Retailers Vs. The Status Quo In Payments

ACI Worldwide’s 2015 Global Payments Insight Survey is a broad look at the payments landscape worldwide, part two of which includes the retail industry’s perspective of the payments market throughout the world.

This year, ACI approached the retail portion of the survey with the understanding that the voice of the retailer in the area of payments is “little heard and even less understood,” as media focus in that regard remains primarily on consumers and payments providers.

As payments technology progresses at an ever-increasing rate of speed — with new providers, platforms and tools launching on “a near daily basis”— it is essential, the study puts forth, that more attention be given to payments as a critical aspect of retail, an industry for whom maintaining the “status quo” is no longer an option.

SUMMARY

In its broadest strokes, the survey determined that retailers by and large are “fully aware” of growing consumer expectation in payments, while at the same time they remain nervous about the security implications of further developing their existing payments infrastructure.

Key highlights:

Up to 93 percent of retailers believe consumers want a broader choice of payment tools.

75 percent of retailers see payments as a clear part of their business strategy.

49 percent of retailers have seen their payment costs increase in the past 18 months while 56 percent expect them to keep rising.

“The customer experience is king,” with 50 percent of retailers citing it as their key expected driver of ROI on any increase to their payments investment.

54 percent of retailers are holding back their payments investment due to security concerns.

SHIFTING CONSUMER DEMANDS

“77 percent to 93 percent of retailers feel consumers want more payment options.”

The survey found that nearly four out of five retailers at the smaller end of the scale (those with annual revenue below $50 million) feel that consumers want to use a wider range of payment tools. Among larger retailers (those with annual revenue above $10 billion), that figure rises to over nine out of 10 (93 percent).

It’s noted by ACI that payments are becoming a more critical component of broader mobile strategies, with a demand for more payment tools (such as PayPal, mobile, contactless, direct bank payments and others) driving the need for retailers to make a greater investment in the area.

PAYMENTS AS A RETAILER’S BUSINESS STRATEGY

“Up to 80 percent of retailers see payments as a clear part of their strategy.”

69 percent to 75 percent of all retailers that responded to the survey cited payments as “a clear part of their business strategy.”

The cost- and convenience-related benefits for consumers that new payment technologies can bring — such as speeding up transactions at the point of sale, strengthening loyalty, and creating new engagement mechanisms — do the same for retailers in terms of engagement and operational efficiencies.

THE HIGH COST OF PAYMENTS IN RETAIL

“49 percent of retailers report an increase in payment costs”

Globally, retailers reported to the survey a strong increase in their payment costs over the previous 18 months, with nearly half (49 percent) saying their costs had increased. Of that group of retailers, 39 percent reported that costs had increased by 1-5 percent, while 10 percent reported that their costs had increased by a “staggering” 6 percent or more.

The study notes that, while other segments within the payments space — such as financial institutions and bill taking organizations — had reported a “substantial decline” in the cost of accepting payments, only 12 percent of global retailers reported having experienced anything similar.

ALTHOUGH COSTS RISE, SPENDING STILL INCREASES

“54 percent of retailers report payments spending will increase in the next 18-24 months.”

While most retailers reported to the survey that their costs of payments have gone up over the past three years, they also expect their investment in payments to rise in the next 18-24 months. Gas stations and fuel retailers hold the largest expectations in that regard, with 61 percent overall expecting an increase.

It’s noted that even the segment with the lowest expectations of investment growth — grocery stores and supermarkets — still show 50 percent of respondents forecasting an increase in payments spend.

Only a small portion of retailers (9 percent) expect their cost of accepting payments will see any decline within the next two years.

REAL-TIME CLEARING AND SETTLEMENT A TOP PRIORITY

32 percent of all retailers cited real-time capabilities as “a gap in their services.”

The study bore out that “tier one” and “tier two” retailers — those with revenue exceeding $1 billion — expressed the strongest view on the benefits of real-time, but also have a lower expectation of considering investing in these capabilities. Smaller retailers, on the other hand, exhibited “a greater propensity for actively considering real-time payments.”

THE BALANCING ACT BETWEEN CUSTOMER EXPERIENCE AND COST

“The customer experience is of paramount importance to most retailers.”

For retailers facing the survey question as to what returns they would expect from increasing their investment in payments, “an enhanced customer experience” was the top priority across most segments, “often by a considerable margin.”

The answer was most popular (58 percent) in the travel and lodging segment, with the low end (38 percent) coming from the food service segment.

The study points out that other priority ROI areas for retailers are “gaining a competitive advantage”(45 percent), “introducing new payment services” (44 percent), and “reducing business costs” (43 percent).

IMPLEMENTING SECURITY WITHOUT SLOWING INNOVATION

54 percent of all retailers surveyed cite security considerations as “the biggest stumbling block” to increasing their payments infrastructure investment.

Other obstacles include the high costs of maintaining existing legacy infrastructure (43 percent) and customer protection requirements (40 percent).

ACI recommends that “retailers should not wait for the possible security breach, but rather make security a key component of their innovation payments strategy.”

SECURITY IS AN ONGOING BATTLE

At the close of the payments in retail report, ACI presents a table outlining “key payment security standards, “including those that are already in place as well as emergent technologies that have the potential to gain permanence “by best practice or through more formal regulatory mandate.”

The study notes that some of these standards can be expensive to roll out, yet they remain essential, citing EMV as a prime example. As retailers evaluate system upgrades to address EMV, they should look holistically at security measures like point-to-point encryption (P2PE) and tokenization to take advantage of newer technologies available and reinforce their payment infrastructures.

“For retailers it…remains critical that not only do they focus on security throughout their payments infrastructure,” concludes the retail portion of the 2015 Global Payments Insight Survey, “but also that they adapt to the latest risks and adopt the latest fraud prevention technologies.”

ABOUT THE STUDY

ACI conducted this study in collaboration with research and advisory firm Ovum. The survey, conducted late last year, consisted of a 19-point questionnaire that examined “key aspects of existing payments infrastructure of retailers, their forecasts for future IT spending, areas for investment, and their perceptions on where payments fit within their broader strategic objectives.”

To download the complete study, 2015 Global Payments Insight: Retailers, from ACI and Ovum, click here.

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