Digital transformation has extended into all aspects of retail space. Consumers acclimated to the on-demand economy have come to expect convenience, reliability, speed, and an expanding array of options, including choices in payment and delivery. These heightened expectations provide both challenges and opportunities for merchants to grow their customer base.
To discuss digital transformation and the role of omni-commerce payments, PaymentsJournal sat down with Benny Tadele, VP Merchant Solutions, ACI and Raymond Pucci, Director, Merchant Services, Mercator Advisory Group.
Driving Forces behind the Digital Transformation of the Retail Space
Digital transformation has been driven by both consumers and retailers. Consumer expectations continue to rise while retailers seek to maximize market share and improve efficiency and operational excellence.
The primary force behind this transformation has been a significant increase in consumer expectations. The consumer has become a hybrid shopper. Pucci uses the word “concierge” to explain that “consumers order and pay when, where, and however they want to. So that’s why merchants really need to be prepared to handle the cross channel shopping behavior of consumers.”
Today’s consumers are accustomed to the convenience and speed of online shopping. Now, they want access to more and faster payment and delivery options wherever they shop. Brick and mortar stores can expedite the checkout process using radio frequency identification (RFID), allowing customers to enter the store, shop, and exit with their purchases without any human or device interaction.
Retailers seeking to maximize market share need to provide omni-commerce opportunities that meet consumer expectations for tailored cross channel shopping experiences. These cross channel buying options comprise over $90 billion in revenue that retailers can no longer ignore. If choices are limited, and a merchant does not provide the options that customers want, then the customers will take their business elsewhere.
The third driver of the transformation has been the opportunity to improve operational efficiency. For example, mobile equipped attendants are more responsive to consumer needs because they are able to spend more time interacting with shoppers and less time behind the counter. In addition, having an enterprise wide inventory system improves inventory management and reduces costs.
COVID-19 Impact on the Transformation of Retail
The pandemic has had a significant impact on the retail market and accelerated the adoption of payments technology. Tadele noted that e-commerce sales at ACI merchant customers rose over 81% year over year from May 2019 to May 2020. In April and May, 90% of QSR sales were at the drive thru window, with many orders coming from a mobile app. Home delivery has also seen a lot of growth. Several national grocery chains that had recently invested heavily in order and pay online platforms as well as delivery fulfillment have seen a sharp rise in online sales.
In the U.S., the adoption of contactless payments was just starting to catch up with other parts of the world. Last year, several major issuers such as American Express, Capital One, Bank of America, Wells Fargo, and Visa initiated a big push on contactless issuance. At the same time, there has been increased merchant demand for enablement.
Now, “the pandemic has served as sort of a catalyst with consumers and merchants accelerating that adoption process of the contactless card usage to make healthy payment experience a reality,” said Tadele. Consumers can make purchases online then pick up merchandise with a brief in-store visit or curbside pick-up, eliminating the need for interaction with other customers or retail personnel.
“The next level could be actually detecting that the car has arrived in the parking lot by either proximity sensors or geolocation on their phone, notifying the attendant inside the store via their mobile phone to come out and deliver the goods and then accept contactless payments without even lowering your window,” suggested Tadele.
The Digital Transformation in Payments
While COVID-19 will not lead to the demise of cash or brick and mortar retail, it is likely to have a lasting impact on digital payments, especially contactless commerce and installment payment options that provide greater flexibility when finances are tight. Having a wealth of payment options benefits both consumers and merchants by allowing for greater participation in the marketplace.
More and more consumers are wanting to pay on a mobile app. The trend is expected to continue as both consumers and merchants reap the benefits of mobile app transactions, including increased order accuracy as consumers place their own orders and reduced merchant costs related to reconciling cash payments.
Unfortunately, the increase in digital payments has presented new opportunities for fraud, which have not gone unnoticed. People may feel safer making a mobile payment on a low price purchase but, just because the price is low, that doesn’t make it secure . Pucci noted that, “ACI does make good use of the consortium data concept. So, you see so many millions of transactions that you get to know the good guys from the bad guys over time, so that’s a big plus I think.”
Must-Haves for Retailers in the Current Payments Environment
- Contactless commerce
The top priority for retailers should be focusing on contactless commerce with a strong e-commerce and mobile commerce strategy. Health conscious consumers must be able to complete their buying journey while maintaining social distancing. Merchants can address this need by accepting mobile payments and NFC enabled cards and removing signature requirements.
- The ability to meet consumer demand for convenience
Consumers are demanding an unprecedented level of convenience throughout their shopping and payment journeys. This means that merchants must provide a range of payment solutions to meet the varying needs of their customers, such as allowing them to browse an order and pay ahead for home delivery or curbside pick-up or place an order on a mobile app at a QSR drive-through.
- Removing friction
Removing friction requires a strong fraud prevention capability focused on maximizing transaction approval rates. Every false decline is lost revenue. Every bit of friction in the checkout process increases the likelihood that a consumer will abandon the transaction and the potential sale will be lost. Merchants need a fraud management solution that can accurately identify fraudulent transactions and maximize approval rates.
Digital Transformation is Ongoing
Digital transformation is an ongoing process. “The payment landscape will change in ways that we’ve not even imagined,” suggested Tadele, adding that his “advice for retailers is to first be obsessive about what the consumer wants. The consumer must be at the center of this transformation.” Technological innovations should be developed with the customer in mind to improve the consumer experience.
Retailers need to embrace change by viewing technology and innovation as an opportunity for cost reduction and increased revenue rather than a cost center. Retailers need forward-thinking technology partners with strong, flexible, API driven architecture and a proven track record of meeting market demand to help them navigate today’s payment environment and adapt to changes in the future.
The Takeaway
Retailers are experiencing drastic changes as the COVID-19 pandemic accelerates the digital shift. Digital payments are central to the transformation as merchants seek to provide omni-channel payment journeys.
“The clear verdict has been that COVID-19 was a wake-up call for major retailers that investing in digital transformation as a form of business resiliency, with a strong integrated fraud solution, is something that cannot be postponed,” concluded Tadele.
