The payments revolution
How will you be paying?”
It’s a question shoppers at the check-out have been asked for decades, and the options used to be pretty straightforward: cash, credit or debit. Now, with the emergence of digital technologies, the once-sleepy payments sector is bursting with activity. There’s a vast array of new ways to pay for goods—from mobile wallets to social media networks—and keeping on top of the trends is imperative for retailers.
“Payments matter now,” says Justin Ferrabee, chief operating officer of Payments Canada, a non- profit organization that owns and operates Canada’s payment clearing and settlement infrastructure. “They didn’t really matter for a very long time. Although we had improvements with debit cards and credit cards ... payments didn’t really change. In addition, payments weren’t thought about as part of the experience of shopping—it was just something you had to do and it was fine. And that’s starting to change.”
Like almost every other trend driving change in retail, it’s all about convenience. “The innovation that’s happening in payments is the drive towards convenience, to make payments easier, and to reduce the friction ... And digitization is enabling things to change,” explains Ferrabee.
Echoing those sentiments, Andrew McFarlane, managing director at Accenture’s Canadian financial services practice, says two overarching trends are the “experience economy” and the growing use of mobile. “The customer experience is changing completely now to being a model where
On the mobile front, McFarlane points to the extraordinary growth of mobile payments in China. In the more tech-advanced coastal cities in China, he says, up to 90% of consumer payments are now mobile based. “The large Chinese payment processors and other businesses offering solutions will continue to grow and look to expand their reach globally,” says McFarlane. “Therefore, I think the use of mobile as a form of payment will continue to evolve. It will definitely be the main disruptor within the payments space going forward.”
WILL CANADIANS EMBRACE NEW PAYMENT OPTIONS?
Research shows consumers have a big appetite for new payment methods. Recent Payments Canada surveys, conducted by Leger Marketing, found that 55% of Canadians are willing to give up cash and coins; 43% are interested in invisible checkout payments such as those offered by Amazon Go; and 33% are interested in payments via social networking apps such as Alipay and WeChat Pay, which are popular in China. One in six Canadians has uploaded an e-wallet app and 70% who had downloaded a mobile app reported making at least one purchase with their mobile devices.
The survey also found that businesses stand to lose out if they don’t integrate faster, more convenient payment technologies. More than half of respondents (53%) said they had abandoned a purchase either in store or online because of “friction” at checkout, which Payments Canada defines as anything that slows down a payment.
On the flip side, companies that have been embracing customer-facing technology, including mobile-first initiatives and payments, have reported revenue growth and profit margin increases above 5% for the past three years, according to PwC Canada. “So, it’s clearly paying off,” says Anita McOuat, national leader – technology, media & telecom (TMT) & consumer markets at PwC Canada. For retailers, “it’s about giving the customer options to pay the way they want to pay,” she says.
Payment processor Moneris saw a 32% increase in contactless transactions (which includes “tap” cards and mobile wallets) in Q2, and 40% of the overall transactions it processes are now contactless. “Our research shows 55% of Canadians prefer contactless because it’s quicker and consumers know it is a safe transaction,” says Patrick Diab, vice-president, product and client solutions at Moneris. “With the younger demographic, between 18 and 34, that number jumps to 67%. That’s a generation that wants a quick checkout using tap and go. Whether that tap is happening with a card, a watch or a phone, it’s becoming more and more popular.”
PAYMENT TECHNOLOGIES GROCERS NEED TO KNOW ABOUT
Mobile wallet
A mobile wallet allows users to store their credit or debit card information in digital form through an app on their mobile devices. To accept mobile wallets such as Apple Pay and Google Pay, retailers’ POS terminals need to be contactless and NFC-enabled (which stands for “near field communication,” referring to a technology where devices in close proximity to each other can communicate).
