Surviving Payments Four Big Power Shifts
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Four Big Power Shifts For Commerce And Payments

For most of the last decade, we’ve been talking about the same old, same old.

Mobile payments will be how we pay. Online retailers will be where we shop. Technology — not traditional payments companies — will be who leads the way.

And until recently, it was met with the same old, same old response: Yeah, maybe next year.

Well, it sure feels like next year — 2017 — could be that year.

We’ve hit the inflection point this year that pundits have been predicting each year for the last 10.

With inflection points, it’s hard to know that you’ve hit one until you are on the other side of it. That’s because inflection points are often the result of small, incremental steps that individually don’t look like much but collectively all add up to one big, honking change in how things are now done.

Which brings us to where we are today.

Guess what? We’re on the other side.

The future will look nothing like the past — in fact, the future of payments and commerce may not at all be like that which many have envisioned and perhaps even planned for. Looking at the data, how players in payments and commerce more broadly are using technology and the shopping habits of consumers all make that fact indisputable.

I believe that this inflection point will accelerate the four big shifts that have been taking place right before our very eyes over the last decade — shifts that will now set the course for how every single player in payments and commerce and retail should be planning their 2017 and beyond.

That is, of course, if they want to survive what’s next.

 

Shift Number One | The Shift To Buying Online

Yeah, big deal, you say. We’ve been watching online sales now grow — even double — year over year, for many years now, but it’s still tiny, overall. Census tells us that more than 90 percent of sales still happen in the physical store. That means our focus in payments should be about swapping out mobile phones for plastic cards at the point of sale inside the store — right?

If it were only that straightforward.

As I wrote in January, based on the work of my colleagues at MPD, we discovered that Census has been underreporting online sales data now for at least a decade. Not on purpose, of course, but because the shifts in how people are using shopping channels and payments are moving faster than their methods of tracking these shifts allow.

That means that, if you are looking at that data and thinking that it will take something like 20 years for that 90 percent number to drop to a level that might cause you to hit the panic button, then it’s probably you who should be reaching for one — STAT.

Thinking that way misses a much bigger point: That is, looking at an “average” percent of sales done in a physical store is about as accurate as following the Farmer’s Almanac‘s prediction of the average amount of snowfall in Boston each winter by examining how furry the caterpillars are.

Take books, for example.

Physical booksellers don’t take a whole lot of comfort when they read Census data that says 90 percent of all retail sales happen in a physical store, since, for them, actually only about 30 percent of sales happen that way. In fact, in less than 20 years, books have shifted from being a product that used to be bought only in a physical store to one bought online 70 percent of the time and from one retailer in particular (you-know-who, in Seattle). Every single one of the chain bookstores in the U.S. is dead except for one, Barnes & Noble, and it is just barely hanging on.

Our data shows that it’s not just books that are feeling that shift — or even that same shift to Amazon.

Take groceries.

Who in the world ever thought that there’d come a day when groceries would be bought online? Grocery shopping — that once-a-week ritual to inspect food and stock up in a physical store, usually with the kids in tow — is a ritual that’s now increasingly shifting online.

Not all groceries, of course, but definitely the stuff that’s bulky and otherwise a pain-in-the-neck to haul home: paper towels, laundry detergent, canned goods, cleaning supplies. These are all staples that don’t have to be inspected before a purchase, so consumers are just as happy to outsource the heavy lifting to someone else who picks and packs for them and then just ships their order to their front door.

Those are also the same things that most people couldn’t care less about being a name brand, meaning it’s not just the grocery stores that are singing the blues. The shift from buying grocery products in a store where consumers can be enticed by end caps and colorful product packaging to online squeezes the big brands, too: They’re not moving stock on the shelves as quickly as they once did.

Now, it’s not as though people won’t ever step foot inside a grocery store again. But when they do, their visits will likely take on a different personality. They’ll probably spend less time and money there and will buy only the things that they need and want to inspect — produce, meats, maybe even prepared foods — provided that can’t be outsourced to online, too.

Let’s talk about pet food.

