2015 Retailer Survey - Finaledgardunn.com/.../07/2015-Retailer-Survey-Paper.pdf · Payment!trends!intheEuropeanretail!sector! EDC!4th!Annual!Retailer!Survey!–!2016!White!Paper!!

© Edgar, Dunn & Company 2016

Payment trends in the European retail sector

Edgar, Dunn & Company Fourth Annual Retailer

Survey

February 2016


EDC 4th Annual Retailer Survey – 2016 White Paper

Confidential

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Contents

1 Executive summary ......................................................................................................... 1 1.1 Introduction ........................................................................................................ 1 1.2 Methodology ...................................................................................................... 1 1.3 Key findings ......................................................................................................... 2

2 Omni-‐Channel – A Retail Reality ...................................................................................... 3 2.1 From Multi-‐Channel to Omni-‐Channel .............................................................. 4 2.2 Benefits of an omni-‐channel strategy ................................................................ 5 2.3 Facing the Omni-‐Channel Challenge ................................................................. 6

3 Payment mix is at the heart of an omni-‐channel strategy ............................................ 8 3.1 Payments are key to linking different sales channels ...................................... 9 3.2 Striking a balance between convenience and security ................................... 10 3.3 Counting the costs of an omni-‐channel strategy ............................................. 11 3.4 Issuing new payments products ....................................................................... 11 3.5 Contactless has reached a mass market .......................................................... 13

4 Technology is changing retail ....................................................................................... 14 4.1 Deployment of in-‐store kiosks ......................................................................... 15 4.2 Beacons ............................................................................................................. 15 4.3 Mobile Commerce ............................................................................................ 16 4.4 Social Commerce .............................................................................................. 17 4.5 The shape of things to come ............................................................................ 18

5 So where should retailers start? ................................................................................... 19 5.1 Conduct an EDC 360° Payments Diagnostic .................................................... 20 5.2 Develop a payments optimisation plan ........................................................... 20 5.3 Establish a programme of on-‐going monitoring and management ............... 21



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Figures

FIGURE 1: CHANNELS USED BY RESPONDENTS ............................................................................................... 3 FIGURE 2: RETAILERS WHO HAVE STARTED TO DEVELOP THEIR STRATEGIES ........................................................ 5 FIGURE 3: KEY CHALLENGES IN ACCEPTING PAYMENTS .................................................................................... 11 FIGURE 4: WHETHER RETAILERS PLAN TO ACCEPT NEW PAYMENT METHODS IN THE NEXT 2-‐3 YEARS ................... 12 FIGURE 5: WHICH RETAIL TECHNOLOGIES ARE RETAILERS ALREADY TAKING ADVANTAGE OF ................................ 14 FIGURE 6: USE OF ONLINE KIOSKS IN-‐STORE ................................................................................................ 15 FIGURE 7: USE OF IN-‐STORE SOCIAL MEDIA ................................................................................................. 17




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1 Executive summary

1.1 Introduction This is the fourth annual EDC retailer survey and payments continue to be a hot topic for retailers, both online and offline at the point of sale.

Today, consumers expect and demand seamless service across all retail channels, regardless of the challenges this poses the retailer. They expect to be able to shop anywhere, any time and from any location. On top of this, consumer have become adept in searching for the ideal price and expect multiple, flexible ways in which to complete their transaction. Retailers are expected to meet these demands – regardless of the channel and the payment method the consumer is using.

The modern retailer is expected to be able to offer the answer to all these evolving consumer preferences and deliver these seamless customer experiences. Retailers have always adapted to the times, the need for convenience initially drove many retailers online, before that, they used television ads, or attracted consumers via newsprint. Todays environment is no different and retailers will need to utilise every channel at their disposal.

Technology will be a critical tool at the disposal of retailers – whether it be by providing enhanced support to customers, seamless visibility of inventory or delivery of cross-‐channel shopping.

Change in the way consumers pay for goods and services will be fast. Consumers are responding positively to technological innovation and many retailers are finding it challenging to respond to this changing behaviour. It will become meaningless to talk about online and offline as two separate channels. This will have a profound impact on consumer’s lives and habits, with massive implications also on our shopping behaviour, which increasingly depends on having access to smartphone apps.

1.2 Methodology We approached more than 400 contacts across Europe and with a particular focus on the three largest retailing markets (UK, France, and Germany) to complete an online survey in December 2015. The findings described in this paper provide a representative sample of multichannel1 retailers and the opinions of experts within the industry whose jobs depend on the efficient processing of consumer payments in the retail sector.

The objective of this white paper is to gain a better understanding of how payment-‐related changes affect the way multichannel retailers are doing business. It looks at how retailers are creating opportunities to increase sales, enhancing customer service and optimising payments to differentiate their customer proposition. As a result of the

1 Multichannel refers to merchants selling their goods and service across more than one sale channel. Omni-‐channel is described later.

Today consumers expect and demand seamless service across all retail channels




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qualitative interviews from some of Europe's leading retailers, this report offers additional value with in-‐depth analysis and insight.

