The Impacts of digital commerce on retail omnichannel loyalty · experience across channels. In short, merchants should aim to provide a brand experience centered around demonstrated

The Impacts of Digital Commerce on Retail Loyalty

VERIFI ARTICLE

— 2 —

The Impacts of Digital Commerce on Retail LoyaltyThe nature of digital commerce and the blurring of card-present (CP) and card-not-present (CNP) lines is driving – and changing – consumer loyalty. New technology like Near-Field Communication (NFC) has opened up new sales opportunities for merchants who can harness that data in a meaningful way. This push toward loyalty will force it to evolve from its current state as hard to track and measure and expensive.

While these new opportunities can be lucrative for merchants, they should be cautioned that the exact opposite of loyalty is possible for merchants who take their eye off the ball when it comes to safe, secure transaction processing. Last year’s rash of breaches was a wake up call to merchants to re-evaluate their backed end to ensure that their operations are agile and secure enough to protect data – and, subsequently – brand reputation.

The digital and physical worlds are converging. While Brick-and-mortar stores are not going anywhere, the consumer experience within them is significantly shifting. Rise in smartphone use and mobile wallets has blurred the lines between card-present and card-not-present commerce; consumers can now compare prices or look up reviews or even place online orders on their phones in-store. Consumer attention is highly fragmented, which will usher in the new omni-channel era.

Last year’s rash of breaches was a wake up call to merchants to re-evaluate their back end to ensure that their operations are agile and secure enough to protect data – and, subsequently – brand reputation.

— 3 —

The Future of Omni-Channel: Centered Around People

A total convergence of commerce of physical, digital and social is transforming not only how consumers pay but also how they relate to and interact with brands and their products. Consumers want the easiest, fastest way to get information and pay, which means merchants must provide a totally integrated, seamless and value-added experience for customers. The social aspect of this new convergence is paramount because it is a significant driving force behind consumer loyalty. Payments is very consumer-centric now, so merchants should embrace and create communication strategies that center the business/brand around people – not vice versa. By using data gathered by emerging technologies (think NFC), merchants can provide intelligent communications that add value to and streamline the overall consumer purchasing experience across channels. In short, merchants should aim to provide a brand experience centered around demonstrated consumer behavior.

2000 2013 2020

Global media consumption week 60 hours 75 hours 90 hours

Media consumed digitally 15% 67% 80%

Global mobile penetration 12% 90% 99%

Digital commerce (US$) $286 billion $1.25 trillion $1.90 trillion

The facts about consumer behavior are present in the table above, but how brands choose to respond to those behaviors is still up in the air and there’s an overwhelming need for improvement across the board:

• The majority (87%) of consumers believe brands should work harder to provide a seamless experience1

• Though most companies operate on a fragmented channel-by-channel view, 84% of global retailers indicated they think a consistent customer experience across channels is very important2

• A measly 3% of respondents reported to eMarketer that their company had fully integrated online and offline analytics3

There is an apparent gap in what merchants are providing and what consumers are expecting. That gap may close as more brands take advantage of the benefits of mobile from a commerce perspective as well as from a loyalty perspective.

http://som.yale.edu/sites/default/files/files/Alex%20Craddock_Visa(1).pdf

— 4 —

Smartphone & Mobile Wallet Penetration Critical to the Omnichannel movement

The prevalence of smartphones and the increasing popularity in mobile wallets is bolstering the omni-channel movement: about 5% of smartphones will be used to make an in-store purchase at least once per month globally this year (a 1,000% increase over last year).4 Mobile solidified its place in commerce in Q4 of last year with 25.8% of global online transactions occurring on a mobile device (an 11% increase over the previous quarter).5 Given this traction, NFC and other contactless technologies are forecasted to account for $64 in transaction value in 2017.6

Intersection of Mobile Payments and Loyalty7

The staying power of mobile payments is dependent upon its ease-of-use, low cost and security. Being ubiquitous alone is not enough to make mobile payment stick; they are competing with traditional payment methods that have been proven as cheap, safe and easy to use. Loyalty is an avenue where mobile payments have the opportunity to add value and drive mass adoption.

