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12/07/2022

What retail payment trends are here to stay?

Contactless is in and cash is out as savvy retailers give shoppers new ways to pay
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Illustration by Gary Neill

Not long ago, paying for goods was just a means to an end – the way customers were able to get their items from their carts and into their trunks. Now, payments are no longer an afterthought. They’re an integral part of the shopping experience, as new options beyond the classic “cash or card” are meeting changing consumer needs. In this new age of payments, grocery retailers can’t afford to get left behind. 

“Adapting the way you run your business and having options for how people can pay is key to both attracting and retaining customers,” says Jon Purther, director of market insights at Payments Canada, a not-for-profit organization that owns and operates Canada’s payment clearing and settlement infrastructure. “If businesses limit their payment options, they’re going to potentially eliminate or put up an obstacle for customers who may have been interested in making a purchase, but because of the payment option just don’t shop there.”

As the payments landscape evolves, the pressure is on retailers to stay on top of new payment options and respond to consumer shifts. “Retailers need to listen to what their customers are asking for and watch what their competitors are doing, and adapt their business accordingly,” says Purther. “Knowing what new technologies are out there and being nimble is important in allowing [retailers] to adapt.”

So, what trends in retail payments should grocers pay close attention to? Here’s a look at what’s here today and here to stay:

No going back from digital payments

During the pandemic, many shoppers discovered the convenience of contactless payments, which kept their hands off potentially germy terminals. The Canadian Payment Methods and Trends 2022 report by Payments Canada found that since the pandemic started, 43% of Canadians tapped their credit card and 42% tapped their debit card when paying at a store. In addition, 43% agreed the pandemic has changed their payment preferences to digital and contactless for the long-term. 

Mobile payments also continued to increase through 2021 (the latest year tracked by Payments Canada). Mobile payment volume and value each grew by 13% from 2020. Since the pandemic started, 45% of Canadians who used their mobile wallet to make store purchases said they were using it more than they used to. “We expect that digital payment options like contactless and mobile payments is absolutely going to continue,” says Purther. “Canadians who tried it and switched over will not be going back.”

Diana Halder, payments leader at EY Canada, says the pandemic was one of two main factors behind the surge of digital payments. “With everything being shut down, we still had to move forward as a society and be able to make purchases,” she says. “And so, we had this move towards digital payments, online payments, mobile payments and even using QR codes to initiate payments,” she says.

The second factor is the rise of fintech and paytech companies, the latter of which focus on payments and transactions. “Paytechs are making apps turnkey for merchants, so they don’t have to spend reams of money,” says Halder. “They create that digital experience, which connects to the payment gateways, with the paytechs basically doing the heavy lifting [for retailers]. So, the pandemic and the paytechs really act as a catalyst to create change in Canada for us to become more digital.”

The (almost) end of cash and cheques

As the use of digital payment methods increases, it comes at the expense of good old-fashioned cash and cheques. According to the Canadian Payment Methods and Trends 2022 report, cash transaction volumes decreased by 62% from 2016. More than half of Canadians (53%) report using cash less often since the start of the pandemic and 31% report using cheques less often. 

With paper payments going the way of the plastic bag, Canada is inching closer to becoming cashless. “Are we moving towards cashless? Absolutely. But we need to be thoughtful about how to do that,” says EY Canada’s Halder.

Halder points to Rogers’ massive service outage this past summer, which left millions of Canadians without internet and wireless services. “That impacted our debit network,” says Halder. “And so, as we move towards digital payments and digital interactions, we need to put in the right controls from a redundancy standpoint so if there is another outage, our systems will continue to run in a seamless manner.”

Payments Canada’s Purther agrees we’re moving toward becoming cashless, albeit slowly. “It won’t be tomorrow that the world will be cashless,” he says. While Payments Canada data shows 50% of consumers believe stores could become completely cashless in the next 10 years, 42% said not being able to use cash to buy goods would make them anxious. “Even if it’s not their primary or preferred payment method, Canadians like knowing they have the option to use cash when need be,” Purther says. “I think for both consumers and businesses, the more payment options the better.”

Loyalty programs and payments become one 

While the days of fumbling around for punch cards and coins are long gone, it’s still a pain point for customers to have to pull out two pieces of plastic – their loyalty card and bank card – or two separate apps. This is the next battleground in the payments space, as loyalty programs can now integrate payments.

“Retailers are rethinking their loyalty programs and payments is becoming a big weapon in terms of how to improve the loyalty offering,” says Marty Weintraub, partner, national retail leader at Deloitte Canada. “By offering a way for a customer’s payment to be connected to their loyalty card, they’re reducing friction and increasing the engagement rate. From a customer perspective, it’s just a cleaner, simpler experience.”

One retail example is loyalty pioneer Starbucks, which gave its members more ways to pay in 2020. Rather than just accept preloaded gift cards as payment, Starbucks Rewards lets members link their credit, debit or select mobile wallet accounts to pay within the app. In the grocery sector, a first-mover is Germany’s Lidl, which launched a mobile payment option inside its Lidl Plus loyalty app in 2020.

