REPORTS. The role of payments in the customer experience. How top retailers are navigating a changing payments landscape.

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1 In association with The role of payments in the customer experience How top retailers are navigating a changing payments landscape

2 Amazon Go raises important questions about where payments fit into the customer experience hierarchy and the extent to which new technologies have the potential to completely transform accepted modes of paying for goods 2 May 2017

3 In association with introduction W hen Amazon released its Amazon Go video last autumn, many experts thought they had seen the future of retail. Oh my god! was the reaction of one US retail executive as the video showed customers walking into Amazon s Seattle convenience store, picking up their groceries and walking straight back out again. No queues. No tills. No hassle. By using CCTV footage and sensors to track items customers have taken off the shelves, linked to a mobile app that shoppers download and scan on arrival, Amazon Go represents the cutting edge of new payment technologies. For many retailers, this type of approach is a long way off. It does, however, raise important questions about where payments fit into the customer experience hierarchy and the extent to which new technologies have the potential to completely transform accepted modes of paying for goods. Through in-depth interviews with senior executives from retailers spanning the US, UK, French and German markets, Retail Week and ACI Worldwide seek to answer three key questions in this exclusive digital briefing:» Where do payments fit into the wider customer experience proposition?» What will be the payment technologies of the future?» How are retailers consolidating payment systems in order to provide a seamless customer experience across multiple channels and geographies? May

4 CHAPTER one SEAMLESS SHOPPER JOURNEYS 4 May 2017

5 In association with Retailers need payment platforms that are reliable, scalable and secure. But they also need to deliver speed and flexibility through multiple connections and endpoints. Don t settle for anything else Mike Braatz, ACI Worldwide Customer experience is the new mantra of many retail businesses. With customers shopping fluidly across multiple channels, the challenge is to make the experience including the payments experience as seamless as possible while maintaining an emotional connection with shoppers. Personalisation, through tailored offers and services, is identified as a particular focus for retailers in 2017, with better use of data in understanding the customer topping the list of priorities for many retailers surveyed for this study. Retailers are also increasingly on the lookout for technology that helps to deliver an improved customer experience, either in-store or online, not least at the point of sale. Indeed, insights from our interviewees suggest that payment has moved from a largely functional process, which has to be endured by the shopper rather than enjoyed, to a vital part of a winning customer experience. According to senior vice-president at ACI Worldwide Mike Braatz: We would encourage retailers to consider customer experience as everything from a consumer s first exposure to the brand all the way through to purchase completion and receipt The customer experience in terms of payments is all about faster checkouts, secure checkouts and timely settlement of the transactions Senior manager at a leading US retailer of goods. If payments is seen as part of that continuum, then it can become frictionless and enhance the whole experience. One large US department store chain describes its payments strategy as trying to make it so easy that a customer has no excuse not to complete the transaction, regardless of the channel they are in. Retailers are increasingly seeing payment systems and choices as a point of difference in a competitive and crowded marketplace. But offering the latest high-tech payment system is only an advantage if the basics are done well. The base is a must-have, says a board-level executive of a multinational home improvement retailer. If you cannot deliver fast credit possibility, loyalty and security, the customer will not be interested in something more modern or mobile. SPEED, convenience and security When quizzed on what their customers seek from the payment experience, retailers unanimously cite speed, convenience and security as the leading factors. For us, the customer experience in terms of payments is all about faster checkouts, secure checkouts and timely settlement of the transactions, says a senior manager at a leading US retailer. Those are the three things that are crucial to customer satisfaction. Within these must-haves, the focus of individual retailers reflects their specific priorities. One leading French fashion retailer, for example, notes that its main focus is on ensuring that customers can trust the system by making sure no problems occur during the transaction. For this same retailer, choice is sacrificed in order to maintain speed and security and to ensure the stability of the payment system. To be honest, we cannot accept all the payment methods available in the market due to the fact that it gets difficult to implement those solutions on our ERP system, a boardlevel executive says. Others take a different view. To some retailers, delivering a good customer experience means offering all forms of payment across all channels, regardless of cost. If people want to pay by mobile, we need to offer that possibility and after that we think of the costs, says a senior executive at a leading French retailer. Moving forward, retailers agree that their main challenge will be to ensure that the latest payment technologies are able to integrate seamlessly into their existing infrastructure without compromising the effectiveness of the overall system. Only then can payment choices be viewed as a genuine differentiator. The executive in charge of payments strategy at a US retail chain explains: I think our in-store payments experience is a competitive advantage for us over other retailers. I think our point of sale is highly intuitive and fast for the cashier. I don t think we are there for ecommerce as yet, but I think it could be and should be a competitive advantage for us if we do it right. Security versus customer experience for retailers Security is not negotiable 57% Security and customer experience have to be balanced 23% 20% Convenience and customer experience is priority May