1.3 Key findings EDC has found some interesting differences of opinions and a shift in the survey results that are indicative of the direction that retailers are moving and focusing their attention in the next few years. The survey findings suggest that many multichannel retailers are continuing to focus on payments to reduce costs, improve customer service and differentiate their service in a highly competitive market. The key findings of this survey can be grouped under the following headings:

¡ Omni-‐channel retail is becoming a reality

¡ The payment mix is at the heart of an integrated omni-‐channel strategy

¡ New technologies are a core component of any successful retailer strategy

This year the survey has shown that retailers are busy integrating new technologies into their front-‐office (i.e. shop floor) and their back-‐office retail strategy in order to create a seamless customer experience. Last year security and PCI compliance was highlighted as a challenge to many retailers.

It is clear that the payments piece for any retailer has to be strategic, supported at board level, cover the issuing of payment methods, payment acceptance and payment processing, and be incorporated into an integrated multichannel strategy.




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2 Omni-‐Channel – A Retail Reality

The retail landscape is changing. In todays market, success relies on connecting to your omni-‐channel shoppers. This means reaching consumers wherever they are, on whatever device or point of interaction they choose to use. People no longer discriminate between mobile and desktop – or between a physical store or digital channel – when they shop. This is changing the relationship between sales channels and driving new realities for retailers.

Our respondents are recognising this need to operate and integrate multiple channels with 98% supporting both physical stores and internet sales channels. Alongside this, there is an increasing trend among retailers towards optimisation of mobile websites with 69% of respondents having already completed this. The mobile app also continues to be an attention grabbing retail technology with retailers using this to complement both their sales and marketing communications.

Figure 1: Channels used by respondents

As digital continues to impact almost every step of the customer journey, retailers who operate both in-‐store and e-‐commerce channels are having to respond. They are changing the way they think about omni-‐channel shoppers and what their evolving shopping behaviour means for the retail business. The most sophisticated of retailers are already re-‐engineering their strategies to enable customers to interact and convert in any channel. There is recognition that shoppers who buy both in-‐store and through digital channels are the most valuable kind of customer. According to a 2015 study carried out by IDC, customers with this kind of shopping profile have a 30% higher lifetime value than those who interact with a single channel2.

2 IDC FutureScape – Worldwide Retail 2015 Predictions – It’s All About Participation Now

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Case Study: Amazon, the Worlds largest online retailer, dipped its toe in the water of brick-‐and-‐mortar stores with the opening of a bookshop in its home city of Seattle in November 2015. There are indications that Amazon may be planning to open as many as 400 physical bookstores in the future.

2.1 From Multi-‐Channel to Omni-‐Channel In a multi-‐channel environment, different retail channels (in-‐store, online, mobile application etc.) are separated, with each individual channel working independently of the others. With consumers increasingly combining different channels during the shopping process, retailers are having to respond with greater integration between channels and convergence towards an omni-‐channel retail environment.

We asked retailers how they would best describe their integrated multichannel retail strategy. The following statements were presented to survey respondents to indicate how they define their strategy:

¡ Developing primarily a marketing strategy

¡ Bringing together both business processes and technology systems

¡ Maximising revenue and loyalty

¡ Consolidating purchasing data into a single customer database

Only 30% of respondents felt that an integrated multichannel retail strategy required all of these fundamental parts. 51% thought that maximising revenue and loyalty should be the priority, whilst only 12% indicated that it should be about bringing together both business processes and technology systems.

Case Study: Oasis, a UK fashion retailer, has gone a long way in combining their physical stores, e-‐commerce site and mobile application into a simple shopping experience.

In-‐store you will find sales staff equipped with iPads able to give shoppers instant and up-‐to-‐date product and stock information. These iPads also function as a cash register, helping alleviate the normally inevitable act of queuing for the counter.

EDC also asked retailers to indicate if they had already begun developing these strategies within their business, and if not, were they planning to do so in the future? 68% of stated that they had already done so or were in the process, while 76% of those who had not, stated that such a strategy was in their pipeline.




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Figure 2: Retailers who have started to develop their strategies

Omni-‐channel puts the consumer at the core of the retail strategy. The goal of an omni-‐channel strategy is delivery of seamless and consistent retail experiences to the customer in order to better engage and convert them. Achieving this comes with both significant benefits and challenges.

EDC Perspective: Retailers are understanding the importance of delivering the enhanced experiences that shoppers demand, however, providing a true omni-‐channel experience will prove a challenge for many

2.2 Benefits of an omni-‐channel strategy While retailers are having to adjust to the evolving consumer, success in delivery a seamless retail experience will undoubtedly deliver benefits, including:

¡ Improved customer experiences

¡ Access to their most valuable customers (omni-‐channel shoppers)

¡ Improved customer information and greater understanding of the customer

¡ Increasing sales

¡ Gaining competitive advantages

Case Study: In November 2015, Asda unveiled a new approach to click & collect, targeting 40m extra visits per year to its stores by 2019. Asda is enabling third-‐party retailers to over their customers the ability to collect or return their online orders through Asda’s 614 stores. Online fashion retailer Missguided is the first to sign up.