We all laughed when Pets.com had the totally ridiculous idea in 1998 to sell and ship pet supplies, including dog food, online. How in the world could anyone stay in business when it was shipping umpteen bags of kibble weighing 22 pounds each? The answer then was that it didn’t: It went belly-up in two years for that very reason.

Right idea — wrong time.

Fast forward to today, and say hello to players like PetFlow — and Amazon, of course — who have that piece of the puzzle down to a science. PetFlow not only sells pet food online (including prescription dog food), plus a slew of pet supplies, but allows you to just “set and forget” shipments at key intervals. Amazon does this, too, but does even one better by selling dog food bowls that automatically reorder based on how much Fido has consumed.

Then, there’s cars.

EBay Motors introduced us to the notion of buying and selling cars online in 2000. By 2004, it had sold 1 million cars online — something that most people then thought implausible. Buy a car online without, literally, kicking the tires? But eBay Motors proved that ratings, recommendations and pricing systems provided the transparency and buyer protection to inspire consumer confidence and move cars without having to see it first before buying it.

Over the years, competition naturally followed. But it was the news made a few weeks back by two rather unconventional entrants to the car-buying space that caused the collective industry to gasp and the stocks of two longstanding industry players — TrueCar and Autobytel — to tumble.

A direct cause of those players’ stock woes was Amazon’s launch of an auto portal, which gives consumers a place to search for information about the cars that they might like to buy, too. The week prior, Amazon also announced it was testing an on-demand test drive program that will bring a Hyundai to the homes of consumers who might like to buy one. It’s a pretty safe bet that Amazon isn’t just going to be happy for long with being just a source for information about car buying (since it doesn’t make money on advertising) and a free way for consumers to scratch their Hyundai test drive itch.

Chase also launched an auto portal that allows consumers to find new and used cars online, and then apply for a loan once they find the one they want to buy. However, given that Chase’s new auto venture is powered by TrueCar, Amazon’s announcement certainly had a bigger hit on TrueCar’s bottom line.

Breaking the car dealership model won’t be easy — as Tesla has discovered — but thinking that dealerships and cars on the showroom floor are going to be way that most cars are bought and sold a decade from now is a folly of fools. In fact, it might be that buying cars online will become the most disruptive forms of showrooming there ever was.

Drinks anyone?

Years ago, a visit to the local liquor store was pretty much the only way that you could discover and then buy that fabulous full-bodied Malbec or stock up on Grey Goose.

Not anymore.

Innovators like Drizly have turned the sale of alcohol into something that can now not only be bought online but delivered the same day — sometimes, in the same hour.

It would seem that the zillion federal and state rules and regs would make the mere prospect of selling spirits online impossible and, therefore, an illogical category to ever shift substantially online. But alcohol is just the latest example of another “it will never go online” product that is, in fact, shifting that way. It is exactly the blue ocean opportunity that innovators are using technology and regulatory know-how to conquer.

These few examples — books, cars, groceries, liquor — represent but only the tip of the shift online iceberg.

We’re seeing even more acceleration of sales online in the categories that were among the early poster children for eCommerce: shoes, sporting goods, electronics. But you get the point — physical stores no longer have a lock on the things that once were only ever purchased there. This shift is happening for two reasons.

First, PayPal and other “buy buttons” have made the process of paying for things easier on PCs, as well as the smartphones and digital devices that consumers are increasingly using to place those orders.

And second, Amazon has invested in a logistics infrastructure that delivers what consumers buy with one-click more efficiently than if the consumer were schlepping to the store to buy the very same things. In the past, waiting a week or 10 days for stuff needed in two days justified the schlep to the store, while helping to keep retailer shipping costs in check.

Not anymore.

Cracking the logistics quagmire — delivery — plays a big part in both the why and the how of how shifts to online are not only happening but getting traction and creating new opportunities for those who wish to capitalize on them.

