A frictionless future

One day, in the not-too-distant future, we’ll look back on the old days when people carried leather wallets and had to fish around for a card to insert in a checkout device, or dig for coins and dollars to pay for things with cash. Advances in technology and digital innovation—along with consumer demand for easier ways to pay—are transforming the payments landscape. For tomorrow’s shoppers, traditional payment methods just won’t cut it.

In fact, more than half of Canadians (52%) doubt whether they’ll need cash to shop in two years’ time, according to the 2018 “Lost in Transaction” study by Paysafe, a payments solution company. The report says contactless was initially the main beneficiary of this trend, but mobile wallets and other alternative payments are quickly gaining ground. In Canada, 33% of retailers without mobile wallet payments want to add this method by the end of 2020, while 30% are interested in adding mobile payment apps over the same time frame. Globally, 83% of consumers agreed mobile wallets are more convenient than cash.

The 2018 “Canadian Payment Methods and Trends” report by Payments Canada contends there is a steady migration away from legacy payment methods such as cash and cheques. “While traditional forms of payment still comprise the majority of Canadian payments, there is fast growth in the number of transactions using newer channels ... including e-wallets, contactless technology and e-commerce portals,” the report states.

As the payments space accelerates its march to the digital future, retailers need to think about how they can evolve their payment solutions to meet the needs of consumers in the future. Payments experts agree that regardless of the technology at play, the name of the game is
“frictionless,” meaning less hassle, more speed and greater ease.

“If I can be a bit tongue in cheek, I will say a great payments experience is a no payments experience,” says Sangeetha Chandru, partner, retail strategy and transformation practice at Deloitte Canada. “To a large extent, the characteristics of an ideal payments experience are around it being completely frictionless or seamless. For example, ride-sharing companies and others have enhanced the concept of invisible payments—you don’t have to touch your wallet, card or phone to transact. That is the best kind of payment experience because it reduces the customers’ barriers to buying.”

Jonathan Magder, Canadian payments lead at Accenture Strategy, also stresses the importance of hassle-free payments. “In the time-starved, on-demand world we live in, consumers are becoming increasingly demanding on retailers for a more frictionless experience—both in-store and online,” he says. “While payment method is not typically top of mind for a consumer, it is still a key moment within the overall shopping experience.” Ignoring it, he adds, could result in a poor customer experience and shopping cart abandonment.

A recent survey on Canadians’ shopping preferences from Interac bears this out. It found that 75% of Canadians have stepped away from an in-store purchase because of a long checkout line, and 52% tend to avoid entering a store if they see there is a long line. In addition, 60% of Canadians said they are less likely to return to a store if they can’t pay the way they want to pay.

“Consumers want to pay more quickly, easily and securely, using the payment method they prefer. If they can’t, they will simply go elsewhere,” says Nader Henin, director of digital payments at Interac. “The survey shows that not only is the payment experience important to consumers, it translates to a stronger importance to retailers as well ... It is clear to us that a bad payments experience could impact a business’s bottom line.”

GET READY FOR THE DIGITAL GENERATION
Paying attention to the payments experience is especially pressing as generation Z comes of age. According to Paysafe’s Q2 2019 consumer research, 40% of Canadian 16 to 24 year olds have used a mobile wallet, which is above the global benchmark of 34%. Gen-Zers also favour the convenience of contactless, with around half (48%) preferring to shop in a store with NFC-enabled contactless payment, compared to chip-and-PIN only.

“Gen-Z is a bellwether of where payments preferences are heading next,” says Daniel Kornitzer, chief business development officer at Paysafe. “The first generation comprised of true digital natives are ready adopters of new payments technologies—from contactless to mobile wallets.”

Most significantly, gen-Z is heralding the shift from e-commerce to m-commerce (mobile commerce), adds Kornitzer. Forty percent of 16- to 24-year-old Canadians prefer to shop online using a mobile device, compared to only 23% of gen-X and just 11% of baby boomers, according to Paysafe research. They’re also more likely than older shoppers to use alternative payment methods. For example, over a quarter (26%) of Canada’s gen-Zers have used an online cash replacement tool versus only 16% of all other generations.