We asked our survey respondents to indicate which benefits were considered the most valuable, including some of those above. Survey respondents indicated that providing a competitive advantage (100% high/very high) and accessing new customer segments (60% high/very high) as being very important factors, however they have shifted the factors on which they place the highest relative importance as benefits of an updated retail strategy. Increasing sales has become the most crucial factor, with 100% of

49%

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2013

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respondents rating its importance as high or very high, reflecting the competitive nature of the market and the growing number of new entrants.

Increasing Sales

Retailers who have better visibility of their customer and who provide the experiences shoppers now look for will have a better opportunity to complete a sale. Omni-‐channel shoppers make purchases wherever and whenever they please, providing this convenience to customers substantially increases the buying opportunities they have.

Improved customer experiences

The retail industry is experiencing a huge shift in consumer awareness – the new breed of shoppers is at all times connect, informed and therefore empowered. They expect instant, relevant and up-‐to-‐date information. The traditional multiple channel approach to serving the customer falls apart in the face of these demands. Omni-‐channel strategies given retailers the opportunities to interact with their customers in new and innovative ways and thus address increasingly high consumer expectations.

Understanding the shopper

One of the core benefits of providing an omni-‐channel shopping experience is the ability to learn far more about your consumers. Valuable insights into their lifestyle, preferences and shopping habits can be gleaned throughout the path to purchase. Retailers who are able to track their shoppers across difference channels and understand their behaviour and preferences will be able to deliver a better retail experience. Understanding a target audience and their needs, preferences, expectations and habits will help retailers drive traffic, increase conversions and stimulate growth.

EDC perspective: Through the use of evolving consumer devices and the ease of access to a wealth of information, todays consumer is becoming more complex to understand and retailers should turn this into an advantage through a tailored retail strategy that delivers the personal retail experience that customers now seek.

2.3 Facing the Omni-‐Channel Challenge Developing a long term-‐retail strategy is often viewed as a challenge by many retailers, especially in light of the rapid pace of change experienced in the industry. Customer buying preferences and behaviour are evolving on a constant basis, while the sheer scale of integrating multiple channels, often across different countries and brands becomes very difficult to manage.

In this year’s survey, we asked our retailers to identify some of the key challenges they face while pursuing truly integrated retail strategies. Organisational factors are often blamed for slow progress towards a complete omni-‐channel strategy and remains a challenge for many retailers – this was identified as a top concern for retailers, with 80%




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rating it as either high or very high. In Previous years it has also consistently ranked strongly. CRM and centralisation of customer data was also indicated as an issue, with 80% of retailers rating this as high or very high.

Organisational structure

The retail industry is currently under-‐going unprecedented change and retailers will need to consider and transform their organisational structure in order to truly adapt to the evolving needs of todays’ consumer and offer a truly omni-‐channel retail experience.

Many retailers have historically been organised in silos, with little or inefficient collaboration between channels or across critical functions such us IT and supply chain management. This undermines a retailer’s ability to serve customers seamlessly, across channels. In order to deliver new omni-‐channel strategies and meet the heightened expectations of todays consumers, retailers will have no choice but seek effective integration across both functions

CRM and centralisation of customer data

Traditionally, customer data collection and management is separated by channel, with the consequence being that retailers do not have the capability to track transaction information across multiple channels and link it to a specific customer, and therefore track a customer’s activity and profitability across channels. In direct channels, such as the internet, retailers are able to easily identify and track a specific customer’s shopping behaviour. However, when this same customer interacts with the retailer's store channel, it is difficult for the retailer to link this new interaction with the shoppers’ purchase history on the internet.

This is particularly highlighted with the rapid growth and adoption of ‘click & collect’ services whereby customers buy online and collect in-‐store (or return in-‐store). The agnostic manner in which customers interact with different retail channels has placed a greater emphasis on forming an omni-‐channel strategy.

Data integration

Customer transactions (both online and offline), conversations and intentions can all be brought together by retailers and used to both improve the retail shopping experience and maximise revenues. Collectively, this information is commonly referred to as 'Big Data'.

The issue lies in that Big Data refers to both structured and unstructured data:

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, being comprised primarily of social media interactions.

By 2018 ‘Click & Collect’ is expected to reach €20-‐25 billion in Europe compared with the current €9-‐€10 billion today




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EDC customer experience indicates that unstructured data is currently less of a priority for retailers, who already face a significant challenge in making productive use of the sheer amount of structured data they collect. Going forward, integrating structured and unstructured data into a single database will be a key challenge, but will provide retailers with a wealth of actionable customer information.

EDC Perspective: Whilst there are no ‘one size fits all’ solutions to omni-‐channel retailing, EDC believes that a more centralised, integrated organisational structure offers a more efficient approach when operating in multiple channels. If a retailer sells through multiple channels, but manages each one as a separate entity, it is likely to pose difficulties in creating a single brand identity, which is vital to securing customer loyalty. Nor will it facilitate the sharing of customer behaviour and preferences across channels, which is an integral part of delivering a compelling retail experience.

3 Payment mix is at the heart of an omni-‐channel strategy

Retailers need to differentiate themselves in a highly competitive environment and the payment mix can become a significant differentiating factor as part of an omni-‐channel strategy.