 

Shift Number Two | The Shift To Paying Online

One of the biggest omnichannel boxes that retailers most want to check is giving their consumers the option to buy online/pick up in store (BOL/PUIS). Retailers know that doing it increases the odds that a consumer will buy more stuff once they step inside. That’s a trend that we see and track in our quarterly OmniReadi Index.

But that’s only a part of the pick out and pay online, fulfill in physical store story — and the source of the real online shift.

There are a host of products that, to actually get, one actually has to visit a store. For instance, it’s hard to drink that double soy latte with an extra shot from Starbucks or eat that bean-and-cheese burrito from Taco Bell if you don’t actually go to Starbucks or the Bell to get it.

But how consumers order and pay for those products before they get it to eat or drink is changing — a lot.

Waiting in line to order and pay, and then, waiting in line for the food that has just been ordered and paid for will soon seem like something that only amateurs do. Mobile order ahead is taking QSR by storm. It’s driving 4 percent of all Starbucks sales after only one year and showing double-digit growth. Many chains see similar results, and others are eagerly jumping on board.

It’s the proverbial win-win.

Apps that allow for orders to be placed and paid for online typically drive incremental spend — offering up the bag of chips or extra cheese that consumers might not think about when in the store. Consumers are spared the wait to get what they really want — the biggest friction of all in those sorts of establishments. Restaurants get sales lift and a healthier bottom line, since fewer cashiers are needed — a welcome benefit as they face the prospect of higher minimum wages for their workers and the cost of installing pricey new POS terminals to support growing volume.

Then, there’s fuel.

Whipping out a card (or cash) has been how gasoline has been bought as long as there have been cars on the road. That was until a few years back when ZipLine rolled out its branded mobile app for independent station operators that let consumers activate the pump from their car and pay when they’d filled up, using their bank account as the funding source.

P97 is after the same experience, using its platform and oil-branded mobile apps that leverage mobile wallets, like Chase Pay. It, too, sees a mobile app future that eliminates the consumer friction from having to use a physical card to pay at the pump, shifting instead to an online purchase using a cloud-based app. Station operators are hip to this new scene, too, since it spares them the billions that upgrading to EMV will cost them.

Then, there’s Walmart Pay.

Leveraging the Walmart.com app means using a QR code in-store to authenticate the consumer to the app and then having purchases charged to their Walmart.com credentials — and whatever methods of payment they have registered to it. Buy in-store, pay online.

Now, this payments shift — paying online and fulfilling in the physical store — does a lot more than change how consumers pay for what they are buying.

It changes how retailers should be thinking about the reinvention of the in-store experience once consumers step inside and how leveraging the behavior that consumers know really well — how to pay for stuff online — can be leveraged to remove the real frictions consumers encounter when they visit their favorite brick-and-mortar establishment.

 

Shift Number Three | The Shift To Being Invisible

We’ve been talking about invisible payments now for as long as there’s been Uber.

The “Uber” experience was touted as “the way” that all payments needed to work — embedded inside of an app whose utility was about something else entirely — in this case, booking a ride. What made payments “invisible” was that, once the ride was over, without the consumer having to actively engage and push “buy,” the card registered to the app was charged.

Over the years, Uber has refined and perfected that experience. Most recently, it’s added a message that gives the rider an estimate of how much the ride is likely to cost. It seems that riders love the invisibility of the act of paying but not how much they were actually going to be charged.

Today, embedding payments inside of apps and ecosystems is only increasing.

Amazon’s Alexa can order a pizza, an Uber, a book and any number of things using payments credentials embedded in the apps that she’s fetching those items from. Apple’s Siri can also book an Uber and send a pal money, leveraging Square Cash.

Facebook’s Messenger lets consumers book a JetBlue flight using Masterpass and conduct a host of other commerce-enabled activities using apps and embedded payments from its messaging platform. Venmo now lets users order from a variety of merchants from inside of Venmo. WeChat is an entire ecosystem that lets its users buy any number of products or services from any number of providers, without ever leaving WeChat.

Google lets consumers buy from its search pages and via its YouTube videos. Restaurant reservation apps, like OpenTable, Reserve and Velocity, make it possible to reserve a table and pay for the meal using payments credentials registered to the app.

