October 2015 Newsletter

Disintermediation and price transparency

Up to 30% of the revenues that banks/acquirers generate from payments are under serious threat from disintermediation and price transparency, says McKinsey in its 2015 Global Banking Report. Merchant acquirers searching for a response should read this piece by Glen Williams, the Bain Capital partner responsible for WorldPay.

Disintermediation is coming from the convergence of point of sale software and payment services. Small retailers (the industry’s profit engine) are increasingly likely to buy payments in a bundle with their tablet based ePOS software and related hardware. We call this SmartPOS.

A good example is Lightspeed, a Canadian SmartPOS vendor serving retail and restaurants that is live at 25K outlets in 100 countries with total annual transaction value of $10b. Lightspeed has announced a partnership with iZettle (see below) for its restaurant customers to supplement an existing relationship with Adyen.

Unsurprisingly, many bank/acquirers are considering constructing their own SmartPOS bundles. For example, Nordea Bank, with over 500K business customers across the Nordic region, has announced a partnership with local ePOS specialist Shopbox.

Price transparency is the second threat to acquires but, in the UK market at least, clarity is good news for retailers. HandePay, a leading ISO has switched its supply relationship from WorldPay to EVO and is now offering a remarkably simple, low cost offer including zero authorisation fees and the end of PCI charges.  Meanwhile, Cardswitcher, a price comparison site, claims to have made over 12K quotes for merchant accounts from its panel of payment suppliers.

What’s more, the UK Government’s response to its consultation on the EU’s Interchange reductions has put the figures 0.2% (debit) and 0.3% (credit) firmly into the public domain. The reductions will benefit UK merchants to the tune of £483m annually and retailers might wish to remember this this when it comes to next year’s vote on leaving the EU.

Interesting innovation

We’ve heard a great deal about wearable technology for shoppers but Halfords is trialling it for their staff. Working with Red Ant, the Halfords team in Leamington Spa will be equipped with smart watches that alert them when a customer enters the shop to pick up a click and collect order. 90% of Halford’s e-commerce sales are collected from stores so getting the workflow right is essential to delivering a great customer experience.

Halfords pilot wearable technology for the staff
Halfords pilot wearable technology for the staff

It gives an indication of how slowly the payment industry moves that Sage Pay’s announcement of a chip & PIN machine that does dynamic currency conversion, prints the documentation for tax free shopping, integrates with ePOS systems AND accepts China Union Pay cards is a piece of genuine innovation. But it is. And respect to Sage Pay for being first.

Reassessing multi-channel profitability

Two new pieces of research shed an uncomfortable light on omni-channel retailing. Firstly, JDA report that only 19% of CEO’s say they can supply omni-channel demand profitably (pdf). Next, a new survey from RSR (below) shows that the proportion of retailers saying their multi-channel customers are their most profitable ones is diminishing each year. This second finding rather calls into question the whole premise of multi-channel CRM so I’d be keen to hear if it’s been confirmed by researchers elsewhere.

RSR multichannel
Source: RSR Research

Start-ups to watch

With people increasingly shopping brands, not channels, online-only retailers can sometimes appear a little old fashioned. Cardflight provides an interesting solution. It has raised $4.2m to commercialise a developer kitbag to extend e-commerce platforms into a bricks and mortar environment. A mobile payment terminal is included.

The convergence of on and offline marketing is inspiring a number of start-ups to look at how mobile can drive retail footfall. One example is Shopfully, an Italian app that has raised a total of $20m for its app that consolidates “flyers” from multiple retailers into a geo-located set of push messages. It claims 13m downloads.

There’s a risk that beacon-inspired marketing quickly becomes spam. The Regent Street app is a cautionary tale (see my blog) but Knomi may have a solution. Working at the other end of the market from Shopfully, this app has signed 70 high-end fashion retailers in London with the ambition of knowing the specific items its shoppers are looking for and only alerting when they are in the vicinity of outlets that have them in stock. There’s a social networking dimension too. Obvs.

