Payments trends have seen so many iterations over centuries, evolving from barter to coinage, to currency notes, then onto checks, charge cards, and debit cards. Fast-forward to today and customers can pay by simply swiping their smartwatch next to a point of sale device at a retailer.
Over the past few years consumers have noticed a trend in retail payments; it is much easier and quicker to process. This makes shopping a breeze and likely to encourage shoppers to come back into stores as they may no longer have to wait in long lines at the counter. The formula for payments innovation from a consumer perspective is very straightforward. Allow for the technology to be used in as many places as possible, make it simple and seamless to use, ensure that the user’s personal and financial data is secure, and make sure that it’s free, or as close to it as it can be. The payment’s innovation need not be the main product itself. It can be a simple add-on feature of another offering to drive stickiness for that product.
The payments sector and retail are both industries that have recently become crowded with competitors chasing the same customers. There are many forces driving these changes, including more individuals starting businesses that are at crossroads of retail and eCommerce, a broader trend among creatives looking to leverage their skills in eCommerce and the cloud enabling them to start businesses at a much quicker rate. Furthermore, customers flush with cash and unable to do much with it as they were locked in their homes have diverted disposable incomes towards retail goods purchases, primarily online. This in turn drove up prices, margins and profitability among retailers and payments companies which were positioned to capitalize on the trend and facilitate online ordering and contactless payments. This has led to a massive inflow of investment in the sector
Below we take a look at the important retail payment trends to watch in 2022. They are going to have a great impact on consumer behaviors and are likely to offer new conveniences and speed which will result in customers spending more, both in-store and online.
Digital Payments adoption will grow
One of the biggest trends to unfold in retail payments in 2022 is something that will remain constant; digital payment adoption will continue its upward trajectory. Near field communication, or NFC, was intended for payments and patented in the early 2000s. It was the introduction of smartphones that presented a viable use for the technology. The introduction of companies such as Square and Stripe offered quick set up for merchants to start accepting card payments on the go ushering in the use of smartphones to accept payments, in the late 2000s. Slowly, in the last decade, as apps caught on as a standalone tool to deliver every kind of service, payment companies and technology companies began to leverage payments technology within smartphones.
It did take some time for consumers to become comfortable with the trend, but once they experienced the convenience and speed of digital payments offered, there was no turning back.
Every entity collecting payments which has a stand-alone app offers a payments processing option. Furthermore, mobile wallets such as Apple Pay and Google Pay, or digital payments platforms such as PayPal or Zelle, all allow users to send payments, whether that is to pay bills or subscription fees. Even the IRS has the IRS2Go app to pay taxes.
If that wasn’t enough, there are companies such as Plaid that serve as a conduit connecting financial institutions and fintech apps and digital accounts to enable the flow of funds between parties but without exposing consumers’ personal financial information.
These developments showcase the drivers of further adoption of digital payments in retail. Firstly, there was a massive technological infrastructure development push to boost digital payments adoption. The main aim of many of these technologies is customer convenience. This displays that Fintech companies are doing their because according to the most recent AmEx Digital Trendex Digital Payments report, convenience is the number one reason consumers use digital payments such as peer-to-peer payments (P2P).
Embedded Payments
Payment capabilities available natively to specific software, SaaS, or apps are another major trend within retail payments in 2022. Numerous companies are currently working to introduce solutions that embed a payment option within their platform. This is intuitive because it will not require consumers to exit the platform to process their payment, it can all be done directly within the platform.
There are many benefits for retailers when implementing embedded payments. First is the convenience it offers. According to the AmEx Digital Trendex report cited earlier, consumers are growing more comfortable with sharing their financial information with retailers to store their payments details on file.
Saved payments details of consumers allow them to set up payments much more quickly and it offers the retailer the ability to save the customer’s card information in their records, also known as card on file. This further enables easier checkouts and repeat customers as consumers are more likely to shop at retailers in which they have a card on file.
Security is another benefit of embedded payments. Since consumers don’t have to enter data every time since their card is already on file, the payments are processed without leaving from the platform’s native environment, avoiding any data-entry associated mistakes.
Retailers will begin to start offering payments solutions
Like many retailers launching store branded cards, the trend to watch in 2022 will be how many retailers will look to leverage their brand and trust with customers to start offering payments solutions on their own. In a tightening economic environment, new sources of revenue growth and areas in which they can further improve customer lifetime value are quickly drying up. Creating a payment solution offers the opportunity to quickly realize gains of as much as 10% by implementing this into a company’s product offering.
This is going to be an experiment that retailers will look at to gauge if creating a payment solution will save them money in the long run. However, this will pose a great headwind for those who take on this experiment. Although the payments industry is attracting a great degree of venture capital and interest from companies that are traditionally technology companies, it is important to have relevant expectations given how nuanced payments are. On the back-end, retailers still need to work with a financial intermediary to set up a merchant account. There is also compliance and a great deal of fraud protection initiatives that must be implemented as a minimum requirement of all card networks.
The inability to master the niche compliance needs regarding security and fraud detection are one of the greatest hurdles that inhibit many new entrants from going through with their payments plans. Facebook’s Libra initiative is a perfect example of a very successful company in one industry who is having significant trouble translating that success into the payment industry.
Different Industries will launch their own Buy Now Pay Later service.