It appears that the greatest barrier to widespread adoption of mobile is lack of education about the benefits. According to an Accenture study in late 2012, most North American consumers displayed resistance to mobile payments until they experienced the benefits. Additionally, those who had not made a mobile payment cited security, privacy and ease-of-use concerns but were open to reconsider.8

1.59

150

125

100

75

50

25

03.5

8.95

27.47

64

118.01

Annu

al pa

ymen

t tra

nsac

tion

valu

e (in

billi

ons

U.S.

dol

lars)

2013 2014 2015* 2016* 2017* 2018*

— 5 —

Loyalty programs and the use of value-added tools can strongly influence adoption – 60% of consumers who already make mobile payments said they would increase the frequency with which they made them in return for instant coupons.9 Roughly 36% said they would exchange personal information for those types of rewards10 and 46% said they would increase payments for short-term, location-based coupons.11

While this seems like an optimistic outlook for retailers, the fact of the matter is that most loyalty programs are outdated, hard to track and measure, and expensive. There are roughly 21.9 loyalty programs per US household, but less than 50% of those are actually active and at least a third – that’s $16 billion in value – goes unused.12 So, many loyalty programs exist and people are enrolling in them, but lack of education and personalization has left consumers (and their rewards) unfulfilled.

In short, loyalty needs a makeover.

Learning a Loyalty Lesson from Starbucks

Starbucks has mastered both mobile and loyalty in one fell swoop. More than 13 million customers use a Starbucks app each day and the company averages over 7 million mobile transactions in their brick-and-mortar locations weekly – that’s 16% of total tender, which is more than any other brick-and-mortar retailer.13

The company will soon be rolling out its order-ahead feature nationwide, further boosting mobile transactions. With the proprietary integrated technologies of mobile apps, mobile POS capabilities and My Starbucks Rewards (MSR), the order-ahead service plugs in as a complementary service that is set up to have a positive influence on business.

So what is Starbucks doing right with loyalty? How do merchants make loyalty work in the mobile era?

EMBRACE DIGITAL – physical loyalty cards are passé. Many consumers are embracing mobile and those that aren’t have said they could be persuaded to if offered benefits. Partner with mobile rewards apps or services to streamline your loyalty program and match consumer preferences.

PERSONALIZE – Generic offers do not cut it anymore. Consumers want custom offers that meet their shopping habits and add value to their experience. Tailor offers based on purchase history or add offers for special customer centric dates (birthdays, membership anniversaries, etc.).

REWARD MORE THAN A PURCHASE – As evidenced by previous stats, many loyalty programs are abandoned by consumers and one of the leading causes is slow accumulation of points or rewards. By rewarding customers for actions other than purchases (creating an online profile, sharing an offer on Facebook, etc.), you can accelerate customer activity and facilitate participation in loyalty programs. Incentivizing non-purchase actions can get – and keep – customers active in your loyalty program and your brand.

— 6 —

$5,403,644Avg Data Breach Cost in 2013

25% experienced a significant breach

97% of breaches can be avoid

These are starting points for merchants looking to get ahead on loyalty and leverage the mobile momentum to get there. Mobile provides a solid platform for building your loyalty program because of the prevalence of smartphones, their ease-of-use and convenience and thanks to NFC, their security.

Security is the Foundation of Loyalty and Brand Preservation

There’s a real opportunity for growth and increased sales for merchants who can harness the power of mobile/omni-channel and reinvent loyalty. Google says 90% of consumers use multiple screens each day (sequentially and/or simultaneously) to make purchases, among other things.14 But while mobile and omni-channel can be huge contributors to loyalty and increased sales, merchants should be cautioned not to let security slip. This critical piece is paramount to brand reputation and consumer trust.

These security gaps will widen as mobile gains steam and the payments landscape continues to grow and change. Last year illustrated that merchants cannot be lax with security or they put their brand – and current and future profits – at significant risk. While mobility is positioned to be a springboard for increased omni-channel and loyalty efforts, all of that will be for naught if companies do not provide secure transactions from end to end. After all, a strong loyalty program is worth nothing if no one trusts your brand enough to shop with you. Merchants must be agile enough to bridge the ever-changing gap between safe payments and consumer experience.