According to the survey, retailers acknowledge the significance of different forms of payment. When asked which business drivers influence their choice of new payment methods, respondents considered that increasing in-‐store sales (63%), decreasing payment acceptance costs (49%) and targeting new customer segments (51%) are the three most important criteria. This is largely in line with last year's results.

Case Study: Amazon, the Worlds largest online retailer, dipped its toe in the water of brick-‐and-‐mortar stores with the opening of a bookshop in its home city of Seattle in November 2015. There are indications that Amazon may be planning to open as many as 400 physical bookstores in the future.

New payment methods can unlock specific customer segments and generate additional sales. For instance, American Express, with its feature-‐rich programmes, tends to generate higher transaction value and PayPal provides access to a global customer base of more than 120 million PayPal accountholders. Appropriate payment methods need to be offered taking into consideration opportunities and restrictions relevant to each channel.

The ‘1-‐click ordering’ feature developed by Amazon is characteristic of a simple customer experience designed to encourage repeat sales and is positioned at the core of Amazon's payment checkout strategy. Retailers need to decide which payment methods to accept and which payment methods to issue.

New payment methods can unlock specific customer segments and generate additional sales

Appropriate payment methods increase sales and improve customer experience




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EDC Perspective: This year EDC has found that retailers appreciate the importance of the payment mix in terms of the acceptance of payments across different channel. There has certainly been a maturing in the thinking about alternative and new forms of payment methods. However, this year we have seen the need to think about the payments mix in terms of both the acceptance and the issuance of payment methods. This is particularly critical in terms of a retailer’s branded mobile wallet and its positioning in conjunction with private label payment cards, loyalty and gifting.

3.1 Payments are key to linking different sales channels Besides increasing sales and unlocking customer segments, payments can also play an even greater role and link different channels. The payment process needs to be consistent and support brand identity across all channels. Customers increasingly use a combination of channels (in-‐store, social media, computer, tablet, smartphone) to support their purchase decisions. According to one survey, 70% shopped virtually before buying in store while 68% browsed items in store before buying online.3 Retailers have found that customers, who shop on mobile devices and personal computers, and in stores, shop more frequently and spend more money than in-‐store-‐only shoppers. Google estimates that frequent mobile shoppers spend 25% more in stores than occasional mobile shoppers.

Case Study: Online furniture retailer Made.com experienced a 43% rise (year-‐on-‐year) in there Christmas sales in 2015. This was lead by mobile purchases, which rose 122% and mobile traffic to the website which grew by 70%.

Following this made.com is furthering their investment in social network Unboxed after sales figures showed shoppers using Unboxed spent on average 6% more per order and 200% longer on the website than other customers.

'Showrooming' is the practice of visiting a shop or shops in order to examine a product before buying it online at a lower price. Often feared by many retailers, in contrast, John Lewis (along with many others) has embraced showrooming and found that more than 60% of their customers researched products online before visiting a shop to make a purchase. In-‐store WiFi access at John Lewis allows them to continue and complete that journey, accessing product information and viewing ratings and reviews to influence their purchase. Similar research in other markets has indicated that customers are becoming channel agnostic, there is a constant blurring of the lines of distinction between in-‐store and online browsing, price comparing, reviewing, researching and buying.

A retailer's website has evolved beyond a 'simple' e-‐commerce channel for online sales to become a multichannel source of information. A retailer's website actually becomes a significant sales driver for in-‐store, online and mobile interactions and needs to assist customers at the three major points-‐of-‐interaction: in-‐store, on the go or at home. Similarly, mobile advertising appears to be growing at a phenomenal rate. If forecasts 3 Global PwC 2015 Total Retail Survey

Retailers need to consider the whole shopping experience to generate synergies across channels




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for 2016 are fulfilled, the $101.37 billion to be spent on ads served to mobile phones and tablets worldwide represent a nearly 430% increase from 2013.4 The UK, Germany, France and the Netherlands are all in the global top 10 for mobile internet ad spending between 2013-‐2018.

Retailers need to consider the whole payment process to generate synergies across channels. Design of the payment process should not only consider the last step in concluding the purchase transaction, but it should be viewed as playing a core role in a omni-‐channel strategy, linking different channels across all payment methods and non-‐payment types of interaction between the customer and retailer.

Retailers using an omni-‐channel strategy could identify customers based on the usage of payment methods and provide loyalty or marketing offers at the time of purchase. Retailers can also use electronic wallets to store customers' personal and payments information. Electronic wallets link online and mobile channels to provide a consistent customer experience, simplify payments and encourage repeat sales.

EDC Perspective: By considering the whole payment process and all the points-‐of-‐interaction, retailers can optimise both front and back-‐end payment processes. For instance, returns or refunds ought to be part of a holistic approach. Retailers would need to brush aside inconsistencies and focus on implementing consistent return and refund policies regardless of the channels used. This will contribute to providing a consistent customer experience and will strengthen customer loyalty.

