With dust still settling in the Jacob K. Javits Convention Center in New York City, I’d like to reflect on the events of the recently completed 2012 National Retail Federation Annual Conference. In many ways, participation in this yearly retail industry gathering helps us understand the context in which payments innovation must be ignited. (Read more about “ignition strategy” here.)
Retailers sit squarely in the middle of the classic “chicken and egg” problem faced by the complex, multi-sided payments ecosystem. The merchant is almost always the one who pays for the service of processing a payment. And merchant acceptance is on the critical path to success for any innovative new payments product. (You can’t have a successful payment product without both sides of the market, payers and acceptors, showing up at the same time.) Given these factors, it is truly surprising (perhaps shameful) how seldom we fully consider the merchant’s point of view.
Fundamentally, there are three basic goals that retailers have when considering investment in innovative payments technologies, whether it’s mobile payments or anything else:
1. Increased Sales
– via customer acquisition, retention, or increased average purchases
2. Decreased Processing Costs
– reduced “swipe fees” and steering to lower-cost tenders, such as store credit or gift cards
3. Secure and Reliable Payments
– minimized incidence of fraud and/or data breaches (and the related liability)
And all three of these goals must be achieved in coordination with a myriad of other issues within any retail business – and all in the midst of the most disruptive changes that the retail industry has ever experienced. This “retail revolution” was in full display last week in New York.
The NRF’s “Big Show” is a showcase for the most important trends and technologies in the retail industry. Recent years have been tough for the retail industry, but the energy from this year’s record 24,000 attendees was palpable. On the EXPO floor, in the many keynote speeches and breakout sessions, and in the hallway chatter, the conversation for retailers is about how their world is changing. There is excitement for the promise of new opportunities, but it’s mixed with a more than a hint of trepidation about the significant new threats and challenges on the horizon.
There are many drivers – an increasingly global economy, the impact of social media, and the emergence of cloud-based information technology services – but arguably none of these is a greater catalyst for change in retailing than consumer mobile technology. The Internet retailing experience, with its endless inventory and rich product information at our fingertips, has in many ways surpassed the traditional bricks-and-mortar storefront. And now, with consumers toting their web-connected smart phones and tablets with them into the physical store, the distinction between online and offline has become forever blurred. In New York last week, retailers and vendors were practicing their enhanced vocabulary with terms like “omnichannel” and “universal commerce” to describe this new reality and communicate its future implications for retail.
Smart phones, of course, are in the middle of the payments discussion as well – just ask the folks from Google Wallet or ISIS Mobile Commerce. They tell us that 2012 is the year that consumers will be swapping out their plastic cards for a smart phone with a Near-Field Communications chip (NFC) and wallet software. Meanwhile, retailers are also trying to understand the implications of EMV chip card technology and its potential adoption as a standard in the U.S. market. Most retailers are supportive of implementing “chip and PIN” as a means to reduce fraudulent payment transactions but the investment required to upgrade point-of-sale hardware and software can be daunting. And, vexed by their experience with the Payment Card Industry Data Security Standard (or PCI DSS), retailers are wary of moving to EMV unless they are fully represented on its governing body. And so the alphabet soup of NFC and EMV and PCI DSS all swirl through the hallways at Javits – and it seems that there are still more questions than answers.
Each of these payments technology challenges must be met in the context of the larger retail experience, as was illustrated by the stops on this year’s annual NRF Store Tours. A chartered bus shuttled me and the other participants from one retail technology example to the other, including:
Retailers are investing in growing their brand, serving their customers, and empowering their store associates. And on the surface that may seem to have nothing do with payments, or maybe it does?
The final venue on the tour was the PayPal Shopping Showcase, a beautifully executed installation with several vignettes designed to illustrate a new suite of offerings from PayPal that expand from its e-commerce payment roots and into the physical store. It was refreshing to see payments innovation demonstrated in this context – as a part of a broader retailing experience, leveraging new mobile and cloud-based technologies, incorporating value added services surrounding the payment transaction, and open to NFC as a feature but not as a solution by itself.
By now, nearly all of the purveyors of mobile payment solutions have recognized that moving from card to phone for payment isn’t compelling without other bells and whistles, but it’s another thing entirely to deliver on that promise in a manner that both retailers and consumers will accept.
The lesson for payments innovators is the importance of understanding and responding to the merchant’s perspective – and with an enlightened view of what that entails. From observation at the NRF conference last week, it seems that some of us in the payments industry are getting better at this – but we still have a long way to go.
Andrew B. Morris is a Director in the Atlanta office of Market Platform Dynamics. His recent consulting work has focused on alternative payments, mobile financial services, mobile retailing, and the role of loyalty marketing in emerging payments trends. Mr. Morris has become a leading advocate for the merchant’s perspective in payments innovation. He is Chair of the Mobile Payments Committee for the Association of Retail Technology Standards (ARTS) and has been instrumental in supporting the National Retail Federation’s Mobile Retailing Initiative.
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