Buy Now Pay Later will play a big role in the success of many retailers. Apple is doing it, and others will soon follow suit. In an environment of tighter economic conditions, retailers will look at all options to expand margins. Many will question why they’re giving up a treasure trove of data and margins to a 3rd party when they can bring that operation in-house.
BNPL has had major ramifications for retailers, the Fintech industry, and consumers. Many consumers can now purchase something that they could not have dreamed of doing before by having good credit and then getting approved for a line of credit by a bank to finance the purchase. Now, no credit checks, no more long applications and longer wait times. Not even interest on those payments or late fees. Just pay four installments on time at the regular retail price and those Gucci jeans or that iPhone 13 Pro Max is yours completely in four months.
It is the modern day version of the lay-away plan, except you get your goods now. Buy Now Pay Later basically lets consumers buy the product now with an agreement of four or five equal monthly installments to finance their purchase. There are currently payment companies such as Klarna and Affirm, that finance your purchase.
However, many have sounded the alarm on how it is creating a generation of society debt trapped and unaware , kind of like the way pay-day loans have worked. Others are more tactful and highlight using research how BNPL is enabling buyers to make purchases they would otherwise not have, which is not always a good thing.
Say what you may about BNPL, but it is one aspect of payments that retailers have the highest probability of succeeding at if implemented. It’s the reason Apple has launched its own BNPL service, and many more will follow in 2022.
Everyone wants a Super App
One of the biggest reasons companies have started to embed payments into their platform or SaaS application as well as dabble with payment processing solutions in-house is their quest for a Super App. Once a company has super app status, it has complete rule over all smartphone activity in that region.
One obvious trend we experienced is how commonplace smartphones have become. They are almost the modern day equivalent of having electricity. More and more, our daily lives revolve around smartphones. Everything we think of doing, we reach for our smartphone. Most of our routine is accomplished via specific apps on the smartphone, including going to a restaurant, making a grocery store trip, paying for anything, ordering a cab, studying, movies, music, dating, and about ninety percent of everything else humans do on any given day.
The logic of a super app is that if it could address about two to four different daily routines, it would become the de facto app that consumers would open. So, think along the lines of using the Amazon app to order something online. Add to that an entertainment aspect, that’s where Amazon Prime comes in. One additional thing you can add to that is delivery service or ride hailing, which is typically done by the same app – but exactly the kind of deal you would sign with GrubHub if you had Super App ambitions.
All major companies are in a race to become a super app. They all know that once they achieve that status, they will see an increase of potential trillions of dollars in market capitalization on top of their already multi-billion dollar valuations. That is because they will become a self-sufficient ecosystem to which all other apps and vendors must utilize to ensure their relevance. Can you imagine if the likes of Amazon or Google had to do that with Apple if it achieved Super App status first? Facebook is already experiencing this as it does not control the distribution channel to its customers and is beholden to Apple’s policies. The ultimate prize for a Super App is going to be adoption in the highest populated countries with the highest amount of disposable income.
And the great thing about super apps is that there are already case studies offered by successful super apps that validate this supremacy thesis. One only needs to look at China with its home-grown super app WeChat. With one billion users, the company commands eyeballs for almost all activities, whether that is to pay for food, use a bank, invest, hail a cab, or pay a government fine. Everything is done on WeChat and WeChat alone!
Payments will be faster
Speed at which customers pay has been the holy grail for payments solutions providers. Why? Customers don’t like to wait, nor do merchants receive their money. So, speeding up payment time is crucial. Checks take anywhere from 24-48 hours to clear. P2P platforms, such as Venmo and PayPal help merchants receive funds right now. Credit cards have some way to go. Although the payment is processed in a matter of seconds, merchants can sometimes still wait anywhere from 2-3 days to see the money in their bank account.
There have been some innovations in the space over the last decade with the advent of next day funding and same day funding. But those are highly focused on transaction timings and not truly real time.
However, that is about to change with FedNow. Although the Federal Reserve will be utilizing a 50 year old technology already in place in many parts of the world, it is one that will now be implemented at a government level initiative in coordination with some of the largest financial institutions in the US. Originally launched as a pilot in 2019, the system is available 24/7/365 that collects payment details, authenticates the information, and settles it in a matter of micro-seconds. The system is being extensively tested in 2022 and expected to be completely operational by 2023.
Conclusion
The retail payments industry is the front line of testing the latest changes to payment methodologies among consumers. There a robust sample size of consumers with whom market research can be easily conducted is ideal to quickly gather feedback. As more retail payment options come online and new trends emerge, it is important for retailers to stay aware of all these changes. BNPL is becoming a more common offering and one that retailers are starting to believe can be easily incorporated into their service offered independently by themselves.
In fact, many types of payment systems are quickly becoming an area that retailers have begun to experiment with to see which option best suits their customers and business needs. Shopify is leveraging its brand name to capture a larger piece of the shopping experience by launching payment solutions. Based on positions opening up at Automattic for its WooCommerce division, it appears that the company is engaging in a similar strategy.
Retail payments trends are important as they have the tendency to catch on and become sticky for consumers if they offer the right level of convenience and address a specific need. Currently, the need is for digital payments and with different forms with convenience built in, while the heavy lifting around security and privacy is done seamlessly, behind the scenes. These trends will shape the retail industry for years to come and will become as commonplace as the ATM machine once was or smartphones are today. It will serve retailers well to pay close attention to them and prepare.