Investors still can’t get enough of global payments

Adyen, specialising in cross-border payments, has raised yet more capital, this time at a $2.3b valuation. It expects to make $45m profit this year on $45b transactions processed. It’s growing fast but is still well behind (and half as profitable as) WorldPay’s e-commerce division which records $247m EBITDA on $131b processed.  Adyen sells strongly on its unitary technology stack: “our strength in having one platform is very dear to us, so we’re unlikely to follow a strategy where we end up with 30-50 platforms like some others have.”

Meanwhile, Klarna, itself valued at over $2b, finally went live in the US and has promised that some major UK customer announcements are imminent. Klarna’s strategy has evolved from simply providing a credit option to seeking to take over the entire checkout experience for an online retailer. Have a look at Alex and Alexa and you’ll see what they’re up to. The change in strategy explains why it’s taken so long for Klarna to go live with new, large retailers. Replacement of the whole checkout is a serious project for retailers and is not undertaken lightly.

Apple Pay

Apple Pay has begun to slide gently from its peak of inflated expectations. Customer satisfaction remains high and users say that it encourages them spend more but fewer than 1% of US retail transactions are Apple Pay and the figure is lower in the UK. TFL revealed at the Retail Week Conference that, while many had tried Apple Pay on the tube, few had persisted once the novelty wears off.

Where Apple Pay really scores is with in-app payments, although opportunities to use it have been rare as many payment gateways don’t yet support it. One exception is Judo Payments. I tried its integration with the Harris & Hoole app and it works like magic. Forget tap and pay, the transformative effect of Apple Pay will be in-app.

Apple Pay integration in the Harris & Hoole app
Apple Pay integration in the Harris & Hoole app

Zapp *sighs and drums fingers on table*

While the UK still waits for the launch of much delayed Zapp/PayByBankApp, banks on the continent, such as Denmark’s MobilePay (2m downloads) or Luxemourg’s DigiCash are already allowing their customers to make retail payments from their mobile banking app.

Zapp has been tightlipped about its roadmap and recently refused to confirm a hard launch date to Retail Week (£), whose readership may tire of waiting. Sainsbury is quoted as saying “Zapp is not something we are looking at right now. We are focusing on rolling out contactless payments.”

Zapp admitted to being “behind where we want to be” and could not give a launch date.“Integrating the system is a complex process and has taken longer than we expected.” Our best guess is that Zapp is stuck in development queues at most of the UK’s retail banks but may be losing the battle for prioritisation with other projects that give a quicker ROI. I hope not: the UK needs Zapp.

In the US, it’s not the banks but the retailers themselves that have stitched together a ubiquitous mobile payment/loyalty app. CurrentC (as it is now called) is live as a pilot in Colombus Ohio but has attracted a mere 1 star rating on Google Play. Shoppers hate the requirement to upload their drivers license and bank details but respected blogger Tom Noyes says CurrentC is not so bad. It provides the rails but the experience should be judged on what retailers, like Target, do with it. Here’s his video of Target’s integration with CurrentC – judge for yourself.


Are investors tiring of payments? This month, I was surprised to find that mPOS start-up Kashing, failed to get close to its £474K target on Crowdcube. Previous payment ideas such as Cake have attracted a substantial following on the platform. I was equally astonished to see Verifone launching a $200m stock buyback. While it’s good to see Verifone returning to financial health, it’s disappointing that the shareholders want their capital returned rather than re-invested in innovation.

And finally, oldPOS fights back

Despite the remarkable level of investment funding going into the new tablet ePOS software vendors, enterprise customers are still buying from established players who have deep domain expertise.

Universe Group has signed a £4.3m deal (pdf) to provide a full retail suite including ePOS and payment infrastructure to the delightfully named Bargain Booze across 650 outlets. Elsewhere, outdoor specialist Trespass extended its deal with Eurostop to include 150 stores across Europe rather than contract with one of the slew of new software vendors.

Research from IHL (below) shows that over half of retailers plan to upgrade their ePOS software in the next three years. There’s probably room for everyone in this market at the moment – established and start-up.

Source: IHL Group
Source: IHL Group