Security gaps will widen as mobile gains steam and the payments landscape continues to grow and change.

Forrester reports that a quarter of all companies experienced a significant breach in the last year15 and Ponemon says the average cost per data breach in 2013 was $5,403,644.16 Those are scary statistics but the truth is that 97% of breaches can be avoided by simple or intermediate controls.17

— 7 —

Verifi optimizes payment processing so you can provide a secure, frictionless experience to your loyal customers

The blurring lines of CP and CNP commerce look to offer deft merchants increased sales opportunities and a subsequent boost in profits. On the other hand, it also points to widening gaps in security that have the potential of a greater and opposite effect on brand reputation and customer retention.

Bridling the power of omni-channel to develop an effective loyalty program requires an agile platform that can provide deep insights on consumers so you can keep pace with changing economics, prepare for upcoming events and monitor and reduce risks.

Many merchants can benefit from third-party help to optimize their omni-channel and loyalty programs while curbing security gaps and vulnerabilities.

Verifi’s Super Gateway combines Global processing power with comprehensive, end-to-end fraud risk management via Intelligence® Suite, unmatched chargeback prevention of up to 40% with the Cardholder Dispute Resolution Network™ (CDRN) and revenue recovery of up to 50% or more with the white glove support of our Premier Chargeback Representment Solutions. The “Super Gateway” can support your global processing, security ,fraud and risk management and revenue recovery needs via a processor agnostic platform and a worldwide connection.

Verifi’s Super Gateway provides deep analytics with a global view of your business priorities. Our in-depth performance, risk, profitability and chargeback analysis and reporting provides a unified, real-time view of powerful, unique data so you can develop custom strategies to maximize profitability and drive more customer loyalty as well.

— 8 —

For More Information Main Phone: (323) 655-5789 Mon-Fri 8:00 AM – 5:00 PM PST Main Fax: (323) 655-5537 Email Address: [email protected]

Mailing Address: 8391 Beverly Blvd., Box #310, Los Angeles, CA 90048

Conclusion

To maximize digital commerce and create fresh, powerful loyalty programs, merchants need a sophisticated, agile payment processing and fraud prevention platform that can adapt to a changing marketplace. As the industry changes and channels continue to converge, payment processing can get complicated. With insights and with an eye on the future, it doesn’t have to be – for you or your customers.

About Verifi

Verifi, an award-winning provider of end-to-end payment protection and management solutions, was founded in 2005 to help our clients effectively manage the payments challenges they face everyday. Verifi helps merchants safely process payments, combat fraud, prevent and resolve costly chargebacks, as well as increase billings and keep loyal customers. Our best-in-breed solutions and white glove support are trusted by a wide range of industries from emerging companies to the Fortune 500. Headquartered in Los Angeles, California, we process more than $20 billion transactions annually and currently serve more than 5500 accounts internationally.

— 9 —

Citations

1 https://www.pingidentity.com/en/resources/infographics/security-in-an-omnichannel-world.html



4 http://www.cbc.ca/news/technology/mobile-payments-tipping-point-comes-in-2015-deloitte-predicts-1.2898942

5 http://www.mobilepaymentstoday.com/news/report-mobile-accounts-for-25-percent-of-online-transactions-in-q4-2014/

6 http://www.statista.com/statistics/244475/proximity-mobile-payment-transaction-value-in-the-united-states/

7 http://www.pymnts.com/assets/Uploads/pdf/Leveraging-Consumer-Loyalty-to-Drive-Mobile-Payments-Adoption.pdf






13 http://www.mobilepaymentstoday.com/news/loyalty-and-caffeine-continues-to-drive-starbucks-mobile-success/





Documents

The Impacts of digital commerce on retail omnichannel loyalty · experience across channels. In short, merchants should aim to provide a brand experience centered around demonstrated