Payments Innovation

Could Online Intermediaries Control The Physical Point Of Sale?

Why Payments’ Future Should Be Focused On 2039

The year is 2039.

The youngest of the bridge millennials – those 30- to 40-year-olds who today represent the first generation of connected consumers with spending power – will be having their mid-life crises at the age of 50. And the 60-year-olds will be telling the world that 60 is the new 30.

By then, it might be.

The year that even a decade ago seemed a lifetime away is only 20 years from now – and will be here before we know it.

After all, for many of us, 1999 seems like it was just yesterday.

The influence of the increasingly connected consumer, including the highly influential bridge millennials who have already embraced many new connected commerce experiences, will have a profound impact on how consumers buy and pay for things over those 20 years.

In 2039, buying and paying for something will be largely disaggregated from going to the store to shop.

Consumers won’t be walking up to a cashier after standing in a checkout line to swipe a card when they visit a store. Nor will they be whipping one out to check out in the aisle while milling about the store. Mobile devices, apps and voice assistants – by allowing consumers to order ahead and pay, pay via QR codes anywhere in the store and use auto-pay when leaving the store – will make checking out 100 percent digital, even when consumers choose to visit a physical store to make a purchase.

Which will become less frequent and involve trips to far fewer stores.

But that’s old news, since we already see it happening today.

Twenty years from now, the portfolio of networked connected devices owned by consumers – and the apps and intermediaries that power them – will make commerce not only 24/7/365, but also immersive and highly contextual. Buying things won’t be something people plan around store hours or allocate chunks of their day to do – it will happen just like everything else: on demand.

Doing laundry will prompt reminders to order laundry supplies or send clothes out for dry cleaning. Voice assistants will help consumers build their grocery lists dynamically as part of meal preparation, prompting consumers when to order and how to fulfill those orders – whether by curbside pickup or delivery. Apps will remind consumers when it is time to order breakfast or lunch, and prompt orders based on preferences and specials. Digital assistants will make curated clothing and accessory recommendations based on what’s been purchased in the past and what’s hanging in the consumer’s closet.

But even that’s old news, because we are seeing some of this happen today, too – and the consumer’s interest in and adoption of these new ways to shop and pay has accelerated rapidly.

Will everything move this way in five or 10 years? Maybe.

But in 20 years? Almost for sure, unless something even more transformative happens.

Perhaps the real news, then, will be how the consumer’s thirst for convenience will have accelerated their preference for and embrace of the trusted intermediaries who are using AI and voice and new tech to help them decide what to buy and where to buy it.

And the profound impact these intermediaries could have for how consumers pay for those purchases across all of the channels they shop.

The Big Shift

In a world where, as the Census says, 90 percent of retail sales still happen in the physical store, cards rule.

Using mobile phones as a form factor at the physical point of sale to pay for things has been a big bust, now more than four years into that experiment. Sure, more terminals in the U.S. are now able to accept those types of payments, and many more issuers have their cards provisioned in those mobile wallets — but so far, consumers haven’t taken the bait.

That’s been the case in markets such as the U.K. and Australia where merchants’ contactless terminals and consumers’ ability to provision and use mobile contactless payments have been more evenly matched.

Here and everywhere, consumers, with phones in one hand and their plastic cards in another, mainly dip, tap or swipe to pay in the store.

As longtime readers of my columns know well, the 90 percent of retail sales promulgated by the Census is just an average across all categories of retail spend. It also includes auto sales, which most people don’t think about when they toss the 90 percent number around. For this and many other reasons, we believe their numbers may well overestimate physical sales.

But since it’s the data point that most use to define the online/physical retail sales split, let’s use it to  project, based on historical trends what the world looks line in twenty years. Then, physical stores would drop from 90 percent today to 68.9 percent of all retail sales, including auto, in 2039.

But those sorts of projections almost certainly don’t reflect the reality of shopping and payments 20 years from today.

To begin with, these projections don’t reflect the hockey-stick growth in Amazon’s share of spend has blown big holes in the sales that once only happened in physical stores.

In four years, Amazon’s share of eCommerce has grown from 28 percent to the 50 percent that it is today. And in certain categories, such as books, auto parts and electronics, Amazon’s share of spend is decimating that of retail stores.

Projections based on Census data also miss the blurring of the physical and digital channels of massive players like Amazon, and to a lesser extent, Walmart, as they each build out their physical and virtual footprints. That’s important because these intermediaries have the potential to influence purchases and payments across their growing physical and virtual storefronts.

Amazon, of course, owns Whole Foods and operates its own branded book stores and convenience stores. It also purchased online pharmacy PillPack, and owns Zappos and fashion eTailer Shopbop. It would also surprise no one if Amazon added another brick-and-mortar asset to its portfolio.

Walmart owns Jet.com and several other online brands, in addition to the 4,700 physical storefronts that within a 15-minute drive for 90 percent of all U.S. consumers. It would surprise no one if Walmart acquired a large online brand or two to add to its portfolio. Investor activists think it should be eBay.

At the same time, both Amazon and Walmart are bulking up their private-label efforts to drive more higher-margin sales.

For payments and the ecosystem that supports payments as we know it today, I suspect the headlines in 2039 will be less about which channels account for how much of consumer retail spend, and more about how these intermediaries have influenced where consumers are shopping and what those consumers are using to pay for those purchases.

Bring in the Middleman

Today, more than a decade after the launch of the iPhone, and 24 years after the birth of Amazon, there are thousands of apps, hundreds of aggregators, millions of merchants, dozens of digital payments players and thousands of innovators working overtime to optimize for the mobile commerce experience and to help retailers go omnichannel.

