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© Edgar, Dunn & Company 2012
Ten trends in retailing in the next ten years and their impact
on consumer payments
A thought leadership paper from Edgar, Dunn & Company supported by ACI Worldwide
December 2012
Ten trends in retailing in the next ten years
Contents
Confidential
Page i
Contents
Introduction ....................................................................................................................... 1
Ten Trends ........................................................................................................................ 2
1 Simplification .............................................................................................................. 2 1.1 Payment transactions will be simplified at the point of interaction .................. 2 1.2 The impact of simplification ............................................................................... 2
2 Alternative Payments .................................................................................................. 3 2.1 The convergence of traditional and alternative payments ................................ 3 2.2 The impact of alternative payments .................................................................. 3
3 Social Commerce ......................................................................................................... 4 3.1 The road to genuine consumer engagement..................................................... 4 3.2 The impact of social commerce ......................................................................... 4
4 Location-Based Services.............................................................................................. 5 4.1 Are we there yet? ............................................................................................... 5 4.2 The impact of location-based services ............................................................... 5
5 Multichannel ............................................................................................................... 6 5.1 A unified approach to customer service ............................................................ 6 5.2 The impact of multichannel ............................................................................... 6
6 Merchant Diversification ............................................................................................. 7 6.1 The price of convenience ................................................................................... 7 6.2 The impact of merchant diversification ............................................................. 7
7 Self Service .................................................................................................................. 7 7.1 Helping customers help themselves .................................................................. 7 7.2 The impact of self service .................................................................................. 8
8 Cashless Payments ...................................................................................................... 8 8.1 The death of cash? Probably not ........................................................................ 8 8.2 The impact of cashless payments ...................................................................... 8
9 m-Commerce ............................................................................................................... 8 9.1 The Point of interaction will be mobile .............................................................. 8 9.2 The impact of m-commerce ............................................................................... 9
10 Loyalty ......................................................................................................................... 9 10.1 Personalising the shopping experience ........................................................... 9 10.2 The impact of loyalty ...................................................................................... 10
Conclusion ........................................................................................................................ 11
ACI response .................................................................................................................... 12
Glossary ............................................................................................................................ 13
About the authors ............................................................................................................ 14
Ten trends in retailing in the next ten years
Introduction
Confidential
Page 1
Introduction
Since the 1960s, traditional retail marketing theory has been based on the four 'pillars',
or ‘The Four Ps’: Product, Price, Place and Promotion. However, taken in isolation,
these pillars are a remnant of a different world – one where the marketers and the
retailers were king. In today's world, the consumer has come to the fore, and retail
strategy must become a consumer-oriented model, rather than a retailer-oriented one.
Edgar, Dunn & Company (EDC) believes that two new factors will move to the
foreground of any successful retail strategy:
Consumer preference – the focus of retail strategy has shifted to satisfying
consumer needs, and retail strategies should be built with the consumer at the
centre: obtain a single customer view through aligning data across sales channels,
optimise payments (both acceptance and process), and create a seamless shopping
experience designed around consumers' preferences.
Technology – over the past few years, rapid consumer adoption of emerging
technologies has facilitated changes in shopping behaviour. From mobile commerce
and self service to social media, both retailers and consumers have had to adapt to
the new ways in which they interact with each other.
Working in concert, these two factors will drive emerging retail trends over the next ten
years. Driven by consumer preferences, technology is facilitating significant changes in
the retail landscape – from enabling new sales channels, driving social interaction and
giving access to new customer analytics, to providing consumers with entirely new
ways to interact and ultimately, transact with a retailer.
EDC has found that successful retailers place the consumer at the centre of their retail
strategy in order to enhance the customer experience and provide greater speed and
convenience of service. A content-rich customer experience has become the norm in
online retailing; EDC expects that this will transcend into the physical retail
environment, creating a future where m-commerce, e-commerce and in store shopping
become a single integrated shopping experience.
This paper presents ten trends that EDC believes will significantly impact the retail
industry over the next ten years and their effects on consumer payments.