Integrating loyalty and payments can potentially have big bottom-line benefits for grocers. In the global 2022 Retail Report by payments firm Adyen and KPMG, 57% of consumers surveyed said they would be more likely to shop with a retailer if the retailer's loyalty program worked automatically through their payment card. As Adyen notes in a blog post on its retail report: “Payment-linked loyalty, especially when sales channels are connected through a unified commerce solution, can help businesses capture richer data insights, understand shopping preferences, assign loyalty points, and better anticipate customers’ needs.”

Ales Novak, a principal director who leads Accenture’s Canadian payments practice, says having a good loyalty program will arguably be the most important differentiator in the coming years. Loyalty programs help attract and retain customers, and they allow retailers to understand their customers better through data, he says. “But more importantly, your loyalty program sets you ahead for what’s to come in the new and next generation of payments.”

Real-time payments becoming a reality 

There may be a lot of exciting tech possibilities with payments, but the reality is, Canada is still a work in progress. “We’re still evolving when it comes to payments when you compare Canada to other markets, such as Asia Pacific, Australia, Saudi Arabia, the United Kingdom and Sweden, which have very sophisticated payments landscapes,” says EY Canada’s Halder. “However, we’re making investments in modernizing our infrastructure, which is foundational. You can’t necessarily provide faster, richer digital payments if you don’t have the foundation in place.”

Those modernization efforts are paving the way for real-time payments that are initiated, cleared and settled in a matter of seconds. As part of a multi-year payments modernization initiative, Payments Canada is building Canada’s first real-time payment system, the Real-Time Rail (RTR), which is expected to go live in 2025. The organization says RTR will support faster, data-rich payments and act as a platform for payment innovation and competition. Canada is one of more than 50 countries that have implemented – or are in the process of implementing – real time payments capabilities. 

For retailers, the benefits include better cash flow management, cost savings through lower transaction fees, and an enhanced customer experience. And it’s not just about the need for speed. “As the money moves, it sends rich data along with it, like what is the purchase, what’s the location, what is [the customer’s] loyalty information,” explains EY Canada’s Halder. This would allow retailers to develop more targeted campaigns and provide tailored product recommendations. “[Real-time payments] allow the average merchant the ability to replicate some of Amazon’s techniques,” explains Halder. “They can compete."

On the cost-savings front, Accenture’s Novak says around the world, real-time payment capabilities are driving innovation and competition. “The availability of these new technologies will drive new, innovative ways of bringing payment to the front end,” he says. “As a result, this will put more pressure on reducing merchant service charges through competitive reasons rather than regulation.”

Biometrics and BNPL on the distant horizon

In the brave new world of payments, biometrics could be the next evolution. In the United States, Amazon is rolling out Amazon One – a contactless payment option that lets customers link their palm print to their payment card – at select Amazon Fresh and Whole Foods Market locations. U.K. grocery chain Tesco is reportedly introducing biometric payment methods, including face and palm recognition, at checkout early next year. And Mastercard introduced a biometric card that combines chip technology with fingerprints to verify cardholders’ identities for in-store purchases. 

In Canada, biometric payments haven’t quite taken off. “It’s just not at scale right now,” says Deloitte’s Weintraub. “[Retailers] had a bit of a pause around innovation over the last couple of years because of the pandemic and a lot of capital was going into just keeping afloat, quite frankly.” But, with the pandemic now behind us, Weintraub says: “I think we’re going to see a reset around retailer innovation approaches, where they start investing and innovating in this space.”

Another new payment method that might take hold is “buy now, pay later” (BNPL), a modern take on the classic layaway model. Through BNPL companies like Afterpay and Affirm, customers can buy products online or in store and pay for them in installments, typically with no interest when payments are made on time. And unlike traditional layaway, consumers can get their goods right away. 

According to the Canadian Payment Methods and Trends 2022, only 8% of Canadian merchants currently offer BNPL, but nearly half (45%) of those not offering it have indicated they are interested in doing so.

“We are seeing big growth in the buy now, pay later model because there are a number of benefits,” says Payments Canada’s Purther. “For the consumer, there is ease and convenience. From the merchant standpoint, they can potentially get customer business or consumer spending they wouldn’t have gotten otherwise.”

While it might be a stretch for customers to put their groceries on a modern-day layaway plan, BNPL could gain traction in the sector. “I think all industries are looking at [BNPL] and considering whether it will work for [their sector],” says Purther. “I can’t comment specifically as to whether the grocery industry will jump on board – we have not measured the grocery industry on that. But I will say this: Absolutely the grocery industry is going to look at this and see whether there is potential. I would not be at all surprised if someone does at least pilot the idea. But no doubt, consideration is going to take place.”

This article was first featured in Canadian Grocer’s November issue.

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