The two most powerful forces shaping the future of retail payments have nothing to do with payments at all.
At least at first glance.
Ironically, they are also the two things that shaped the modern payments landscape as we know it today, as it grew up and got wired over the last 60 years – and why that playbook is being disrupted by players decades their junior with market caps that rival or even dwarf their own.
It’s why we’re witness to unprecedented waves of consolidation in the merchant acquiring and payments processing space – and why there will be even more to come in the short and longer term.
Those two forces?
The most powerful force in payments right now is what’s happening at the intersection of payments, search and logistics – particularly as digital is disrupting how consumers find, order, pay and receive the things they want to buy.
The low bar now for payments in a digital-driven retail world isn’t whether it enables a transaction on a website or in an app, but whether it can eliminate friction for consumers who want an efficient way to find, buy and take delivery of what they purchase. It’s a world in which new retail models and new places to shop have emerged to satisfy that need, blending the online and offline worlds in ways that benefit the digital and marginalize the physical – at least as it operates today.
It’s also a world in which traditional merchant-acquiring players with legacy physical store footprints and hardware-centric point of sale models aren’t always top of mind for those who seek to enable for that new experience.
That makes the intersection of payments, search and logistics not just a trend, but also a new framework for understanding the future of retail payments – and the viability of those who want a stake in its future.
When Physical Was All There Was
Retail commerce has had many evolutions over the thousands of years buyers and sellers have engaged in trade. But one thing hasn’t changed at all: the flow that underpins that experience.
Retail trade has always been about three things: a consumer looking for something to buy, paying for what she found and taking possession of what was just purchased.
In the good old days – and even as recently as a mere 25 years ago – consumers did that by going to the store or the shopping mall to browse and buy. Fulfillment was pretty easy, most of the time done by the consumer before leaving the store with purchases in hand.
Find (search), pay (payments) and fulfillment (logistics) was an all-in-one experience in the physical world, enabled by those stores and malls.
For a very long time, physical stores had it made in the shade, with a captive audience that had few alternatives to find and buy stuff other than the storefront across the street. Payment cards offered consumers a more efficient and desirable way to pay, and merchants wanted to enable that better experience in their stores so as not to lose sales.
The payments ecosystem grew up around that model, enabling acceptance of network-branded credit cards and debit cards across all physical merchants at scale. The merchant-acquiring ecosystem and payments processors put plenty of feet on the street to accelerate the ubiquity of that experience, giving merchants point of sale equipment and processing services to get them up and running.
Digital Transforms More Than Payments
The digital world disrupted that once fairly rote search, pay, fulfill model by giving consumers more options to find the things they wanted to buy. The web suddenly became the store as consumers searched for products via an endless aisle enabled by Google, which pointed them to places to see and buy them.
But unlike the physical store model where consumers had many options to pay, including checks or cash, finding something to buy didn’t result in a sale unless there was an easy way to pay for it using a card. Finding and buying something online was an inconsistent, friction-filled experience – and shockingly remains that way even today.
PYMNTS has done a quarterly assessment of a random selection of the 700 merchants that drive 70 percent of the non-Amazon eCommerce sales for the last four years. The benchmark score, measuring 75 variables, has moved little over that time, with the average across all of them not even breaking a 70 (the higher the score, the less the friction).
In the very early days of online, though, it wasn’t always guaranteed that a consumer could find something to buy at their favorite retail merchant. Many sites at that time were little more than look-books, showing consumers what could be purchased in their physical stores. And stores with a physical presence that “went online” carried different inventory – and not much of it. They didn’t want those websites cannibalizing their physical stores. Also, navigating those websites was slow and tedious. If a consumer did find something to buy online and payment was an option, checkout took many clicks and many minutes to complete.
Delivery was an uncertain crapshoot – the consumer just never knew. Sometimes it took 10 days, sometimes two weeks and sometimes never. Even today, it takes an average of five days for a consumer to get a package delivered by a merchant for free.
The inability to fulfill products in a timely fashion or at a reasonable cost was the demise of many a digital pure play back in the day – famously Pets.com and Webvan, to name but two. And that’s what kept categories like sporting goods and home furnishings and accessories as a viable online option in the early days. It was also a real deterrent to consumers who wanted to make purchases there.
Finding, paying and fulfilling was a very tough slog for online consumers.
It was almost as if those merchants really wanted the sites to push consumers back into their physical stores to browse and to buy. And they did – for a little while.
The Marketplace and The Buy Button
Digital players like Amazon and eBay brought a different digital experience to the consumer, something more of what they were used to in the physical world: going to a single place to find something to buy and having an easy way to pay for it.
eBay ignited in the early 2000s when PayPal became an integrated part of that find-and-buy experience, offering a marketplace that sold what we now fashionably call sustainable products – other people’s used stuff – from sellers all over the world.
Amazon, with its one-click checkout, created a quick and easy experience to buy products that people could also purchase in physical stores, and have them delivered straight to their homes.
