A unified customer experience is critical to payments innovation in retail
How do we offer consumers exceptional customer experience in-store?
Retailers globally are competing with online retail environments, and banks and payments processors are trying to keep up with velocity and volume of data, while maintaining security.
Device-savvy consumers have long searched online and scanned comparison sites while in stores, searching for a better deal. As a result, retailers globally are in the difficult position of having to compete with both online and real-world competition. To sell competitively, retailers are focusing on making the shopping experience easier and smarter for consumers and payments are a key aspect of this focus. New e-commerce technologies such as one-click shopping, mobile proximity payments, mobile point-of-sale (mPOS), location-based services, and loyalty technologies help retailers to differentiate from the competition, drive transactions, and deliver a more meaningful customer experience overall.
Front-end developments: The move to omnichannel is driving customer-facing innovation
Retailers can benefit in various ways from the shift toward omnichannel. Although omnichannel technologies, which bring together retail channels in the online, mobile, telephone, and real-world spaces, are not yet widespread, there are signs that retail is moving beyond the online shopping and click-and-collect models. The move to omnichannel is driving POS and retail technology innovation. The in-store, online, and phone payment channels have traditionally been siloed, but are becoming increasingly connected to form more agile and channel-agnostic payment environments.
This move to omnichannel is being fueled by a variety of new payment technologies and services that help to create a better user experience and ultimately drive transactions. Host card emulation (HCE) has opened the flagging NFC mobile payments market and mPOS technology has already been rolled out in stores by larger retailers such as Apple, cutting queue times and creating new ways to pay in store. PayPal has also managed to reduce mobile payment “frictions” for in-store use by providing app payment services powered by Bluetooth – a service that does not require customers to re-enter card details to make a payment on their device. Conversely, consumers can soon expect to buy products online with one click. Google has recently confirmed that it will add a “buy button” to search results and Facebook and Twitter are also trialing direct payment options on their sites. These developments will allow retailers to link retail commerce via social media to real-time events such as fashion weeks.
By offering a unified customer experience through omnichannel strategies, retailers can gain new data streams and a better view of what customers want and how they shop, behave, and even move around when in-store. This in turn can be used to power complex, targeted loyalty programs and location-based services. As a result, retailers can provide a more intelligent service to consumers and ultimately drive sales.
Infrastructure: Single-source platforms and new security measures will minimize infrastructure complications
New retail channels are creating opportunities for increased sales and higher numbers of transactions. However, one of the challenges of payments innovation for merchants lies in offering a “frictionless” payment experience across omnichannel environments while ensuring compatibility with often complex legacy infrastructure.Information collected at the point of sale will galvanize insight around individual buying behaviors, including how long the customer stays in the store and how they move around once inside. However, to capitalize on data-driven marketing opportunities, merchants need to connect their POS systems to their enterprise resource planning (ERP), customer relationship management (CRM), and loyalty systems.
Typically, any system that handles sensitive customer payment details and data is heavily regulated by payment card industry (PCI) standards. However, new point-to-point encryption (P2PE) technology can potentially minimize retailer accountability in this area. Through P2PE, the payment information is encrypted and protected between the POS and the payment processor. This means that the merchant does not need to handle sensitive transaction data, reducing the constraints surrounding PCI compliance. The result for retailers is significant ROI from mPOS and new security technologies.
Compliance pressures aside, retailers are faced with additional challenges in tying complex legacy POS infrastructure to new digital commerce platforms. E-commerce payments will rely on existing structures to operate, meaning that higher-tier merchants will have to tackle complex upgrade-management issues around combining old and new systems to fully support online and offline omnichannel strategies. This is creating demand among retailers for channel-agnostic, agile, wider payments platforms that can incorporate the deployment of and updates for software capable of processing multiple payment types. Single-source providers of retailer platforms such as Shopify and Square enable smaller retailers to create their own omnichannel strategies relatively easily and economically. These strategies can incorporate online and offline payment experiences and enable retailers to accept different payment types across a flexible software environment. In essence, smaller retailers are now able to buy rather than build full omnichannel capabilities.
Security: A seamless customer experience should not outweigh security costs to the retailer
In response to Ovum’s annual ICT Enterprise Insights Survey, retailers rated risk, security, and compliance their number-one priority in 2014–15. The risk – and well-publicized examples – of data breaches means there is significant need to ensure secure transactions through EMV, P2PE, HCE, and tokenization technologies. High regulatory interest in this area, alongside mobile payments growth, increased use of transaction data, and continued skepticism around security issues, will require increased investment to ensure secure transactions and adherence to data privacy regulations.
In 2013 the large US retailer Target suffered a data breach that saw the payment card details, encrypted security codes, names, and addresses of as many as 110 million Target customers hacked. The reputational damage was severe and Target was subjected to a 46% hit on its profits in its fourth fiscal quarter of 2013 and a decline of more than a third for all of 2013. This has led to greater awareness of the need for security in the retail space.
Current pressures to provide a frictionless payments experience have obliged retailers to strike a difficult balance between convenience and security. In many instances the costs associated with migrating to higher-security technologies such as EMV are generally greater than the cost of fraud losses, causing further challenges to this balance. According to recent research by Ovum, 30% of consumers affected by fraud will either transact to a lesser degree with the product or switch providers altogether. Merchants and payment providers must instill confidence in their services – a loss of trust in new payment or merchant services can quickly spiral into bigger problems.