3.2 Striking a balance between convenience and security In their quest to provide a seamless shopping experience regardless of the channel or payment method, retailers also need to consider customers' concerns. The increased quantity of personal information shared with different entities across different channels makes customers apprehensive of potential data issues. Security breaches as evidenced in different cases in the US and Europe have become a significant issue and source of genuine concerns for retailers and customers. Acceptance of mobile and other new forms of payments is expected to double in the next two years according to a recent global survey among IT security practitioners5, which means that retailers need to have mastered online security in existing payment methods. The results of the study show that security in online payments is seen as a top concern but surprisingly most respondents felt that these have not been addressed as well as they should have been by their companies, which have resulted in data breaches in some cases.

Fraud proves to be very expensive for retailers both in terms of costs to prevent fraud as well as fraud losses. Retailers consider security (for payment acceptance) and simplicity for the consumer as the top challenges when accepting payments, as seen in Figure 3 below. We have found that retailers are aiming to ensure a seamless customer experience across channels and they should equally tackle fraud across all channels.

4 eMarketer, 2015 5 Ponemon Institute report on behalf of Gemalto, 2016

The customer experience should be at the heart of the value proposition whilst ensuring a high level of security




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They need a cross-‐channel view of their customer’s purchasing history, browsing history and preferred channel history -‐ in-‐store, on a smartphone, on a tablet, on a laptop, on a desktop, via an in-‐store kiosk -‐ to ensure that a customer is a good customer and not deviating from their normal channel behaviour. Transacting with retailers is now omni-‐channel.

The customer experience should be at the heart of the value proposition whilst ensuring a high level of security. Balancing these two aspects should be considered when adding new payment methods and optimising payment processes (i.e. purchase, refund, return, etc.)

3.3 Counting the costs of an omni-‐channel strategy Respondents in this year's survey identified three standout challenges to accepting payments: simplicity for consumers (78%), security (67%), and financial data reconciliation (65%), which has emerged as a key concern this year.

Fraud is always an issue and concern with payment fraud has shown little change in its priority relative to other acceptance challenges but it has increased to 56% from last year’s 50%.

Figure 3: Key challenges in accepting payments

3.4 Issuing new payments products Retailer payments have always been relatively constant with cards, cash and cheques being dominant until the early 2000s. However, since then there has been a proliferation of new payment methods and the advent of online and mobile commerce has contributed to increased complexity in accepting payments.

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Figure 4: Whether retailers plan to accept new payment methods in the next 2-‐3 years

Beyond loyalty cards, some retailers have issued store cards, co-‐branded cards or prepaid gift cards to issue their own payment instruments and strengthen the customer relationship. The change in the payment landscape provides an opportunity for retailers to issue new payment instruments, with 76% of retailers indicating that they plan to launch new payment methods in the next 2-‐3 years, which marks an increase from 70% the previous year. This highlights that new payment methods remain the top priority for retailers.

Payments play a central role in the strategy of retailers to offer new points-‐of-‐interaction and strengthen customer loyalty. It is expected that new payments using recent technological developments (e.g. contactless for card payments, online or mobile channels for wallets) will become increasingly valuable for interacting directly with customers. The different functionalities of smartphones (e.g. internet, camera, in-‐app features) or the use of social media are very likely to create new use-‐cases and generate additional sales. For instance, push messages or location-‐based offers will create targeted incentives for customers and are likely to increase in-‐store or online conversion rates.

Figure 5: Would you consider using third-‐party providers?

As payment complexity has significantly increased, retailers face pressure to be compliant with the latest payment standards. Regulatory constraints, for instance, PCI

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78% of retailers surveyed planned to accept new payment methods in the next 2-‐3 years

Non-‐payments activities will play a key role at the various points-‐of-‐interaction and will strengthen the customer loyalty via the smartphone




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DSS6 compliance or Point-‐to-‐Point-‐Encryption (P2PE), can create a significant burden on IT resources.

Faced with this increased complexity, 78% of retailers surveyed this year indicated that they would consider using third-‐party providers such as hosted services or services in the cloud for payment-‐related services. Payment partners can help retailers benefit from specific expertise, implement projects when facing low bandwidth and shorten time-‐to-‐market to launch innovative solutions. In last year’s survey, only 60% of retailers were considering the use of third parties – this likely reflects both the evolving needs of the market and an increase in relative comfort for outsourcing.

3.5 Contactless has reached a mass market Since last year the growth of contactless terminals and their usage has grown significantly. By then end of 2014 there were more than 2.6 million contactless terminals across Europe and it is expected that all terminals should be contactless enabled by 20207 The UK, France and Spain are the three markets in which the highest level of adoption has occurred. During 2014, there were more than 1.4 billion contactless payments across Europe, worth more than €15 billion, rises of 155% and 190% respectively compared to 2013. By the end of 2014, there were 223 million contactless cards issued in Europe, up 65% compared to 2013.8 In September 2015 alone, 74.5 million contactless cards were issued.9 According to the UK Cards Association, spending on contactless cards has hit a record £1 billion in a single month for the first time in November 2015 and there is further evidence to show that contactless will continue to grow.

