As customers demand choice in payments, do retailers that ignore self-service, contactless payment and a host of online transaction options risk losing sales? Alison Clements reports.

Chip and PIN was expensive to implement but was worth the teething trouble

Cash was king, then plastic ruled, now mobile money beckons. Retailers need to provide the means for customers to pay in a multitude of ways in the next few years. “What customers want is changing so quickly and we know our branches need to support that,” says Waitrose retail services director Graham Heald.

Like many retailers, Waitrose is embracing new payment technology as quickly as it can. The retailer offers self-service payment in 57 stores and is rolling out to many more. Following a successful trial in three shops Waitrose plans to introduce contactless payments across all branches in the second half of this year.

“Enabling our customers to swipe their payment card to pay for transactions up to the value of £15 will give our customers more choice about how they pay for their shopping,” says Heald.  The supermarket also already allows customers to pay using hand-held scanners in some stores.

“Our shoppers increasingly expect us to have the latest technology and we’ve found that contactless payment has the benefit of speeding up transaction times, minimising queues and ultimately improving the overall customer experience,” says Heald.

First contact

Contactless card terminals are a hot topic and Waitrose is the first UK grocery retailer to offer the service. Kitchenware retailer Lakeland has also announced its intention to roll it out this year. Fast food operators Eat and Yo! Sushi were early adopters, and things should step up this year with the London 2012 Olympics promising to be ‘contactless’ and allowing transactions of up to £20.

Currently, contactless payment can only be used for transactions under £15, which puts some retailers off. “Until contactless technology can identify the user conveniently it will be confined to acceptable risk transaction values,” says Mike Bielinski, chief executive of Vodat International, which delivers managed payment networks to retailers. “The value is being increased to £20 this year – just in time for the Olympics – but after that I’m not convinced contactless forms of payments for higher value transactions are any more convenient than cards, once you introduce the proof of ownership requirement.” He adds that the current accreditation rules for contactless make it difficult for any but the biggest retailers to implement quickly. Customers need educating too, and Waitrose is busy looking at ways to inform customers about the technology and how to use it. Heald says the chain’s chip and PIN hardware is approaching the end of its life anyway, making it “not hugely costly” to roll out contactless scanners.

But while it takes some work, the benefits are certainly there – offering payment choice gives staff the flexibility they need to deal with queues, reduces staff costs, and means customers can move through checkouts more quickly.

Multichannel effect

Store retailing isn’t the only area where things are developing fast – online, the payment options multiply daily. There is a big movement to help customers who can’t or won’t use cards – for instance you can offer online cash payments through Ukash and are considering a cash-on-delivery service.

But facilitating m-commerce is the biggest preoccupation. Services from providers such as PayPal, Skrill 1-Tap, Checkout by Amazon and Google Wallet are just some those available on mobile devices.

The UK mobile payments market is expected to be worth £2.5bn by 2016, and as much as £19bn to the UK economy in 2021 says Gabriel Hopkins, head of ecommerce products at payment provider WorldPay. 

But consumers can be frustrated by the length of the transaction process when buying via their mobile, and by the amount of information they are required to provide the retailer. “What we know is the consumer appetite is there – merchants just need to put in place technology that makes m-commerce as easy as consumers expect,” Hopkins says.

PayPal UK managing director Carl Scheible says multichannel shopping opportunities are leading to higher expectations. “People want to purchase products and services 24/7, and delivering that requires a reshaping of payment choices,” says Scheible.

A blurring of the physical store and the online world, with people using in-store point-of-sale iPads or wanting to order at home and collect in-store, means payment options must support these choices. Online payment options can be used in store if Wi-Fi is provided – Pizza Express, for instance, allows diners to pay their bill on their mobile phones using the restaurant chain’s mobile app and facilitated by its Wi-Fi.

There’s lots to take in, but investment in near-field communication technology and new hardware will be unavoidable for many. Scheible says there is likely to be a cost, and so far it’s unclear who will bear this – retailers, banks or payment schemes. “So the business model must prove itself,” says Scheible. “Services offered must be cost-effective and deliver the benefits expected – namely increased traffic at the point of sale, faster checkout, higher conversion rates and incremental sales growth.” Such change has happened before – retailers paid plenty for the introduction of chip and PIN and it has been a financial pain worth enduring.

Ultimately, the drive towards offering more choice is occurring because consumers demand it – and those retailers listening to what customers want will reap the benefits.

When Wallets Go Digital

When will digital wallets go mainstream? A report from PayPal predicts that 2016 will be the year when UK shoppers will be able to use their mobile phones to pay for goods on the high street with digital money rather than cash, cheques or cards.

Cash will not have disappeared, but customers will use their phones and other devices, rather than their wallets, to pay in-store as well as online, the report says. 

Today 45 million Britons use a mobile phone and 49% of mobile buyers surveyed by Forrester Consulting use their mobile phones to purchase products at least once every three months. PayPal UK managing director Carl Scheible says: “We’ll see a huge change over the next few years in the way we shop and pay for things. By 2016, you’ll be able to leave your wallet at home and use your mobile. Our vision of money is to enable you to pay for something from wherever you are, whatever device you’re on – a PC, phone, tablet, internet-connected TV, games console and a whole lot more.”

The new ‘cashless generation’ will expect nothing less, he says. As well as paying for goods without having to queue, shoppers will be able to carry digital loyalty cards, promotional offers and receipts on their phones – keeping everything in one place, and creating a virtual shopping hub. Digital vouchers will be sent to mobiles, perhaps based on the store the customer is in, and payment made through a mobile application.

Source: PayPal’s Money: The Digital Tipping Point report, published in November 2011, conducted by Forrester Consulting.