Ten trends in retailing in the next ten years
Ten Trends
Confidential
Page 2
Ten Trends
1 Simplification
1.1 Payment transactions will be simplified at the point of interaction
Payment is often viewed as merely the concluding step in the purchasing process, i.e.
the closure of the sale. The payment experience should be at the heart of an integrated
retail strategy. Customer payment preferences have evolved and EDC sees potential for
a major divergence between what a retailer does and what a customer wants from their
payment experience.
EDC's client experience demonstrates that in a complex, multichannel retail
environment the customer’s perception of value is influenced by the perception of
service quality. Customers do care about price, but at the same time there is a rich array
of other considerations that they also take into account. Part of this is that retailers
must better understand the customer's point of view on the payment process,
recognise his/her pain points and identify areas of improvement.
With a growing mix of payment methods to accept, no clear winner can be predicted in
terms of universal adoption. Whether it is customer, mobile network operator, retailer
or card network initiated, the key to success for a retailer will be to remain flexible in
any future investments at the point of sale (POS). Retailers will want a simple and fast
payment process, overhauling the underlying principles of the POS and transforming it
into the point of interaction (POI)1.
EDC has found that retailers are keen on using the POI to simplify the customer
experience, as well as improving cost efficiency. Retailers are also being forced to
mirror this simplification in their back-office operations (e.g. reconciliation and banking
arrangements).
1.2 The impact of simplification
EDC believes the POI will represent a point of convergence for different forms of
payment, such as smartphone initiated payments, electronic couponing, loyalty and
contactless payments. In this environment, mobile POS devices will enable customers
to finalise their purchase, irrespective of where they are in the store. Consumers expect
a quick and easy checkout experience and want to avoid the traditional long lines in
store and the complicated online checkouts associated with a retail shopping
experience.
1 See Glossary
Is your point of interaction optimised for a frictionless customer experience?
The point of interaction represents an opportunity for retailers to simplify both front and back-end payment processes
Ten trends in retailing in the next ten years
Ten Trends
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Page 3
2 Alternative Payments
2.1 The convergence of traditional and alternative payments
There is a huge amount of discussion surrounding the future of 'the way we pay', often
centred on the popularity of alternative payments and if or when they will overtake or
even replace existing dominant payment methods such as cash and cards. However,
both alternative and traditional payment methods have their own distinct advantages:
Alternative payment methods
Cost of transaction– for merchants, the cost involved in a transaction can be lower;
as some alternative payment providers do not levy a fee that is commonly based on
a percentage of the transaction amount; in many cases they also avoid the services
of third-party acquiring banks and the fees associated with them.
Customer convenience– because it typically only requires a unique identifier the
information entered when using alternative payments is often less time-consuming
than that associated with traditional payment methods. Alongside this, the payment
experience will become more integrated as consumers combine payment with other
aspects of their transaction (e.g. a loyalty card).
Traditional payment methods
There are several stakeholders in the card payments value chain (acquirers, issuers,
processors, etc.) that all play important roles in risk management.
Building new, alternative systems takes time, especially from a risk and
governance perspective and many current alternative payment methods lack this
level of oversight, which is often perceived as critical to enforcing security,
adjudicating disputes and assessing liability.
The current card payment acceptance network is unrivalled by existing alternative
payment platforms.
2.2 The impact of alternative payments
Currently, alternative payments exist primarily in the online channel. As alternative
payments gain popularity and become more commonly accepted, EDC expects to see
alternative payment methods at the physical POS, offering consumers increased choice
at checkout. An example of this trend is PayPal's recent entry into payments in store at
the POS, which allows consumers to pay either by using a PayPal Access Card connected
to their account, or, entering their phone number and PIN at the POS terminal.
Are the different forms of payment you accept today appropriate for future consumer needs?