Biometric and cryptocurrency payments are also areas where gen-Z is at the vanguard in terms of uptake and interest, notes Kornitzer. While these payments are far from widespread, 16-to 24-year-old Canadians are interested in experimenting with them, with close to a third (29%) predicting they will make a crypto purchase within a couple of years. “However, despite gen-Z’s tech preferences, it would be a mistake to assume that this generation is dispensing with traditional payment methods completely,” says Kornitzer. “Canada’s oldest payment method—cash—is still used regularly by 78% of gen-Z.”

There’s no denying that cash is on the decline, though. Payments Canada is a non-profit organization that owns and operates Canada’s payment clearing and settlement infrastructure. Its research shows younger consumers are moving away from cash at a higher rate than other Canadians. A recent survey found that a quarter of Canadians between the ages of 18 and 34 have stopped using cash for low-price purchases, compared to 17% of all Canadians. And 70% say they’re willing to move away from cash in favour of other forms of payment, compared to 62% of all Canadians.

Looking at the 18 to 24 gen-Z crowd, 74% say they have paid using contactless in the last week. “We’re also seeing that they’re making online purchases more frequently, using game consoles to make purchases and using virtual currencies more than the average Canadian,” says Viktoria Galociova, economist at Payments Canada. “We can see that gen-Z really wants choice in their payments and they’re quick to adopt payment instruments that are new.”

HOW TO WIN IN THE NEW PAYMENTS WORLD
While younger consumers are driving change, the right payments strategy for grocery retailers is one that offers choice to all customers. “Whether it’s online or in-store, retailers need to provide shoppers with choice so that consumers have the payments method that suits their personal preferences,” says Paysafe’s Kornitzer.

While cash may not be king in the future, Kornitzer thinks retailers should certainly retain traditional payment methods such as cash. “But they should also ensure that their traditional payment capabilities feature the latest technology to offer shoppers a frictionless payment experience that is defined by speed and convenience.”

Accenture Strategy’s Magder notes that a number of retailers continue to expand their self-checkout capabilities with traditional checkout-style kiosks or via mobile device. But with any technology, grocers should consider how it will impact the customer demographics and mindsets they serve. “For example, self-checkout can be a great experience for shoppers wishing to purchase only a few items, but not necessarily for those with a full cart,” he says. “I myself have abandoned a full shopping cart at a grocery store because a particular location favoured self-checkout machines, with only a few cashier-attended lines that were at maximum capacity.”

Offering consumers choice is imperative for the e-commerce space as well. Kornitzer notes that Canadian e-commerce sites tend to offer shoppers a more limited choice of payment methods.

According to Paysafe’s 2018 research, U.S. online merchants offer an average of 4.2 payment methods, while those in Austria offer 4.9, with both exceeding the 3.9 methods available at Canadian online retailers. “However, online Canadian retailers recognize the need to offer more choice,” he says. “Our 2018 research revealed that, on average, merchants want to add two new online payment methods by the end of 2020.”

Of course, transforming a retailer’s payments ecosystem is easier said than done. Interac’s Henin points out that every retailer wants to know the upfront cost to implement the new systems and technology needed to accept the payment option, and the cost for internal employees to support those new payment options. Retailers “don’t want services that impact the bottom line or the efficiencies of their employees.”

While the financial challenge is real, retailers should reframe their thinking and turn this challenge into an opportunity. “Payments is largely regarded as a cost driver ... and they believe this is the cost of doing business,” says Deloitte’s Chandru.“However, payments is one of the data-rich sources of customer information available today. And there is a ton of contextual information retailers can gather about a person around their purchase.”

So, retailers should be asking this question instead: How can I leverage that data to create a more personalized experience that offers customers something that is uniquely differentiated? “I think we have to shift our thinking and the muscle that we are used to,” says Chandru. “Today, the thinking is that payments is about cost. Tomorrow, it needs to be that payments is a strategic enabler.”