The retail industry is being disrupted like never before. While much of the discussion about retail disruption focuses in on the ‘Amazon effect‘ and changing consumer behavior, there are also fundamental changes taking place in how consumers pay for goods.
Some of the biggest relate to how consumers are using emerging payment technologies to complete their purchases. Here are three of the most important that retailers shouldn’t ignore.
The emerging payment technology that is arguably already having the biggest impact on retailers is the mobile wallet.
A mobile wallet allows an individual to store payment card information in digital form through an app. Instead of using the physical payment card when making purchases, individuals use the mobile wallet app.
For an individual to use a mobile wallet to complete a payment, a retailer must support the wallet provider. Currently, the two most prominent mobile wallet offerings are Apple’s Apple Pay and Google’s Android Pay, both of which rely on near-field communication (NFC) technology to provide for contactless payments. Samsung and Microsoft are among the other large companies that offer mobile wallets of their own.
A growing number of retailers support mobile wallets. By one estimate, Apple Pay is now supported by more than a third of retailers in the U.S. That equates to more than four million retail locations, up from just a couple hundred thousand locations when Apple Pay launched in September 2014.
According to global payments giant Visa, “mobile payments will be the standard by 2020” so retailers not already looking at mobile wallets will realistically need to do so sooner than later. And they should also consider that the mobile wallet opportunity for isn’t necessarily limited to accepting Apple Pay, Android Pay or similar third-party solutions. While these attract the bulk of the mobile wallet press, one of the most widely used mobile wallet solutions is actually built and used by a single retailer: Starbucks.
Mobile payments through the Starbucks mobile wallet now reportedly account for more than a quarter of all Starbucks purchases, and that number is only set to grow. Starbucks’ mobile wallet is integrated with the coffee chain’s rewards program – rewards can only be earned on purchases made through the Starbucks app – which gives customers a very good reason to adopt the company’s mobile wallet.
Obviously, many retailers aren’t in a position to capitalize on mobile wallets like Starbucks has. Their customers simply don’t purchase frequently enough from them to support a standalone mobile wallet use case. But there are retailers that could theoretically take a page from Starbucks’ playbook and build their own mobile wallets and some certainly will in the coming years.
A number of prominent retailers have embraced cryptocurrencies. One of the earliest adopters is Overstock.com. It began accepting Bitcoin payments in 2014 and today, thanks to a partnership with cryptocurrency trading platform ShapeShift, accepts virtually all major cryptocurrencies, including Bitcoin, Ethereum, Litecoin and Dash.
According to Overstock chairman Jonathan Johnson, the decision to accept Bitcoin was an easy one to make. “The cost of accepting bitcoin is very low. It’s actually cheaper for us to complete a bitcoin transaction than it is to complete a credit card.”
Other retailers that accept cryptocurrencies, namely Bitcoin, include travel sites Expedia and CheapAir.com, electronics retailer Newegg.com, and Mexican retailer Famsa.
A number of online marketplaces and ecommerce platforms, including Etsy and Shopify, give their sellers the ability to accept Bitcoin, and there are lots of smaller businesses around the world, ranging from local sandwich shops to car dealerships, that are willing to conduct business using cryptocurrencies.
Even so, Morgan Stanley says that just 0.6% of the internet’s top 500 retailers accept Bitcoin payments – a lower percentage than in 2015.
The low acceptance of Bitcoin among the internet’s top retailers in spite of the level of interest in cryptocurrencies seems to support to the argument that Bitcoin and other cryptocurrencies are unlikely to break into the mainstream as payment methods.
But that doesn’t mean it can’t happen. If a major retailer – think Amazon or Wal-Mart – were to embrace cryptocurrencies, the fate of cryptocurrency payments could change overnight. For this reason, retailers should keep cryptocurrencies on their radar.
A chronic problem that new payment technologies have sought to address is that of fraud. According to a LexisNexis study, fraudulent purchases cost US retailers tens of billions of dollars a year, so there’s a huge incentive to stamp it out.
Despite this incentive, some of the most widely-promoted fraud-fighting technologies haven’t helped. Take, for instance, EMV. It does nothing to stop card-not-present fraud and therefore has, if anything, only encouraged fraudsters to focus more on online fraud.
To more thoroughly address fraud, emerging payments technologies that incorporate biometrics are some of the most talked about and according to a Visa study, consumers are ready for them, at least in Europe.
Biometric payments technology relies on unique physical characteristics to identify an individual attempting to make a payment and ascertain whether that individual is actually authorized to do so. Techniques that are being used include facial and iris recognition, fingerprints and voice verification.
For example, in 2015, MasterCard and the First Tech Federal Credit Union launched a pilot of a program called Selfie Pay, which, as the name suggests, uses facial recognition to authenticate payments.
Across the pond, Barclays UK last year unveiled voice-based authentication for phone banking. “Each person’s voice is as unique as their fingerprint, made up of over 100 characteristics based on the physical configuration of the speaker’s mouth and throat,” Barclays explained in a press release.
“Therefore, when a customer calls up to use telephone banking, the technology will be able to identify them simply from the first few words that are spoken.”
Finally, Apple most recently added to its App Store app the ability for users to make Apple ID payments using its Touch ID fingerprint authentication technology. This eliminates the need for users to enter their passwords to complete a purchase, increasing security while at the same time speeding the purchase process.
While it might take some time for biometric payment technology to become ubiquitous, the benefits to consumers and retailers are strong enough to suggest that it’s a matter of when and not if biometric technologies hit the mainstream. As such, retailers should keep a close eye on the developments in this space.