At the same time, innovators, policymakers and regulators have become obsessed with cutting out the retail middleman – or cutting them up into little pieces to “level the playing field” and give smaller players “a chance.”

Ex-AOL Chief Tim Armstrong is just the latest in a series of innovators who wish to give brands the wings they need to deal directly with the consumer. He announced last week that he has created a new venture, dtx, that will help emerging DTC brands do just that.

In theory, if you’re a brand, cutting out the middleman sounds like a great idea.

The proliferation of broadband at home, PCs, mobile devices and apps has expanded the options and opportunities that consumers now have to find and buy things outside of their traditional physical store or online marketplace haunts.

There’s only one problem with that theory.

The promise of the “endless aisle” of choice has become exhausting for consumers.

Not having a filter other than the internet creates friction. Who among you reading this piece hasn’t spent a couple of hours looking for something to buy online, only to then revert to your familiar shopping stomping grounds to make that purchase?

Those experiences only reinforce your instincts – and that of every other consumer who has experienced the same thing – to start at those familiar and trusted stomping grounds the next time a purchase needs to be made.

That’s what the numbers are beginning to show, too.

The commerce cacophony that’s being created in the name of giving consumers choices about where to shop seems, at times, deafening. Yet, the result seems to drive consumers that much faster into the arms of the intermediaries they trust to deliver value and save them time.

With their mobile and voice-activated ecosystems that are the front door to a vast, curated selection of products, linked to payment credentials that make it effortless for consumers to pay.

The Big Shift

Amazon Prime members now top 100 million – all of whom use Amazon Pay to make their purchases. Amazon Prime members can also shop on sites that accept Amazon Pay and receive the same member perks.

Recently, Comscore reported that 35 percent of consumers between the ages of 18 and 35 say that the Amazon app is the one mobile app they can’t live without – topping a list that included Gmail, Facebook and Instagram. Consumers consistently rate Amazon high on the list of brands they trust to innovate their commerce experiences. Some studies even report that, when asked, consumers would trust Amazon to handle their banking needs.

Amazon Pay is how consumers pay in Amazon’s branded stores, like Amazon Go. It won’t be long before using Amazon Pay in the Whole Foods store becomes a totally seamless experience, and one preferred by the Prime members who shop there. The Wall Street Journal reported in June of 2018 that there were, at that time, 60 million Prime members who shopped at Whole Foods. That’s 60 million consumers who could potentially shift from whatever they are using today to pay at the store, to whatever is linked to that Amazon Pay account instead.

In December of 2018, Walmart launched the Dotcom Store as a way to keep sales inside the Walmart ecosystem. Store associates roam the aisles to help Walmart customers find things online that may be out of stock in the store and have it shipped to them. Those consumers, if they don’t already have an online account with Walmart and a Walmart Pay account, can then easily get one.

Walmart has also long positioned itself as a “financial services” provider to its customers, offering a variety of services, including money transfer and bill payment. Walmart Pay is also one of the only mobile “Pay” experiences, outside of Starbucks, to have gotten traction in the store. More than just a payments app, Walmart Pay allows consumers to shop online and pay with cash in the store, in addition to holding balances, aggregating offers and auto applying them at checkout, expediting returns and enabling order-ahead services. In a recent study, consumers reported that they’d even bank with Walmart – in fact, many today already use them in that capacity.

In 2018, Amazon and Walmart alone, by the calculations we did for our Whole Paycheck study, collectively accounted for 15.3 percent of all consumer retail and roughly 54 percent of all online spend.

By 2039, those numbers will only shift up and to the right, particularly given the efforts both are making to expand their on- and offline franchises into retail adjacencies, such as prescriptions and healthcare-related purchases and the competition for consumers’ food – not just grocery – spend.

That suggests their mobile apps, plus voice, plus their proprietary payments networks, could give Amazon and Walmart a wide berth to shift how payments for those purchases are made, if that’s what they want to do.

Who’s at Risk

Amazon and Walmart occupy a different place in the commerce ecosystem than other players vying for a piece of the payments pie. They are merchants, each with a vast selection of products and choices for consumers, and each with a proprietary payments networks embedded into those purchasing experiences. That, and the level of trust consumers have with them today, gives them  more influence over how consumers shop, and could increasingly have more sway over how they will pay. That could also include asking consumers to link their bank accounts to make those purchases. Given the level of trust that consumers have with Amazon today, many might not think twice.

Amazon and Walmart are but two examples. There are other large and trusted intermediaries, in their own respective categories, that could take a page from that same payments playbook. Those who have made online shopping and buying easy and painless, who can extend their reach into the physical store space that consumers, twenty years from now, still frequent.

That could make the world in 2039 a lot different than it is for today’s payments players.

The payment apps of these large intermediaries like Amazon could become much more important at the physical point of sale.

Physical stores may not have point of sale terminals, and that could shift power in the ecosystem from those who have it today to these large online intermediaries – who have the customers and their trust.

Large online intermediaries could also be running many of these physical stores’ payments operations – or providing the payments infrastructure for stores that operate in the physical world just like they do online.

You scoff. Amazon running payments for physical stores – isn’t that nuts?

About as nuts as saying that more than half of all products sold by Amazon are sold via its marketplace – which, of course, they are. Think of it as omnichannel taken to another level – all in the name of consumer convenience and retailers wanting to make a sale.

Lots of things could also get in the way of this happening.

But if it doesn’t, in 20 years’ time, it may be too late to ask why.

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Latest Insights: 

Our data and analytics team has developed a number of creative methodologies and frameworks that measure and benchmark the innovation that’s reshaping the payments and commerce ecosystem. Check out the February 2019 PYMNTS Financial Invisibles Report

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