Traditional and alternative payments will co-exist in the same channels
Ten trends in retailing in the next ten years
Ten Trends
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Page 4
3 Social Commerce
3.1 The road to genuine consumer engagement
Social networking is the most popular online activity; more than 82 percent of the
world's online population engage in social networking2. Social commerce has always
existed in the form of individuals making recommendations to friends and family, and
word of mouth is still the most trusted form of advertising – this is directly mirrored in
the digital world. 40 percent of Twitter users regularly search for products or services
(via Twitter) and 77 percent of online shoppers use reviews and ratings before making a
purchase.3
Many retailers are struggling to successfully address social commerce, commonly falling
into the trap of simply recreating their existing web stores on a social platform. Social
commerce does not necessarily have to be through a social network; it starts with the
addition of customer reviews and other user-generated content. In order to take
advantage of this growing trend retailers need to design the experience around the
consumer, taking advantage of all the available tools.
Benefits of social commerce
Sales uplift– social engagement can lead to significant increases in conversion rates,
average order values, and repeat business.
Increase brand engagement and loyalty– social commerce gives consumers greater
opportunity to interact directly with the brand, potentially building natural and
lasting affinity.
3.2 The impact of social commerce
The full impact of social commerce is still to be determined, however, it is likely that we
will see some more immediate implications on consumer payments:
Loyalty– will be key to successful social commerce, and retailers need to take
advantage of the affinity social commerce builds between consumers and brand, as
well as to each other. Loyalty programmes are now being designed that reward
consumers not just for the business they directly bring to the retailer but for their
advocacy of that brand.
m-Commerce – social commerce will drive m-commerce. Smartphone users who
engage in social media through their devices are among the most avid mobile
shoppers.
2 ComScore 3 Juniper Research
Are your consumer touch points integrated into the social commerce channel?
Social commerce has the potential to dramatically increase brand engagement
Ten trends in retailing in the next ten years
Ten Trends
Confidential
Page 5
4 Location-Based Services
4.1 Are we there yet?
In their simplest form location-based services provide the ability to track someone's
exact location, through a mobile device. Although there are several variations on the
technology and process used, from a retailer point of view location-based services allow
retailers to 'find' customers when they are in close proximity to their stores and deliver
targeted marketing messages.
Almost one fifth (19 percent) of the world's mobile users already use location-based
services, with a further 62 percent indicating that they would like to do so in the future.
Users of location-based services are realising that there is something to be gained from
sharing their locations; 12.5 percent already share their location in exchange for special
offers and discounts. A further 21 percent of mobile users say that they find mobile
advertising interesting to them if it offers a deal close to their current location.4
Consumer engagement with location-based services is experiencing impressive growth,
and retailers will turn their attention to the potential benefits of integrating such
services with their marketing strategies, such as:
Drive traffic in store– by providing incentives and helping consumers locate their
nearest store, retailers have an opportunity to drive consumers into stores using
location-based services.
Build customer loyalty– location-based services represent a new point of contact
with which to build brand engagement and present new ways to engage with and
retain key audiences.
4.2 The impact of location-based services
For the most part, location-based services are delivered through a mobile device and
present a clear opportunity to drive uptake in mobile payments. Mobile wallet services
are increasingly being paired with location-based offers, such as the combination of
Google Wallet and Google Offers.
As this trend continues, we will see an increasing number of location-based offers used
in conjunction with mobile wallets and payments. EDC expects that retailers will
combine payments with location-based services and achieved by either as a remote
(cloud-based wallet) technology or through a Near Field Communication (NFC)
proximity technology.
4 TNS Global
Will your business be ready to proactively locate and engage consumers with relevant information?
Location-based services will drive consumers in store
Ten trends in retailing in the next ten years
Ten Trends
Confidential
Page 6
5 Multichannel
5.1 A unified approach to customer service
Developing an integrated multichannel strategy (sometimes referred to as omni-
channel) can be the key to a differentiated shopping experience for customers and lead
to sales growth for retailers. Truly multichannel retailers need to integrate processes,
procedures, customer data and operations across all channels.