6 CHAPTER two CHOOSING THE RIGHT TECH Consumers will gravitate to convenient, fast and frictionless payment methods aligned to the loyalty schemes they care about. New technologies are making it easier for alternative payments to take hold and acceptance of new payment methods is a must for retailers with global aspirations Mike Braatz, ACI Worldwide 6 May 2017

7 In association with While retailers need to keep up with payment innovation to remain relevant, it s important to pick the technologies that suit your business, rather than offering every possibility. Omnichannel means different things to different retailers, but where payments are concerned there is broad agreement that omnichannel is about making sure all your payment options and experiences are the same irrespective of the device or location of the customer. The vast majority of retailers say they are open to working with new technology vendors to achieve this goal, but there has to be a strong business case for implementing anything that is new or innovative. Know your customers payment preferences A number of retailers believe the most important technological innovations deal with questions of security and how to guarantee a customer s digital identity. To really have the comfort that the customer is who they say they are I think that is the key innovation, says a senior executive at a UK supermarket chain. Fingerprint and voice recognition are two identification technologies that are highlighted by interviewees as having positive applications. However, until a new payment technology is first accepted and then demanded by consumers, retailers are unlikely to commit to investment in new products and services. This being the case, knowing your customers payment preferences is becoming increasingly important. I think it is very important for companies to understand payments as far as utilisation Five areas for improving customer payment experience Ensure faster checkouts Provide payment methods that are easy to understand and use Enable a seamless omnichannel experience Facilitate a secure environment to transact Offer a variety of payment methods to meet customer demand Mobile wallets When asked which new payment methods they have added over the past 12 months, one name stands out from all others. Apple Pay has either been adopted or is likely to soon be adopted by the vast majority of interviewees who recognise its relevance, to younger shoppers in particular, as well as the potential to drive incremental sales. One high-end UK retailer explains: What is going to happen with Apple Pay is that, rather than having a very traditional customer journey, you will bring the decision-making about purchase far earlier into the journey. For example, you can drop an Apple Pay payment button on your product detail page and the customer can check out very early. Capturing that spontaneous purchase is going to be absolutely key for retailers going forward. Elsewhere, retailers tend to choose payment systems suited to the local market in which they are operating. A number of retailers have adopted Alipay in China, while systems such as Yandex Money in Russia and across the channels, what the consumer is using and why, says the director at a US-based online retailer. If they can get that information, it helps them make informed business decisions; it helps to make decisions around payment platforms and payment cost budgets. Others cite regulatory constraints as the major barrier to better data collection. We d love to leverage payment data, but given the number of rules and regulations this is a struggle, explains a retail executive, quite candidly. According to Braatz: Often, I think regulation and the limitations it places on the use of payments data is a red herring. Of course, there are limits, but we haven t yet scratched the surface of what can be done, especially in online and mobile channels, to make full use of the data we have. Bringing data together is at the heart of an omnichannel payments platform. A common system across channels with a single data repository enables the holistic view of customers that retailers are looking for. Value in loyalty Numerous retailers, including those that do not currently have one, stress the value that a loyalty scheme can deliver as a way of knowing your customer. The director of a major retailer with operations in both the UK and US says the company s loyalty scheme is an invaluable Multibanco in Portugal are also finding favour. Mobile wallets, in general, are identified as the key new payment option that retailers will need to facilitate in the next two to five years. Wallets are becoming more and more important as they offer a much more convenient and secure method for payments compared with the traditional card methods, says a director at a global sportswear retailer. For those that already offer Apple Pay, Android Pay services are likely to be next on the priority list. Elsewhere, PayPal is mentioned by a number of retailers as a growing payment choice among customers, while Pay By Bank and Shop Runner are cited as more niche services that could become more mainstream in the years ahead. Retailers are also agreed, however, that traditional modes of payment, such as cash, debit and credit cards, will continue to account for the bulk of sales for the foreseeable future. source of information on shopper preferences. We get a lot of data through [the scheme] on what people are buying and how they are buying it. The high value to be found in loyalty data is echoed by an executive at a leading US retailer. We drive three quarters of our revenue from members who we know and have a history with. We understand what they buy, how often they buy, the frequency and the happiness with which they purchase these items. The feedback that they give us offers us a tremendous opportunity to target them and market to them specifically based on their unique needs. For those retailers who aren t yet able to capture detailed shopper data, including on payment preferences, the next best thing is to respond quickly to consumer demand. For the most part, we are a fast follower, says a board-level executive for a US home improvement retailer. We see a trend and we are really fast to react to that. And for slow adopters, there is some solace in the insight shared by a number of retailers that payment options are not yet a leading determinant of where consumers will shop. How long this will remain the case is the million-dollar question. With millennials in particular demanding payment options that fit with their digital lifestyles, retailers are trying to get ahead of the curve by introducing new payment methods that align with changing shopping habits. May