Contactless technology is a key factor in reducing queuing time for consumers, which is an important concern for retailers. The contactless transaction limit was raised in September 2015 from £20 to £30 in the UK and across Europe it remains at €25. Another raise in the threshold is likely to be seen soon across Europe and this will represent a significant leap forward in the growth of contactless payments that will be seen as a normal form of payment for many retailers and consumers in the next 12 months.

Outside Europe, for example in Australia, where the contactless threshold is $AUD100 (around £49 or €6210) some grocery supermarkets are finding that as much as 70% of card payments are contactless.

6 PCI DSS: Payment Card Industry Data Security Standards is a worldwide information security standard defined by all the key stakeholders of the payment card industry 7 Payments Cards and Mobile 8 RBR London 9 Barclaycard 10 Using February 2016 exchange rates




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4 Technology is changing retail

The proliferation of technology in the retail industry is expanding at an incredible pace. The bleeding edge trends of last year could be obsolete in todays market and yesterdays technologies may now prove ineffective. This is the nature of the current technological landscape.

Keeping abreast of these changes is an imperative and the survey respondents are taking this to heart. 63% are already taking advantage of social commerce and 41% are integrating with mobile wallet technologies. Of those who have yet to integrate with mobile wallets, 76% plan to do so over the next 12 months. We have seen this represents a significant shift in thinking in the last four years of conducting this survey and working with retailers to create a payments strategy right for their business.

Figure 5: Which retail technologies are retailers already taking advantage of

The shopping experience has undergone massive changes over the past two decades. e-‐Commerce has won over consumers and smartphones have become a must-‐have piece of technology. Retailers have undertaken a shift from paper to digital technologies while tech-‐savvy consumers demand more personalised and seamless shopping experiences, wherever and however they choose to shop.

e-‐Commerce has long been the focus of retail innovation, however, no matter how easy it has become to shop online, sometimes you want to visit an actual store. In-‐store experience matters and technology is providing new ways to improve it all the time.

Case Study: New York-‐based fashion retailer Rebecca Minkoff has created an interactive store at its flagship location. RFID tags in the clothing trigger informational videos and recommendations in the dressing room mirrors

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Mobile wallets Beacons Social commerce Wearables Open APIs

Which of these technologies is your organisation already taking advantage of?




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4.1 Deployment of in-‐store kiosks Retail kiosks provide many benefits to any company looking to enhance their retail revenue. Not only do they allow you to reach out to more customers, but they can also increase revenue and sales opportunities as well. Placing kiosks in strategic places with catchy messages and offers can attract more customers and build greater brand identity.

Figure 6: Use of online kiosks in-‐store

Burberry's flagship London store aims to bring some of the web experience to the high street, featuring mirrors that double as video screens and staff armed with iPads.

Other clever tricks include the use of radio-‐frequency identification technology (RFID), which triggers related catwalk footage when some products are taken into a fitting room, or held near a video screen.

The technology used for kiosks is not new but they are increasingly being used in new ways to blend the online shopping experience (and convenience) into the in-‐store shopping experience. Customers, for example, are order items that may be out of stock, or obtain more product information and customer reviews from social media. Making a contactless payment or a self-‐service purchase transaction and authorised at a PIN entry device (PED) integrated into the kiosk is easy to achieve.

4.2 Beacons With hundreds of millions of shoppers carrying smartphones with them everywhere they go it, it comes as no surprise that proximity marketing, using location-‐based technology such as beacons, has become a hot topic. Retailers are constantly looking for ways to deliver more personalised real-‐time messages, offers and promotions to their customers.

Beacons have become one of the most discussed mobile retail technologies of the last year. Beacons are relatively low-‐cost devices enabling communication with customer smartphones. During 2015 it is estimated that beacons influences over $4 billion worth of US retail sales and this is expected to increase up to tenfold during 2016.




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However, beacons are now without their downsides. When deciding whether to invest in new ways of delivering in-‐store promotions, retailers must identify if it will enrich the shopping experience – or devalue it. When shopping, people are on a mission, most retail environments are filled with promotional messaging and the last thing shoppers want is more clutter.

4.3 Mobile Commerce Mobile phones may not be the hot topic that they once were, but the boom in mobile commerce certainly is, thanks to improving technology and retail strategies.

Mobile as a point of interaction

Over 85%11 of time spent on a smartphone is spent in apps. On the face of it, that’s a pretty compelling statistic and a quick glance at this would indicate that offering an app in 2016 is imperative. However, of this time, 80% is spent in any given individuals’ top 3 apps12. Unsurprisingly, these top apps are dominated by social media, messaging and media consumption.

On top of this, according to a recent report by Morgan Stanley, mobile browser traffic drives more than double the number of hits that mobile apps drive. In 2015, of the top 30 US retailers, only two – Amazon and Walmart – successfully drove more than half their visits via their apps.13 Apps certainly play a key role in retailer’s mobile strategies, however, it is becoming clear that in the near-‐term, mobile web will continue to outpace native applications. Our respondents seem to share this opinion, with 69% focussing on supporting mobile websites vs. 41% with mobile apps.

Mobile as the point of sale (POS)

Mobile POS systems are becoming a favourite tool of retailers to improve the customer experience. One of the main obstacles deterring consumers from going in-‐store, or completing a purchase, is the fact that they almost always have to queue when it comes to the payment. Todays shoppers expect immediate service and where it isn’t, baskets may be abandoned.