Multiple channel strategy vs. integrated multichannel strategy
There is a substantial difference between retailers operating a multiple channel
strategy and those who have an integrated multichannel strategy
Multiple channel strategy is simply a channel mix where each channel operates
independently of the others.
Integrated multichannel strategy has genuine channel integration, which involves a
synergistic combination of channel functions and services, in order to offer
customers convenient cross-channel benefits.
Benefits of an integrated multichannel strategy
A successful integrated multichannel strategy provides improved and actionable
customer information, which if used correctly, improves customer satisfaction and
loyalty and increases sales.
5.2 The impact of multichannel
As this trend continues, retailers should position the customer’s payment experience
and preferences at the centre of an integrated multichannel strategy. This will include
measures such as:
Optimised payment methods – payment methods must satisfy two major criteria: (1)
meet consumer preferences, both with traditional payment methods and newer,
alternative payment methods and (2) reduce the risks and costs to the retailer that
are associated with cash and non-cash forms of payment.
Optimised payments technology– EDC recommends that retailers start thinking
about payment acceptance as something that has the potential to differentiate the
shopping experience.
Customer payment process– the customer payment process is at the heart of an
integrated multichannel strategy and customer experience is key to a smooth
payment process.
Can you identify your multichannel consumers that spend more, influence others and exhibit stronger loyalty?
An integrated multichannel strategy will unify the customer experience
Ten trends in retailing in the next ten years
Ten Trends
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Page 7
6 Merchant Diversification
6.1 The price of convenience
The 'death of the high street' and the 'death of independents' are topics that have been
debated hotly over the past decade. The reasons for any decline are diverse. The
global recession in combination with the increase in out-of-town retail, the growth of
online retailing, the advent of mobile retailing, the speed and sophistication offered by
the major national and international retailers have all conspired to change today's retail
landscape.
The most important lesson to take away from these trends is not the impact it is having
on the high street, but the obvious changes in consumer preferences that are driving
them. Supermarkets, often cited as a major driving force behind this trend, are
diversifying their product offerings and expanding into smaller store formats. They are
delivering highly convenient, needs-based retailing that addresses current consumer
preferences.
EDC expects consumer preferences to continue to evolve in this direction, prioritising
convenience, value and a seamless experience when they shop.
6.2 The impact of merchant diversification
As retailers adapt to evolving consumer preferences emphasis should be placed on
supporting the different payment environments that will facilitate the best consumer
experience. Self service checkout, click and collect, and contactless payments will
become standard practice in many retail outlets and will be supported by huge growth
in both the acceptance and use of mobile payments.
7 Self Service
7.1 Helping customers help themselves
The retail industry is at the forefront of self-service technology, with no shortage of
companies attempting to improve the retail experience and consequently sales through
the implementation of kiosk, tablet and smartphone self-service technologies.
The implementation of self-service at the retail POS is a trend that will soon experience
explosive growth. Although less than 5 percent of POS terminals are currently (2012)
self service, EDC expects self service to account for 20 percent of all POS terminals by
2022. Some stores will operate at rates of 90 to 100 percent self service, allowing them
to redirect staff to improve the consumer experience elsewhere.
Does your retail strategy address the changing landscape of consumer preferences?
What type of checkout do you want your customers to experience?
Ten trends in retailing in the next ten years
Ten Trends
Confidential
Page 8
7.2 The impact of self service
Self service needs to be supported by appropriate payment method acceptance; it is
imperative that all relevant payment methods are accepted at the self-service checkout.
The use and acceptance of contactless payments will be driven by the expansion of self-
service checkouts, which represent an ideal convergence of technology. Contactless is
used primarily for low-value transactions and self service is most often associated with
small baskets. We will see contactless payments become standard for these terminals.