Yelp has embedded a restaurant order, pay and delivery app inside of its own app and now lets consumers put themselves on a waiting list for those restaurants that don’t take reservations. Payment can’t be that far behind.

Amazon’s idea of embedding payments off Amazon shows how differently it imagines embedded payments. “Check-in is the new checkout,” Amazon believes. When consumers are asked to “sign in with Amazon,” that means they are setting themselves up for a one-click checkout once they have finished filling their basket.

Platforms like MINDBODY help SMBs do things like make bookings online. But now, booking a cut and a blow dry with that favorite stylist can also include an option to pay online once the hair is perfectly coifed, tip included. Want to sign up for a package of SoulCycle or Bar Method classes? Book online, pay online and workout until the cows come home — without ever paying at the studio. Want a SoulCycle T-shirt, too, just because? Charges are made to the card on file in the app.

 

Shift Four | The Shift To Being Cross-Platform

For most of the last decade, the vision for mobile payments has been all about a hardware and technology solution using mobile phones as a form factor replacement at a relatively static in-store shopping and checkout experience.

A funny thing happened on the way to the consumer’s digitally dependent lifestyle.

Not enough of them thought that a form factor swap-out was enough.

If the last decade was about making hardware first and software-driven payments ecosystems second, the next decade will be its polar opposite.

And it doesn’t take much more than looking at the first three shifts — and their successes (and the current lack of success with every single “Pay” solution that is hardware-first) — to understand why I see the future that way.

Apple, Android and Samsung Pay have failed to get traction so far — and not for the lack of a slick phone or a slick app to go with it. Their traction is a function of too many other people and businesses having to do too many other things. Consumers have to buy the right phone, download the app and register a card. Merchants have to install the right equipment so that consumers with those phones can use them at enough places to make downloading the app worth it. And enough of that has to happen in enough stores the consumer frequents enough times in a week in enough parts of the world for habits to form and adoption and usage to take off.

And happen at the same time that more in-store sales are happening online, the payment for goods and services fulfilled in-store are moving online and ecosystems are emerging that give consumers more opportunities to buy things online and fulfill those experiences in a physical location where payment happens online before they ever show up.

It’s why the future of mobile payments isn’t going to be about “the device” that enables payment but about who can enable a consumer’s digital payments experience across any app, any device, inside of any ecosystem or shopping channel they pick to buy what they want to buy.

 

Playing To Win

If online is the tip of the spear that’s driving the four shifts that I laid out, then it might be that the players who are best positioned to win should be those who know online because that’s where they were born, came of age and earned their stripes.

That would put PayPal and Amazon at the top of that list — in part, because they have each driven these shifts but in very different ways. Each have invested in cloud-based solutions that meet the consumer where she is going — online — not simply where she might have been yesterday — in the store with a plastic card in her hand (or a mobile phone that is supposed to be a swap for that card). Each have a decade-plus consumer track record that has instilled the trust and confidence that doing business with them online is a safe bet, literally. And each is pursuing a very different roadmap for how they see the future of payments, commerce and retail playing out.

Yet, the digital future is not as black and white as a consumer buying from Amazon or paying with PayPal on a merchant site somewhere on the web. It’s many shades of grey, with many permutations of players and partnerships each trying to sort out where they fit and how it might work out. It’s still early days, with time for players to pivot, adjust and make their moves.

Make no mistake, though, the dye has been cast for what’s needed to get there — and it’s no longer something that is so far off in the distance that you have to squint to see it and not worry too much about how far away you are from it today. The four shifts that I described are now our digital payments reality and offer some very strong clues about the direction, the path and the players who are aligning their strategies to those shifts.

Or not.

Keep in mind, though, that you don’t really see an inflection point until you’re on the other side of it. This, however, is one inflection point you don’t want to find yourself standing on the other side of wondering how it happened.

So, sharpen those pencils and get busy fine-tuning those 2017 plans. The future won’t wait, and neither will your customers.

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