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The Evolution of Payment Methods in Retail

November 3, 2016

The only thing constant in life is change” — you know the old saying.

And payment methods are no exception. Over time, new technologies have increasingly been incorporated into payment methods to improve efficiency, be it to automate a few steps or to allow us to skip the line altogether. And if customers can carry less bulky wallets and still have smooth transactions, even better.

The-evolution-of-Payment-methods

For retailers, it’s not an option to pick and choose which payment methods they receive — it’s an imperative. They must accept different payment methods as it increases the likelihood of a purchase. A study by WorldPay shows that 72% of US shoppers would abandon their purchase if their preferred form of payment is not accepted at checkout. That’s a significant percentage, and one too large to ignore.

Carrying that bulky wallet while shopping has always been a hassle for customers, and in this day and age it’s not uncommon that people don’t have any cash on them at all. With card-swiping machines everywhere, gone are the days of scouring for pennies. We’ve come far in the payment sphere and companies are adopting new ways to make transactions and checkout processes even quicker.

How did we get here, anyway?

In the late 90s, wallets were getting bulkier and money transfers were limited to physical exchanges, wire transfers and direct bank account transactions. Queues got longer and it took eons to checkout in retail stores. It was also the advent of the Internet and the need for the digital transfer of money spiked, and boom — the contactless point of sale arrived.

And what exactly is the “contact-less point of sale?” Simply put, it’s a fast way of using credit cards, debit cards, smart cards, smartphones, mobile devices, and other devices to make a secure digital payment using near field communication (NFC) or radio-frequency identification (RFID). The retail world quickly adopted contactless point of sale systems and the rest, as we know, is history. Shopping became more fun and checkout was refreshingly hassle-free. The queues got shorter. Having cash on you and needing exact change for this or that became a challenge of the past.

A payment system reform quickly followed the introduction of the contactless point of sale. E-commerce payment systems facilitated electronic payments for online transactions, allowing for widespread online shopping and bank transactions. Digital wallets were introduced, where the user’s card details were stored in the wallet system, making transactions even faster. When there was an online transaction, if a user chose to pay by wallet, the need to fill the lengthy forms for payment details could be skipped as the wallet already had the necessary information and users could authorize the payment transaction separately. Money could also be added to the digital wallet, so time was saved to authorize the card details and the money was directly deducted from the wallet.

And today?

Enter Apple Pay, Google Wallet, Samsung Pay, PayPal, Bitcoin, and other platforms at the helm, shaping the future of payments.

What’s next?

Brick and mortar outlets are adapting new technologies and systems to create a more comfortable shopping experience. And this experience will be increasingly customized for each visitor. Depending on a visitor’s previous purchase history, a character board can be automated to understand their specific needs. The character board explains their purchase patterns, interactions with staff, customer feedback, product reviews, where the visitor spends the most time on the floor, and leverages several other key data points that will help the retailer understand the customer to provide a custom experience. These custom engagements enhance the overall shopping experience.

And how can that play out in reality?

A customer (let’s call her Jo) walks into a retail store (let’s call the store Po) and uses a shopping cart as she navigates through the floor. As soon as Jo pulls the cart, the digital interface in the cart connects with Jo’s smartphone. Jo’s smartphone recognizes that she pulled a cart at Po, her favorite store. As she begins to walk around, she gets a notification: “Hi Jo, welcome back. A black 6” stiletto that fits your size has arrived. We understand that you didn’t find it here last time and you’re eligible for a flat 50% discount on the product. Why don’t you come and check it out?”

  • Yes, take me to the shelf
  • Maybe next time
  • I got what I wanted

Let’s skip to the part where Jo is picking the products from the shelf. As soon as she puts a product into her cart, it adds it to her shopping list, creating a digital record of her activities. Meanwhile, Jo receives a reminder of the items she wanted to buy. If she puts a product back on the shelf, that gets removed from the list. She finishes her purchase and walks to the exit with her cart. The cart’s digital list communicates with her wallet and waits for a confirmation from Jo to approve the payment. The money gets deducted from her wallet and Jo goes back with a new pair of stilettos! Jo gives a 5-star rating. Jo and Po are both satisfied! The end.

This is clearly a simplified example and a lot of complex technology is playing out here. But if you are wondering how a cart and a product can talk to each other, that’s where RFID tags come into the picture. RFID tags are becoming cheaper every day and they are reusable. This doesn’t remove a human level of interaction. However, they are reduced to a level that for individual feedback and customer support, we will still need a human layer interface.

Po’s mobile app or e-commerce interface (VR, AR, the web) can further communicate and engage with Jo to bring her back to the store. If perishable items were purchased, these channels can automate a request to match the demand-supply gap.

And in terms of security, only a unique transaction ID is shared by the wallet to the payment gateway of the store after the payment. This means that the wallet doesn’t share any card or bank information. Wallets can also ensure that the customer is legally permitted to buy goods which are age restricted or restricted in any other way. Guns, alcohol, or drugs from a medical store are some of the areas with many government restrictions.

Android Pay, Apple Pay, PayPal, Google Wallet, Samsung Pay, Square, Bitcoin, and even cryptocurrency are heavily influencing new payment methods. A contact-less payment device, QR code or a unique ID substitutes the need for any physical exchange. A customer can set his monthly budget and a digital record of all the transactions will help them optimize and effectively allocate that budget. A digital ledger will keep them on track with their spending, even going a step further where the digital wallet can suggest and make recommendations for the user to improve their spending habits.

As far as payment methods, go, we’ve come a long way. And soon, we’ll be taking this evolution to the next level. Adios, bulky wallets and annoying queues!

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