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Digital payments are spreading fast. In spite of distrust, fear for privacy and inequality, retailers see digital payments as a way of reaching beyond omnichannel to unified commerce. If the right safeguards are observed, customers will benefit from a better seamless experience and retailers will achieve efficiency across operations. First we need to understand the extent of the revolution occurring in finance and payment systems, then we need to put in place technologies and safeguards to help serve our customers better and more efficiently.

Cash is no longer king

Do we still need cash? According to the US Federal Reserve, cards beat cash as a method of payment in 2018. Covid has seen merchants in many cities around the world refuse cash, calling it unsanitary. Three quarters of adults in Kenya use the mobile wallet service M-Pesa. China’s central bank is minting its own digital currency while even street-food sellers prefer to scan a QR code on mobile apps WePay or Alipay rather than give change.

Economists describe the advantages of a cashless society including lower costs for businesses, new tools to manage economies, limiting tax evasion and fighting money laundering. On the other hand, most Indians still rely on cash in spite of digital Paytm. And critics point to frightening new powers for governments and another sign of widening inequality. There is some resistance due to lack of trust in financial institutions (for example in Japan or Tunisia). Central bankers, on their side, worry about losing control over the supply of money to digital networks.

Whatever the position, it is clear that the movement away from cash towards digital payments is a reality. And the adoption of digital payments does not appear at first glance to be linked only to economic development, size of GDP or even geopolitical location.

According to Riksbank, Sweden is expected to become the first cashless society by 2023. Furthermore, Singapore’s DBS bank claims that their returns on digital customers are 30% higher than those from physical branch customers (AT Kearney, Global Trends 2019-2024).

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Bloomberg, The End of Cash, April, 2020

According to PWC, “by 2030 the number of cashless transactions will be about double to triple the current level, across regions” (PWC, Payments 2025 and beyond). Asia Pacific will clearly dominate the trend followed by Europe, US/Canada, Latin America, and Africa.

The reality of unified retail

Retailers increasingly talk about “unified commerce”, the stage beyond omnichannel. It refers to all channels exchanging product inventory, order and customer data in real time. It offers the opportunity for retailers to create hybrid shopping experiences with the customer at the centre, including click and collect, reserve and collect, click and return, click and go, or click in store, live stream shopping and more. In this context, payment is an experience enabler.

The challenge for retailers attempting to offer an enticing experience to customers by making use of digital and physical channels, is among other things, to integrate the payment experience into a seamless customer journey. For example, in-store shopping with classic contactless payments, through self-checkout terminals, to autonomous stores is transforming the customer experience to something closer to the convenience of app-based e-commerce with no queues, one-click payments etc. In this way, cash is no longer the preferred option, opening the way to further digital payment solutions.

Looking at points of interaction with the customer, Worldline describes next generation payment terminals (PoS) which are android based and deliver a smartphone experience in store. Also, several companies are currently developing Tap-on-Phone software solutions aimed at enabling a simple smartphone to process secure card payments, using the NFC (near field communication) capabilities of the device to read the chip of the contactless card or customer mobile (or even their smart watch). Depending on the technology, the user can enter their PIN on the merchant’s mobile or on their own smartphone. The development of contactless payment because of Covid measures has motivated more people to use their mobile e-wallet (such as Apple Pay, Google Pay, Samsung Pay, Lidlpay, Tescopay,

Paylib Paypal, etc.).

Available methods of payment and acceptance include proximity payments such as NFC, Bluetooth or QR codes. Many retailers are exploring in-store remote payments, blurring the line between online and offline. Account-to-account payments triggered by QR or e-wallets have the advantage of reduced fees. And BNPL (buy now pay later) has been explored.

In terms of payment processing, retailers are looking at API-based unified payment platforms bringing transactions together. This makes it possible to process transactions from online or in-store and even remote transactions made in store such as through a mobile wallet. These platforms can identify a customer wherever they interact without having to manage their identity. The tokenisation solution allows retailers to guard against personal data theft since personal data does not enter the ERP, CRM, legacy applications and e-commerce site.

Account-based payment solutions are also appearing: the user supplies account data instead of payment card data. For the merchant the same insurance mechanisms apply as for payment cards, but they may avoid card-based transaction fees. It also allows direct contact between customer and retailer in case of problems rather than having to go through a scheme and thus reinforces customer loyalty. These ideas are still being developed but Scandinavian countries and the UK appear to be in the lead.