Some brands are starting to recognise the value of taking staff away from their static tills and allowing them to guide customers through the checkout experience using a mobile POS, removing the need to queue and adding a personal element to the shopping experience. Nordstrom (a leading US retailer) reported that the year after implementing its mobile POS system, sales increased by 15.3%14.

Case Study: Contactless payments at a fuel pump on a petrol forecourt is not going to happen because of the obvious, albeit small, physical dangers. On the other hand, Shell

11 TechCrunch 12 ComScore 13 Morgan Stanley 14 Nordstrom




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UK, has in partnership with PayPal allowed its consumers use their smartphone app called “Fill Up & Go” to pre-‐authorise their fuel and confirm the transaction at the fuel pump by scanning a QR code. In the near future drivers will be able to prepay for their fuel via their internet enabled cars.

4.4 Social Commerce The rise of social commerce has been predicted for many years now, the concept seemed inevitable -‐ with the emergence of large social networks such as Facebook and Twitter, which have surpassed 1.55 billion and 300 million active monthly users respectively, it was only a matter of time before retailers and social networks themselves took advantage of it.

However, it quickly became apparent that the "how" was not so easy to solve. How should consumers purchase something when checking their Facebook or Twitter feed? Should they be given a link directly to the store? Should they follow a URL to a unique landing page? Should merchants open up virtual store fronts within each social network? Many solutions to these problems were tried, tested and discarded – inevitable victims of the failure to attract customer interest and attention.

Not just for e-‐Commerce

Social commerce is not just an online activity and companies have started to boost their brick-‐and-‐mortar sales by integrating social elements. Nordstrom's integration with Pinterest shows that the benefits are both online and offline. Noting Pinterest's strength for retail curation and user created wish lists, they began highlighting items in-‐store that were popular on Pinterest -‐ by adding a physical "Popular on Pinterest" tag. Launched as a pilot in 2013, this experiment proved so successful that every Nordstrom store in the US now showcases its most popular items on Pinterest in this way. Shop assistants are equipped with an in-‐house app and update items daily.

Figure 7: Use of in-‐store Social Media




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4.5 The shape of things to come Retailers can expect technology to shape the customer experience, in-‐store and online, for years to come and it should be considered an opportunity for incumbents and physical-‐only stores as much as purely tech-‐based retail companies. According to a recent survey conducted by Samsung among retailers, 94% of retailers believe the customer of the future will be driven by technology and 41% are already implementing it in their strategies to enhance the customer experience.15

15 Samsung




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5 So where should retailers start?

Payments-‐related initiatives for retailers have never been as important as they are in today's omni-‐channel environment where the customers’ expectations are so high. To make a purchase via one channel and return through another channel a seamless experience that provides continuity for both the customer service and the retailer’s back office processes will offer a differentiated offering in a highly competitive market. Payments-‐related initiatives have already taken priority for many of the larger multichannel retailers and there are best practices where further opportunities can be identified to generate additional sales, reduce costs and fraud, enhance profitability and improve the customer experience.

EDC would suggest first starting with a 360° Payments Diagnostic™. This proven procedure can reveal many opportunities to place payments at the heart of the design of a PCI compliant omni-‐channel customer experience.

The payments strategy for many retailers has failed to provide the basis for a successful business. Ironically, this is because payments have not commonly been fully understood or made it onto the priority agenda for many retailers. EDC has found that this has significantly changed in the last few years. The EDC 360° Payments Diagnostic can be the starting point for the retailer to develop a sound payment strategy which will be future proof in the rapidly evolving world of payments. EDC experts in payments can build a payments strategy in collaboration that supports the retailer’s corporate and business strategy. A foundation for a robust payments strategy for the retailer will be a basis for the subsequent programme of service development activities within the context of a omni-‐channel retailing operation.

Our global payment specialists have worked with many of the leading global retailer brands in the US, UK and Europe across all areas of the business that payments touch. EDC experience in payments strategy development for retailers includes:

Undertaking payment service provider (PSP) or merchant acquiring capability assessments – including an end-‐to-‐end request for proposal process

Market research and assessment to assess organisational change and business development opportunities

Review and validation of business strategy

Business and technical feasibility studies to assess solution options

Assessment of new payment product initiatives, such as gift cards, loyalty programmes, reward schemes, mobile payments or alternative payment methods

Developing a payments optimisation plan for retailers, such as centralisation of the payment acceptance solution or simply identifying the right payment mix

Establishing a programme of on-‐going monitoring and management




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See below for further details of the EDC 360° Payments Diagnostic, developing a payments optimisation plan and establishing on-‐going monitoring.

Alternatively, contact EDC through the contacts provided at the end of the report.

5.1 Conduct an EDC 360° Payments Diagnostic It does not need to be a major exercise, but retailers must have a factual understanding of where they currently stand, i.e. what is currently in place, what is working, what is not working, what is the size of the payments opportunity in terms of incremental revenue and cost reduction?

