Julian Wallis, Retail Director at Rambus
Payments have become the latest battleground for merchants. New technologies, regulations and consumer behaviors are converging to transform the payment acceptance space. Because of this, retailers are racing to deliver engaging and experiential buying experiences to differentiate themselves from the competition.
For brick-and-mortar retailers, these innovation efforts must be delivered in increasingly challenging trading environments. It is possible, however, for merchants to enhance the customer buying experience with mobile wallets, while benefiting from a reduced overall cost of payment acceptance.
Cash is a burden
Payment acceptance and processing are a necessary cost of doing business for all retailers. Some payment methods, however, present greater operational challenges than others.
Despite huge recent advances in digital and electronic payments, cash use remains prevalent worldwide. This presents various challenges for retailers. It is easy to steal, with reports of up to $40 billion lost annually through theft in the U.S. alone. There are also significant costs associated with its handling and processing.
A report on U.S. retailers suggests the cost of cash can range from 4.7% to over 15%. For high-volume, low-margin merchants, such as gas stations, coffee shops and convenience stores, there are clearly significant business benefits in steering consumers towards digital payments.
Card payments – the cost of doing business?
Promoting payment card acceptance, however, also presents its own challenges. To process debit and credit card transactions and manage the payment rails, the payment networks charge an interchange fee for each card transaction. Some merchants’ attempts to avoid these charges have had a detrimental impact on the consumer experience, whether it be through card surcharges or higher prices.
Card payments also create a requirement for the installation and maintenance of expensive point-of-sale infrastructure which takes up valuable floor space. There is also a need to produce, manage, transport and store paper receipts, plastic cards, cardboard coupons and print advertising.
The theft and fraudulent use of customer payment credentials is also a significant concern for retailers, following a series of high-profile breaches in recent years.
Can a retail mobile wallet help?
As retailers work to address the operational challenges posed by cash and card acceptance, mobile wallets offer a versatile solution.
Loyalty functions, for example, can be used to encourage the use of a store-branded, closed-loop payment card. As these cards can only be used at the specific retailer, they are not subject to the interchange fees levied by the big payment networks, putting between 2% and 6% back in retailers’ pockets.
Similarly, wallets with in-app payments functionality enable customers to checkout in-aisle. This reduces the requirement for extensive point-of-sale infrastructure, while at the same time removing the need to wait in line and promoting a ‘just walk out’ buying experience. This reduces overheads and increases throughput and revenues.
Finally, mobile wallets can incorporate various technologies and techniques to enhance security and mitigate risk, reducing the likelihood and impact of fraud. In particular, payment tokenization has proved successful in securing in-store transactions by replacing a customer’s primary account number (PAN) with a unique payment token that is restricted in its usage, for example, to a specific device, merchant, transaction type or channel.
Tapping into emerging payments
To remain competitive, retailers must always have one eye on the future. Mobile wallets offer a strategic platform for retailers to harness and promote emerging payment models.
Take account-based payments, which are growing in popularity following the introduction of regulations such as PSD2.
PSD2 creates the opportunity for retailers to assume new roles within the merchant acquiring ecosystem and offer payment services directly. This creates efficiencies for retailers by reducing processing fees and administration. The consumer experience is also enhanced as payments can be cleared and settled instantly. And as retailers also have increased insight into customer preferences and behaviors, they can deliver more tailored and personalized services.
Looking beyond account-based payments, cryptocurrencies could yet emerge as a powerful payment method for retailers. Importantly, mobile wallets allow these alternative payment methods to be offered alongside more traditional approaches to ensure that the requirements of an entire customer base are serviced.
Flexible payment strategies
It is the innate flexibility of mobile wallets that empower merchants to add value to the customer experience by promoting convenience and choice, while simultaneously creating all-important operational efficiencies and business benefits.
For a deeper dive on how mobile scan-and-go technology can deliver increased revenues, an enhanced customer experience and optimized operational efficiencies, download the Rambus white paper.