Mobile wallets have been slow to catch on in Canada, but the global trend points towards growth. A new study from U.K.-based Juniper Research estimates the global number of “mobile contactless” users will exceed 760 million by 2020, up from an estimated 440 million in 2018. Growth over the next five years will continue to be dominated by the major “OEM players:” Apple Pay, Samsung Pay and Google Pay, according to the research firm. It forecasts that OEM pay systems (meaning systems coming from the “original equipment manufacturer” as opposed to a third-party app) will reach 450 million users globally by 2020, with Apple Pay accounting for half of all users globally.
Taking a page from mobile payments leader Starbucks, retailers in the grocery space are creating their own digital wallets made available exclusively to their customers. In 2016, Walmart rolled out Walmart Pay—available through the Walmart app—at all of its U.S. stores. And late last year, Target introduced its “Wallet” in the Target app.
By using retail apps, shoppers are given added value with additional in-app features. With Starbucks, for example, “you can see your points balance and you can be rewarded for your loyalty,” says McFarlane. “So that’s really personalizing the user experience. And the payment is just moving to the background ... You don’t even think about having to have cash to make the payment.”
Social platforms and QR codes
In China, cash is no longer king: the majority of consumers use digital platforms that combine social media and commerce. WeChat Pay, which has 800 million monthly active users, is a mobile payment option incorporated into WeChat, a messaging and social media network. Alibaba Group’s Alipay, which has more than 500 million active users, added a social networking function in 2016.
For Canadian retailers, accepting WeChat Pay and Alipay can be a way to tap the spending power of Chinese tourists and international students. For example, earlier this year, Toronto-area ethnic grocer Galleria Supermarket began accepting the two payment methods at all five of its Toronto-area stores to better serve its growing Chinese customer base.
“Mobile payment definitely provides better service and convenience for our customers,” says Chris Yu, marketing and merchandising manager at Galleria Supermarket and a 2018 Star Women winner. “Chinese customers are familiar with WeChat Pay and Alipay, so they feel more invited when they shop in our stores, and feel we care about Chinese customers.”
For Moneris’s Diab, what’s notable about these two platforms is their use of QR code technology, which means merchants don’t need hardware such as a card or chip reader. “It’s a very secure method of payment and the cool factor about it is any device that has an internet connection can display a QR code—you don’t need NFC technology,” says Diab. “My opinion is that QR code payments are here to stay. And in the future, we’re going to see more and more of these QR payments.”
Invisible checkout
The debut of the Amazon Go store in Seattle earlier this year opened the retail industry’s eyes to the concept of the “invisible” checkout. At Amazon Go, there are no checkout lanes or cashiers: customers launch the app as they enter the store, pick up their items and simply walk out the door. Sensors and cameras keep track of it all, and purchases are automatically charged to the shopper’s Amazon account as they leave the store.
PwC’s McOuat says Amazon Go is a potential “major disruptor” in grocery. “We haven’t seen it widely rolled out, but I think all grocers are aware the technology exists and Amazon has it, and so they’re thinking about how they’re going to respond.”
Payments Canada’s Ferrabee says while it’s early days for Amazon Go and it’s still imperfect in many ways, “Amazon is a perfecting machine and they’re going to get better and better at it ... If I were a grocery retailer, I would be looking at this as one of my top three things to consider, as far as making
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That said, the Amazon Go concept brings up a key challenge for grocery retailers: cost. “The amount of technology investment that’s required to make things like Amazon Go a reality could be prohibitive for retailers,” notes McOuat. “The grocery industry is challenged right now in terms of pressure on margins and pressure in the packaged goods sales category, so in terms of funding that technology, that will be a challenge.”
On the other hand, eliminating the checkout could generate cost savings. “The mobile phone effectively becomes your point-of-sale retail device,” says Accenture's McFarlane. “So your cost from a retail perspective can come down significantly and you can deploy your staff better.”
The key challenge for any company bringing in a new payment technology is safety, says McFarlane. “That’s critical, and it goes without saying that anything they do in future technology has to be as safe and secure as what they’re using today.”
This article appeared in Canadian Grocer's November issue.