In EDC’s experience, a 3600 Payments Diagnostic should include collecting not only basic quantitative data (e.g. transaction values and volumes, actual costs, a POS inventory assessment) but also a review of existing payment policies, refunds / cancellation policies, payments-‐related tools and processes of the internal organisation.

This can be done in less than 4-‐8 weeks depending on whether there is any involvement in issuing payment products and the geographic reach of payment acceptance. The diagnostic sets the basis for identifying and prioritising improvement initiatives, it will appraise your in-‐house payment solutions versus third party payment service providers and other banking relationships.

5.2 Develop a payments optimisation plan Based on the outcome of the above 3600 Payments Diagnostic, retailers will need to prioritise the list of potential improvement initiatives, which could for instance culminate in the issuance of a request for proposal (RFP) in order to evaluate the most appropriate payment solution partner(s).

Where the 3600 Payments Diagnostic highlights any mobile payment opportunities the EDC Mobile Payments Matrix will provide a framework for retailers to develop new mobile payments solutions, taking into account three key elements:

¡ Mobile proximity payments when considering face-‐to-‐face payments, should it be based on NFC (Near field communication), cloud or QR code (two-‐dimensional matrix barcode) technology. This category also includes mobile phones as POS terminals with solutions which provides a terminal or device connecting with the smartphone to accept card payments

¡ Mobile remote payments when looking at distant mobile payments using the internet or mobile networks to conduct a payment. This would typically include mobile online payments for goods, services and digital content, as well as in-‐app payments to generate additional sales (e.g. 1-‐click ordering)

¡ Value-‐added services providing benefits to customers beyond payments. These services could include location-‐based offers, loyalty or marketing discounts (e.g. integrated loyalty with payments, digital coupons stored on the smartphone, digital gift cards), purchase-‐related services (e.g. in-‐store shopping list, price

The 360° Payments Diagnostic sets the basis for identifying and prioritising improvement initiatives




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comparison tools, food recipes, etc.) or direct interaction and social media (e.g. new product release information, 'push' loyalty offers, viral marketing, social marketing, etc.)

¡ The EDC Mobile Payments Matrix allows retailers to consider the different elements of an end-‐to-‐end purchase process and ensure that retailers can consider each of them to develop appropriate solutions and define a comprehensive value proposition. A m-‐commerce strategy must aim to encompass the whole purchase process from a customer's perspective; before payment, during payment and after payment, and dovetail into the retailer’s omni-‐channel strategy

¡ For a revenue increasing initiative this would include setting up the infrastructure for direct prepaid sales, a gift card or a loyalty programme, defining the payment acceptance policy (e.g. which payment methods to accept in which country) for brand.com plus your returns/refunds procedures for each payment method

¡ For a cost reducing initiative this would include reviewing the fraud prevention policies, process and tools, renewing or consolidating the relationships with third party payment providers and banks

¡ In establishing a payments optimisation plan it will take into consideration all the different customer touch points, in-‐store, online, social, and mobility (i.e. not just the mobile device but all the non-‐payment services that consumers are now expecting – search, product reviews, balance enquiry, loyalty collection/redemption of rewards, servicing, delivery tracking, etc.)

5.3 Establish a programme of on-‐going monitoring and management Payments within a retailer have always been a hot topic but often they are not given the appropriate senior management attention or executive sponsorship. Payments are strategic and offer a great opportunity for retailers to offer a differentiated, frictionless customer experience.

Once the payments-‐related foundation is in place, it is important to have in place the right organisation (e.g. a cross-‐functional ‘payments committee’) and tools (e.g. a payments dashboard with monthly updates on payments-‐related Key Performance Indicators and benchmarks).




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If you are interested in discussing any of these payments-‐related topics, EDC will be pleased to set up an initial conversation to discuss in further detail the learnings from

this study and how you can optimise your payments strategy.

Contact

Mark Beresford, Head of Retail Practice

e: [email protected]

t: +44 (0)7283 1114

m: +44 (0)7825 027525

EDC's contact in North America: Peter Ehmke


EDC's contact in Asia Pacific: Peter Sidenius


EDC would like to thank all the European retailers for their contribution to this year’s retailer survey, and the many organisations and individuals that provided information

and perspectives that collectively form the foundation for this report.

The observations and conclusions in this document are entirely those of EDC and are not intended in any way or form to reflect the views or perspectives of any

individual or retailer.

Copyright © 2016 Edgar, Dunn & Company

All rights reserved. Reproduction by any method or un-‐authorised circulation is strictly prohibited, and is a violation of international copyright law.



Confidential

Strategy Consultants Specialised in Payments

Edgar, Dunn & Company (EDC) 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 Frankfurt, London, Paris, San Francisco, and Syndey, EDC delivers actionable strategies, measurable results and a unique global perspective for clients in more than 45 countries on six continents.

For more information contact: Mark Beresford Tel: +44 (0) 7283 1114 Email: [email protected]

www.edgardunn.com

Documents

2015 Retailer Survey - Finaledgardunn.com/.../07/2015-Retailer-Survey-Paper.pdf · Payment!trends!intheEuropeanretail!sector! EDC!4th!Annual!Retailer!Survey!–!2016!White!Paper!!