8 Cashless Payments
8.1 The death of cash? Probably not
The way shoppers pay has been constantly evolving, from the rise of transactional
accounts to the advent of the credit card and later the debit card, people today have
more payment options at their disposal than at any other point in history. Throughout
this change cash has remained the dominant payment method, despite the availability
of 'convenient' cashless alternatives, with 90 percent of all payment transactions
worldwide (85 percent in Europe) still being conducted with cash5. In fact, the use of
cash around the world has steadily been increasing at a rate exceeding that of GDP
growth. Cash is currently more popular than ever, and its popularity has been fuelled by
the recent economic downturn experienced worldwide.
8.2 The impact of cashless payments
Cash will remain the dominant payment method, although we will see newer
technologies driven by changing consumer preferences. These will include mobile and
contactless payments, which will facilitate the migration of cash transactions to
electronic transactions, albeit gradually.
9 m-Commerce
9.1 The Point of interaction will be mobile
With the rapid increase of smartphone and tablet penetration, m-commerce is moving
much closer to becoming a mainstream reality.
5 Crane Payment Solutions
Smartphone ‘scan as you shop’ is rapidly winning grocery customers
Can you operate without accepting cash?
Cash will continue to be the dominant method of payment
Does your business payment strategy include mobile?
Ten trends in retailing in the next ten years
Ten Trends
Confidential
Page 9
Smartphone Penetration6
Smartphone penetration is increasing rapidly
in both Europe and the US and is overtaking
that of feature phones for the first time.
In Europe, currently less than four percent of
mobile users are 'buyers', equating to
roughly €4 billion. By 2017 buyers are
expected to be worth €19.2 billion and
represent 30 percent of mobile users7.
EDC expects that NFC will be a driving force in the expansion of mobile payments. By
2016, it is expected that there will be more than 600 million NFC mobile wallet users,
which will facilitate more than $75 billion in mobile payments8.
9.2 The impact of m-commerce
Mobile devices will become the preferred access point to the internet, which will
coincide with a marked shift towards mobile payments being one of, if not the primary,
e-commerce channel. NFC-ready POS terminals will enter mainstream deployment over
the next few years, from 3.9 million in 2011, to more than 40 million by 2017. This will
result in more than 50 percent of all terminals being NFC ready.9
10 Loyalty
10.1 Personalising the shopping experience
In the retail sector, customer transactions (both online and offline), conversations and
intentions can all be brought together by the retailer to improve the customer shopping
experience. This information is collectively referred to as ‘Big Data’.
Big Data is currently making waves in the loyalty world; however, understanding of the
term is inconstant, which is not helped by the vague terminology. Big Data refers to
both structured and unstructured data:
6ComScore; EDC 7 Forrester Research; EDC 8ABI Research 9 Berg Insight
Mobile devices are fast becoming the primary access point to the internet
Can you turn your data into actionable information to enhance the experience for your most valuable customers?
50%
51%
42%
27%
22%
31%
USA
UK
EU5
2010 2012
Ten trends in retailing in the next ten years
Ten Trends
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Page 10
Structured data – refers to data easily captured in existing databases and may
include transaction and conversion rates amongst other statistical indicators.
Unstructured data– this is more fluid, comprising primarily of social media
interactions.
If effectively used Big Data gives retailers the power to improve efficiency and provides
a more responsive and personalised shopping experience.
10.2 The impact of loyalty
The move from paper to digital form factor for loyalty is almost complete, which has led
to a vast increase in the amount of structured and unstructured data being held.
Retailers have the ability to use this data, through loyalty and payments, to engage with
customers as individuals.
Retailers will be able to recognise a valued customer regardless of the payment type.
Combining data collated from both structured and unstructured sources, including
social media, can help deliver a far more personalised shopping experience.
In EDC’s experience unstructured data is currently less of a focus for retailers, who
already face a challenge in making productive use of the amount of structured data they
collect.
Effective use of data gives retailers the power to truly personalise the shopping experience
Ten trends in retailing in the next ten years
Conclusion
Confidential
Page 11
Conclusion
Retail is a constantly evolving marketplace, driven by rapidly changing consumer
preferences. Facilitated by the latest technology, today’s consumers will drive change
in the retail experience as they shop. With instant access to product details, reviews
and recommendations from social media, price-comparison sites and increasingly
competitive options, the balance of power has shifted further towards the consumer.