8 CHAPTER three Consolidating systems 8 May 2017

9 In association with We have one platform for online and another for store. However, we are working on building a bridge between payment platforms German hypermarket executive With new payment options emerging all the time and retailers increasingly operating across geographical boundaries, the challenge of consolidating payment systems is large and potentially complex. Our research suggests that the majority of retailers that operate internationally currently have multiple payment platforms designed to suit the local markets in which they operate. Systems also differ between sales channels, reflecting not only different consumer expectations and payment preferences, but also the cost to the business of upgrading and consolidating multiple systems. We have one platform for online and another for store, notes a German hypermarket executive. The technology for store is older and therefore we cannot combine it. However, we are working on building a bridge between payment platforms online and in store. The approach taken by one UK retailer with global operations is typical of the pragmatic approach adopted by many businesses. We operate in many different channels and geographies, so in one country, we would go for one platform for in store, but for omnichannel it might be different. If we re looking at cross-border, we might go for options for each individual market based on the costs, the size of the market and the infrastructure already in place. Single or multiple platforms? For large retailers with complex business models and legacy systems inherited through acquisitions, moving to one single payment platform is often viewed as simply too much of an upheaval. I think multiple platforms is an unfortunate reality that is hard to break, says the former head of business intelligence at a UK supermarket chain. Instead, he suggests that retailers are looking to overlay their different platforms in order to achieve a single view of the customer. Other retailers that currently operate multiple platforms say they are in the process of moving towards a single platform. According to a board-level executive at a US retailer with more than 1,500 stores: We currently have a multiple-platform payments infrastructure, but we are moving towards a single mobile wallet or some type of walletbased platform experience. We are making this shift because, for us, three quarters of our gross revenues come from our loyalty programme members. The fact that we have so much of our business tied to people that we know and who are part of our membership and probably use our app or one of our many apps that go across platforms we just think it is the right thing to do from a user s perspective. A small number of retailers are already on a single payments platform because it makes sense for their particular business. Our organisation is a single entity in that it is present only in the US, says one retailer with upwards of 1,000 stores. I think that having a common environment and common experience for both in store and online is pretty logical. There should not be any thought about it. Why should we invest more to create the same solution on two different platforms? That is not even cost-effective. For others, however, remaining on multiple platforms makes good business sense. As one US clothing retailer puts it, pragmatically: For us, it is working and is not creating a problem from an operations point of view, so why go to the next step? According to Braatz: Consolidation is difficult, but it s critical for retailers who want to make full use of the data available to them to deliver superior customer experience, and to expand into new countries and new markets. A common platform gives you the ability to do that cost-effectively, to innovate once and deploy in multiple locations. In this way, the payments infrastructure enables, rather than limits, growth. Technologies for facilitating seamless omnichannel payments in the future 1 3 Mobile wallets 2 Contactless payments Biometric identification May

10 CHAPTER four 10 May 2017

11 In association with conclusion While retailers are keen to overhaul their payments systems in line with innovation, security and stability are key barriers for many. Technology is changing the face of payments and has the potential to make checking out easier, safer and more convenient. Yet while the majority of retailers express a desire to innovate, they will not do so at the expense of stability and security. Customer trust is too big an issue and fraud too big a risk to be playing fast and loose with new payment technologies and methods of data collection. At the same time, consumer habits are evolving and there is a clear desire among retailers to offer the payment choices shoppers demand in our group, we say customer first, as one retailer puts it. With the right support and the right investment, retailers can deliver a successful payments strategy and deliver the seamless omnichannel experience their customers now expect. Retailing is a tough sector high pressure, highly competitive and changing rapidly. Customer demand is unlikely to ease and security requirements will only increase. Advances in technology will continue to open up new possibilities, for consumers and merchants. In this complex world, we believe the retailers who succeed will be those who stay focused on retailing on merchandising, fulfilment and customer intimacy and make legacy systems, compliance and the need for ongoing payments innovation someone else s problem. Mike Braatz, ACI Worldwide About our partner ACI Worldwide powers electronic payments for more than 5,100 organisations around the world. Through a comprehensive suite of software and SaaS-based solutions, the company enables, secures and protects omnichannel payments for thousands of merchants. To learn more about ACI, please visit aciworldwide.com/omnichannel May

12 In association with RETAIL WEEK CONNECT: The role of payments in the customer experience Head of Commercial Content Operations Laura Heywood Commercial Production Editor Emily Kearns Contributors Rebecca Dyer, Alex Hamilton, Dan Harder Production Manager Jo Lambert Account Director Susan Hickmott