Cryptocurrencies are also under the microscope, although at this stage they are used principally as “local money”. Gift cards bought with cryptomoney and mobile apps are the most popular ways of allowing crypto payments in stores.

A timeline of the adoption of these technologies by retailers is offered below:

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Worldline, In-store Payments Re-imagined, 2021

According to Oliver Wyman, writing in 2019, “unfortunately, most retailers fail to offer a seamless payment experience to their shoppers” and therefore payment is a largely untapped opportunity for retailers to increase revenues and improve profitability (Oliver Wyman, Payments in Retail, 2019). They offer Amazon, Uber and WeChat as examples of good practice. Apart from the obvious opportunity of improving the customer experience, they claim that savings on costs can also be made.

The Blackhawk Network Global Digital Payments study, which surveyed more than 13 000 consumers in nine countries including the US, Canada and the UK, revealed that 63% of respondents are more likely to shop at a retailer if it accepts the digital payments they use. Almost three-quarters (73%) of respondents say they want to be able to pay the same way they pay online and in-store (Chain Store Age, Consumers want digital payment, May 2021).

The Blackhawk Network goes on to say “the biggest winners in the next phase of the payments race will be the ones that are able to strike a balance between providing choices and seamless experiences to the consumers, while making it effortless for retailers. Streamlining the purchasing process for digital and mobile shopping has become a must for retailers”.

Business implications

In spite of the drag on cashless systems due to the distrust of financial institutions, fears about inequality, and privacy, digital payments will continue to grow, some predict at a rate of over 10% a year, underpinned by improvements in digital connectivity, the deployment of technologies such as 5G as well as the cost efficiencies and convenience of cashless transactions.

For businesses, the implications involve:

• New insights from digital payment data. Digital payments provide valuable information on customer behaviour allowing retailers to personalise their offer and services, and indeed anticipate customer needs.
• Strengthen cybersecurity capabilities. The sheer amount of data at risk will grow exponentially. Security breaches will be particularly damaging when social mistrust in technology and institutions is already high.
• Anticipate regulatory pressure. Government efforts to regulate the digital ecosystem are already under way. We should familiarise ourselves with enacted and planned policies affecting current and future operations in order to reduce potential risks.

When handled with care and foresight, digital payments offer retailers the opportunity of truly capitalising on customer data and getting closer to a “unified commerce” model to cope with any customer journey.

Case study of department store updating payment systems: BHG Singapore and Adyen

*BHG Singapore operates several department stores in Singapore since it acquired the Seiyu stores in 2007. It is owned by BHG Beijing.

Adyen is a Dutch payment company that allows businesses to accept e-commerce, mobile, and point-of-sale payments.*

Extracts:

We introduced Michael Hill (a brand) to a payment method called Pay by Link where they can send an SMS link with a hosted payments page to a shopper, then ship the items to the shopper…

Many feel that going online and having an ecommerce channel is enough as a digital transformation. What also matters is having one backend system to connect your multi-channel business.

Take for example, the endless aisle concept, where you can easily access the full inventory across your organisation when you’re at any store. Shoppers will be able to do that at BHG because we will be migrating to a backend system that has a single view of our inventory…

Love, Bonito’s (another brand) point-of-sale (POS) terminals are tied to the online systems through Adyen. When you pay at the cashier, your credit card is automatically recognized and the cashier knows if you’ve used the same card to shop online, so there’s an upsell opportunity…

The more engagement you have through the various channels with your consumers, the more data you have to create loyalty and “stickiness”…

One of the problems omnichannel has is that there are different systems. You need to do a lot of work to make one system talk to another. It created a lot more problems, it was expensive and things got left out. If the data center or the CRM module wasn't connected, you need a lot of work to connect it.

What it has evolved to is a unified commerce approach where you have one system that has all of these capabilities and it makes data transfer very easy for the retailer. Essentially, the purpose of unified commerce, and digital transformation, is to make shopping easy and engaging for the consumer.

(See Adyen blog, January 2021)

Credits: IADS (Dr. Christopher Knee)

References:

Adyen & BHG - Delighting shoppers in a changing retail landscape

AT Kearney Resilience, Replacement, and Renewal

Chain Store Age Study - Consumers want digital payment 

Oliver Wyman - Payments In Retail

PWC Payments 2025 & beyond