Digital payment set to ‘cause death of the wallet’ by 2020

Purchasing_Digital payment at supermarket

Digital payment is tipped to bring massive benefits to consumers and retailers

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A number of leading UK grocery retailers and banks have signed up to Apple Pay

Following the recent launch of Apple Pay in the UK, Produce Business UK assesses how digital payment technologies are set to really impact the retail scene and shape future consumer shopping habits

With mobile now at the heart of digital innovation, digital payment and the personalisation of marketing will be the most disruptive forces at a retail level going forward.

So says Craig Smith, founder of blog retail-innovation.com and a director at REPL Digital, a UK-based company that works with over 50 retailers globally – including two of the largest grocery retailers in the world – to support their digital in-store strategy and execution.

Digital payment

Considered by many to be the ‘future of retail’, the long-awaited digital payment technology Apple Pay finally launched in the UK this month [July]. At the same time, consumer research commissioned by The Co-operative Group revealed that shoppers predict the wallet will die out in 2020, as 65% of those surveyed believe their phone will be all they need to pay for daily goods.

“We’ve already seen how contactless payments have become second nature to our customers and the ease of Apple Pay is perfectly aligned with how we want our customers to shop,” explains Amanda Jennings, marketing communications director for The Co-operative Food, which claims to be the UK’s largest retailer to currently offer the service, with all of its 11,800 till points activated.

REPL’s Smith certainly agrees; saying payments are changing rapidly in the UK. “My expectation is that it’s fairly inevitable we will all be paying with our phones since we all have smartphones or Apple Watch. It will be like contactless card payments is now.”

Indeed, Smith explains that because digital payments are based on NFC technology – just like contactless cards – mobile payments are not massively different for retailers to install. It’s merely a different device using existing technology to ‘tap-and-pay’.

“Apple Pay is relatively easy to set up and it’s not a big investment for retailers,” Smith points out. “Those who have contactless pay systems in place already have the hardware. It’s when you have to change your technology that it gets expensive.”

Importantly, Smith claims the difference with digital payment is that it will bring “massive” benefits to consumers and retailers. “You can do a lot more with mobile payments because it’s via an intelligent device rather than a card,” he reveals. “Retailers can offer digital coupons, digital receipts, digital promotions etc.  

“At the moment, you’re only able to pay with your phone but later on you’ll be able to receive digital receipts, coupons, rewards, promotions etc. It’s offers big savings for retailers [by going paperless] as well as greater personalisation.

“Retailers will be able to track people in their stores and generate an identity for their customers. If a store wants your email address it can take a while to note that down and it isn’t feasible if there are long queues. With digital payment technology, you could just tap your phone and be done.”

Although digital payment has been slow to emerge – arriving a year after its launch in the US, a number of leading UK grocery retailers have now signed up – including: Lidl, Marks & Spencer (M&S), SPAR, The Cooperative Food and Waitrose, as well as various clothing retailers, cafés and fast food chains. According to Apple Pay, it’s coming soon to Costcutter stores too.

“I expect to see it [digital payment] in all grocery retailers,” comments Smith. “They’ll all sign up soon enough simply because customers want it. They want purchases to be fast so it’s about removing the friction in the journey. Payment is definitely an area where retailers can improve customer experience.

“It’s taken time to come to the forefront because it wasn’t done in the right way,” Smith continues. “Apple realised that it needed to work with American Express, Mastercard, and Visa. Google failed with its wallet but no doubt it will come back with something else to gain a slice of the pie.”

According to reports, Google already intends to revamp and rebrand its US-only Google Wallet mobile service as Android Pay, while Samsung has revealed its top-end handsets will soon offer Samsung Pay in South Korea, the US and Europe.

According to the Co-op’s consumer research, a third of Brits surveyed also thought that paying with their phone was safer than carrying a wallet. “Security is not an issue as you still have a pin to access your phone,” concurs Smith. “Some phones already have fingerprint access codes too. It’s as secure as chip and pin.”

Security and privacy is at the core of Apple Pay, according to its developers. When you add a credit or debit card to Apple Pay, the actual card numbers are not stored on the device, nor on Apple servers.

Instead, a unique Device Account Number is assigned, encrypted and securely stored in the Secure Element on your device. Each transaction is authorised with a one-time unique dynamic security code, instead of using the security code from the back of your card.

Any shopper with an iPhone 6, iPhone 6 Plus or Apple Watch can use the payment system in store. When paying for goods and services within apps, Apple Pay is compatible with iPhone 6, iPhone 6 Plus, iPad Air 2 and iPad mini 3. The spending limit of £20 is due to be increased to £30 in September 2015.

Pay anywhere

Other interesting digital payment innovations at retail that can also tap into Apple Pay are happening in terms of remote queuing and scan-and-go. Again, these technologies make use of customers’ smartphones.

Remote queuing allows customers to order goods ahead on their mobiles to collect when they’re ready. The service is already being offered by hospitality companies such as cafés or stadium bars where queues are substantial. Smith singles out Joe and the Juice, powered by Wallmob, as a good example of this ‘ordering ahead’ technology.

Remote queuing has also been launched in 100 O2 stories in the UK to enable customers to and continue their day while waiting for an available advisor. The digital queuing system works by taking the user’s mobile number and sending a text message to let them know when to return to the store.

Smith believes remote queuing could work for grocery retailers too. “If you shop online you already have favourites or last orders, and this follows a similar principle,” he explains. “It takes away some of the friction from purchasing in that it’s becomes very quick. You could incorporate this service into your existing app too.”

With scan-and-go, meanwhile, customers scan products using their phone and when they’re finished they pay using their phone. “It’s ideal for small baskets and therefore will be particularly useful for convenience stores, especially those with queuing issues,” Smith notes.

From a customer point of view, Smith believes scan-and-go will be beneficial for the speed of the journey. Retailers, meanwhile, can save money on check-out staff, personalise their customers’ journey, create a dialogue with shoppers and cross-sell or upsell by using the technology to suggest other products to buy.

According to Smith, Asda, Sainsbury’s and Wal-Mart in the US are already trialling scan-and-go technology, but admits it’s not quite there yet.

“It’s not successful yet because of the scanning speed,” he points out. “Over time these issues will be solved. Already, scanner technology on phones is much better and quicker, so it’s only a matter of time before this technology becomes the norm.

“I definitely think it will work. It’s all about testing and learning. Around 85% of the things Amazon tries don’t work. But you have to experience. Scan-and-go is just a question of security for retailers, and you need to spend a lot of money on new tech.”

Follow Craig’s latest digital innovation posts on Twitter: @craigwsmith

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