overheads low so it also needs to make economic sense for them. In many ways, this is why card payments have proved to be so popular; many of the changes take place between the retailer and the merchant with no direct impact to the customer. With the introduction of Apple Pay, for instance, the switch-over was automatic with zero up-front cost to the shop owner.
Additionally, there is the crucial matter of security. None of the new payment methods are acceptable if they are not secure. As we’ve seen from recent high profile breaches that have hit the headlines, technology providers who prioritise innovation over security do so at their own, and their customer’s own, risk.
The good thing to note is that data compromises at the PoS are not common. Even with high profile breaches, while it is possible to access consumer data such as addresses and emails, it is generally much harder for fraudsters to get hold of encrypted card data. That’s good news for retailers and consumers because without the trust that payments are failsafe, nobody will use it.
Rules and regulations
Regulations will also make the payment environment easier. The Second Payment Services Directive (PSD2), introduced in January 2018, will ‘level the playing field’ by sharing data more widely with non-banking sector providers. PSD2 should be a catalyst to the introduction of innovative products and services – from peer-to-peer payment platforms through to futuristic biometric-enabled payment methods. A bigger market with more choice is a good thing for firms that are able to adapt quickly to the new payment methods.
Biometrics has had several false dawns; we have long been promised iris, fingerprint or facial recognition systems. It has never really matched its potential in the real world. Although Apple is using fingerprint recognition to unlock its mobile devices, we are some way off trusting biometrics alone to make payments without some form of additional authentication.
Ubiquity and scale
Security is just one of the preconditions for a successful new payment system. With that comes ubiquity; people have to trust payment systems across borders, currencies and devices. Finally, there is scale – only by reaching and gaining acceptance amongst a mass audience will it be possible to claim success for a new payment system.
It’s an exciting time for retailers and payment providers alike. Rarely has our industry changed so much and so quickly. But only retailers that are capable of taking advantage of consumer trends, technological advances – and guess correctly the way the wind is going to blow – will ultimately reap the benefits they will bring.