Uncertainty about the future of payments is hampering the adoption of new technologies. Retailers prefer a wait-and-see approach, amid concerns about costs and regulations. Sara Perria identifies the key issues that stakeholders have to address to overcome the impasse.
Retailers have many concerns when it comes to payments technology. The uncertainty around what solution will become most widespread in the near future often leads them to postpone any implementation decision.
The case of NFC is a clear example: why invest a considerable amount of money in contactless payments if it is not clear yet whether it will ever take off?
Compliance to regulation standards is also a concern for many, as retailers seem to fail to understand thoroughly what PCI DSS is all about.
As the need to manage all these different issues grows, retailers are demanding simple integrated solutions to easily manage all different payments channels.
A survey by Retail Systems Research (RSR) takes a closer look at merchants’ strategy, trying to identify the most successful path.
The Benchmark Study, published in March 2013 and presented during London’s Retail Business Technology Expo 2013, has surveyed 98 merchants globally.
The research was conducted online between December 2012 and January 2013, obtaining 58% of responses from the US, 16% from Europe, 10% from Asia Pacific and 7% from Canada .
To analyse the data, RSR has divided retailers into two categories: ‘Retail winners’ are those with year-on-year "comparable sales improvements". Assuming an industry average sales growth of 5%, for example, those with sales above this threshold are defined as ‘winners’. Those at this sales growth rate are named ‘average’ and those below this rate are defined as ‘laggards’ or ‘alsorans’.
Winners represented 51% of respondents. A quarter of respondents posted less than $50m, 32% just below $1bn and the remaining posted revenue over $1bn.
The long haul The first conclusion drawn by RSR is that retailers expect mobile and digital payments to skyrocket in the next three years. However, they don’t trust their traditional payment partners as the most fit to lead them through this change.
They expect instead consumer focused technology companies to take charge.The reason is that they are convinced that consumers will dictate how payments will be presented in the future and not retailers or traditional payments.
The smallest retailers (less than $250m in revenue) expect to feel the greatestimpact from mobile and digital payments. They expect the shift will be driven by a decrease in cash as the primary form of payment.
The largest retailers (over $1bn in revenue) expect to reduce credit cards as their primary form of payment.
Mobile is expected to increase (from 3% to 11% in 3 years). At the same time, the largest retailers expect debit cards to pick up the credit card drop. 31% already consider them as the primary form of payment, and another 39% expect it to become such in 3 years.
This outlook could result in dangerous stalemate. On the one hand, retailers are concerned about rising processing fees and 40% of them say they will not take any decision until some solution to this problem is presented to them.
At the same time, "uncertainty about the technical future of payments" is considered a relevant obstacle to developing a long-term payments strategy, even for the most successful businesses.
Consumers at the helmThe report also states that a winning approach is to focus on what the customer wants, and then to worry about "everything else".
The consumer-at-the centre strategy, though, doesn’t necessarily translates into a higher degree of awareness with respect to payments.
Largest organisations are described as "the main believers of a dedicated Customer Experience". However, the payment strategy is not considered a relevant element of this experience.
In other words, it does not translate into budgeted plans for the future. This is a direct result of much of the uncertainty that retailers feel about the future direction that payments will take, the study says. Reticence to invest includes mobile, despite much talking-about.
After assessing the feelings of retailers with respect to their payment strategy, RSR lists a series of "recommendations".
The first one is not to abandon a proactive approach, and take the initiative. Even in an environment that contains a lot of uncertainty there is still scope for retailers to drive consumers’ behaviour, instead of waiting to see what the big players of the payments industry will do.
Examples such as that of Starbucks and Square, prove that, while consumers will most likely have the most say in the success of future payment innovations, retailers should have at least as much ability to influence consumer acceptance as anyone else can.
In order to be successful, retailers need to focus on first consolidating their own internal payment mechanisms. This means focusing on a high level of payments integration, so that they can take whatever form of payment comes at them from whichever channel a consumer happens to be in.
Consumer technology companies may have the advantage when it comes to gaining consumer acceptance of payment innovations, but the incumbents still play a crucial role.
As always, retailers need to be aware of any impact to security and consumer privacy, and in part with that, they should make sure that they are getting the right people involved – not just from a tactics standpoint, but from a strategic perspective. Paying is part of the customer experience, and should be treated that way, RSR insists.
The winning strategyA closer look at the strategies adopted by the so-called ‘winners’ can provide with an understanding of the best strategy to adopt.
To begin with, winners appear to have been on a relentless drive to reduce their exposure to the most expensive transactions – credit cards.
According to the research, most successful business are less reliant on credit cards today – having shifted purchases more towards debit cards than peers (35% of them see credit cards as their primary form of payment today vs. 54% of peers; 28% of winners expect it to be their primary form of payment in 3 years vs. 46% of peers).
The real question, though, is this: do winners pursue this goal as a cost containment tactic? Or as a customer experience strategy?
The answer is both. They consider every interaction a piece of the "customer’s journey", and payments is no exception. But if they can save some money and introduce some efficiencies while they are at it – so much the better. Their peers might state the same goals, but their actions reflect a completely different priority.
Looking inside the responses to the challenges mentioned yields some interesting differences of opinion. For example, winners are far less concerned about escalating transaction costs than other retailers (36% vs. 50%), and big retailers are far more concerned about security risks than mid-sized and smaller retailers – probably a reflection that the sheer volume of their transactions makes them a potential rich target for fraudsters. But "uncertainty about the technical future of payments" trumps all.
Significantly, another "opportunity" highlighted by RSR is that average and under-performing retailers are much more concerned about "shifting customers to lower cost payment methods" than winners. Winners are less concerned about costs, and more concerned about the customer. RSR has found throughout virtually all of its studies that a winning behaviour is to focus first and foremost on the customer, and then to worry about "everything else".