Retailers are investing in technology to create a seamless shopping experience across
channels, be it online, in store, through a mobile device or through new yet-to-be-
defined channels. Retailers need to take advantage of the wealth of structured and
unstructured data at their fingertips, quickly adapt to emerging trends, and deliver a
seamless shopping experience across all channels.
Providing a positive customer experience is key to a successful retail strategy: a good
customer experience drives purchases and improves retention.
Ten trends in retailing in the next ten years
ACI response
Confidential
Page 12
ACI response
A vital element of good customer experience, and therefore key to successful retailing,
is that the customer feels he/she has been treated as an individual. This psychological
driver underpins both the older generation’s fond memories of grocers who knew their
customers by name, as well as the new generation’s fascination with alternative
payments and the ability to transact when, and where and with whom their individual
preferences lead them.
Even though the payment token has evolved – from magnetic stripe through chip to
contactless – the card itself is giving way to alternative forms of payment, the
fundamental aspects of electronic funds transfer remain unchanged. Availability,
responsiveness, security, integrity, authenticity and traceability all remain critical.
ACI Worldwide's extensive experience in the payments industry translates into future-
proof design and failsafe construction of systems to support new types of payment. ACI
foresees these systems being developed incrementally, sometimes re-using parts of
existing payments infrastructure, sometimes complementing it. In either case, its deep
knowledge of today’s infrastructure stands ACI and its customers in good stead.
Ten trends in retailing in the next ten years
Glossary
Confidential
Page 13
Glossary
Alternative payment methods: Typically designed for the ecommerce environment but
also covers domestic schemes from the perspective of an international merchant (e.g. a
US based airline selling tickets in Germany would want to accept ELV payments,
ElektronischesLastschriftVerfahren).
Contactless card: Contactless payment cards use RFID to facilitate secure payments. No
PIN is required for a contactless card transaction if it is under the agreed threshold,
which varies by country.
NFC payment: Near Field Communication (NFC) is a short-range wireless technology
that enables communication between devices over a distance of less than 10cm. NFC
can be used for card emulation, and although using a different technology to
contactless cards, NFC devices can behave like a contactless card for use in either closed
payment systems or open banking payment systems such Visa, MasterCard or American
Express.
Pointof interaction (POI): The point of interaction represents a point of convergence
for different forms of payments, marketing information and customer service. EDC's
view is that retailers will utilise the POI as a means of interacting with consumers in a
variety of different ways, such as mobile wallets, social media, multimedia (e.g. kiosks)
and loyalty programmes.
Traditional payment methods (paper): This includes cash and cheques, which are
typically only accepted offline, however, there are methods that facilitate the
acceptance of cash online e.g. UKash.
Traditional payment methods (plastic): This includes internationally branded payment
cards e.g. Visa/MasterCard/American Express. From a domestic retailer’s point of view
traditional payment methods would also include domestic card schemes.
Ten trends in retailing in the next ten years
About the authors
Confidential
Page 14
About the authors
Edgar, Dunn& Company (EDC)
Edgar, Dunn & Company is an independent global financial services and payments
consultancy. Founded in 1978, the firm is widely regarded as a trusted advisor to its
clients, providing a full range of strategy consulting services, expertise and market
insight.
From offices in Atlanta, Frankfurt, London, Paris, San Francisco, Singapore and Sydney,
EDC delivers actionable strategies, measurable results and a unique global perspective
for clients in more than 45 countries on six continents.
ACI Worldwide
ACI Worldwide powers electronic payments and banking for more than 1,650 financial
institutions, retailers and processors around the world. ACI software enables $12 trillion
in payments each day, processing transactions for 14 of the leading global retailers, and
24 of the world’s 25 largest banks. Through our integrated suite of software products
and hosted services, we deliver a broad range of solutions for payments processing,
card and merchant management, online banking, mobile, branch and voice banking,
fraud detection, and trade finance.