Over the years, as broadband became more ubiquitous – and especially as mobile became pervasive – more digital storefronts emerged. The players were the digital natives themselves: PayPal, Braintree, Stripe, Adyen and hundreds of gateways that did the same. New models and new players like BigCommerce, WooCommerce, Shopify and Magento also emerged to provide small merchants with a hosted, integrated payments and inventory management solution to set up shop and run their businesses digitally.
Yet, the online checkout experience remained largely inconsistent and friction-filled. Buy buttons emerged to make checkout a consistent and trusted experience enabled by familiar digital payments brands such as PayPal, followed by the card networks with their branded buttons and, even later still, Amazon Pay.
But buy buttons only solved payments friction for an online retailer. The consumer still had to find that retailer – and the products they had to offer – by sifting through an endless aisle of search results. Once found (or if found), the consumer still had to assess whether their product needs were consistent with the retailer’s ability to guarantee delivery.
All of that took time, and introduced uncertainty into the digital retail experience.
Find, pay and fulfill still remained a slog – even as digital merchants and payments acceptance became more pervasive online.
Search, Pay and Deliver – All in One
As payments players continued to expand payments acceptance and eliminate frictions, Amazon was investing heavily in ways to replicate that all-in-one search, pay and fulfill flow from the physical world into their digital marketplace.
In 2005, Amazon introduced Prime, and promised two-day free shipping for Prime members. A marketplace that solved for search and pay now also solved for the uncertainty of when consumers could take possession of their products – a friction that kept many from making important purchases online.
The rest of the story we know well. Amazon has since expanded the size of their marketplace by offering access to many digital e-tailors that operate their own dedicated storefronts. Those merchants can opt into Amazon’s fulfillment offers and participate in the two-day (soon to be one-day) free shipping options.
Merchants that are off Amazon but that accept Amazon Pay can also enjoy some of those same capabilities. Not only do those merchants get access to Amazon’s customer base, but they are also the benefactors of a higher average order value: $252 versus $212 for PayPal and $205 overall, based on our latest research on buy button penetration and use among the top 1,000 online merchants.
Of course, the ability to deliver search, pay and logistics in a single experience via a marketplace isn’t the domain of Amazon, but it is clearly motivating others that see it as a competitive advantage – and it’s a valuable merchant acquisition tool for sellers that want to be where consumer eyeballs are searching.
It’s what the online aggregators like Grubhub and Uber Eats are doing in QSR. It’s what Instacart is doing in grocery. It’s why Target bought Shipt. And it’s why Walmart is investing in solving its last-mile delivery challenges. It’s what Wayfair is enabling in home furnishings, and it’s why vintage and luxury marketplaces like Chairish and 1stdibs have made fulfillment such a big part of their value proposition for sellers and buyers.
It’s why Google is integrating payments into Maps and Waze so consumers can order ahead, pay and fulfill themselves at stores and QSRs.
And it’s why Instagram’s ability to become a great contextual commerce experience may depend on how well their sellers can deliver the products consumers order and pay for there.
The Search-Payments-Logistics Framework and the Future of Retail Payments
The search, payments and logistics framework is essential to understanding the dynamics that will shape the future of payments – and the future of the many players that participate in those flows today.
Solving for search, pay and logistics has now become what consumers expect of their buying experience – one that is shifting dramatically to the digital world, even if fulfillment is still done in the physical world.
It is why many consumers only go to the store if they’ve used their mobile devices to see whether what they want to buy is in stock – in their size and color – and why increasingly, many just don’t even bother.
It’s no different online. Consumers expect that if they find something to buy, they can use one of their favorite ways to pay. Increasingly, finding and taking possession of products is driving their decisions about who gets their business, and when and where they get it.
Payments is no longer the tip of the spear for the physical or online retail transaction flow.
Perhaps it never was.
It only looked that way, because in the physical world, there was no opportunity to separate why consumers went to the store – to find something to buy – from how they would pay and take possession of those purchases.
Now that there are, consumers and the retailers that serve them want and need to deliver more. Paying for something is only relevant if consumers find something to buy, and are certain they can get it delivered in a timeframe that is relevant to that purchase. Increasingly, aggregators and marketplaces and social channels create those experiences for the consumer – and deliver value for both the buyer and the seller.
The physical store footprint will continue to shrink. The digital footprint will consolidate, too, but for a different reason. If you believe, as I do, that consumers will be drawn to places online that make it easy to find, pay and fulfill in a single place, then the digital footprint will consolidate around those that aggregate those sellers and create that experience. Their volumes and relevance will only get bigger.
That creates opportunities and challenges for everyone participating in these retail payments flows. The search, payments and logistics frameworks is a useful tool for examining who is best equipped to capitalize on this new transaction model – and who might be vulnerable because they can’t or won’t be able to.
Particularly when being able to pay for something is only one of the reasons merchants and consumers show up to do business.