Note of Retail Week conference – Innovation in Payments

I chaired Retail Week’s Innovation in Payments Conference on 15 September in London.

Here’s my presentation followed by the notes I took of the rest of the event.

UK market facts (Payment Council)

  • 30bn “spontaneous” payments made by individuals every year
  • 49% of these are cash, ten years ago this was 70%

In one month, the average UK consumer makes:

  • 27 cash payments
  • 16 debit card
  • 6 direct debit
  • 4 credit card
  • 2 contactless
  • 1 Faster Payment
  • 5% of consumers rarely pay with cash at all. This number is growing.
  • 4% of consumers rely exclusively on cash. This number is not falling. These people tend to be older and find that using cash allows them to budget effectively.
  • 94% of adults have a debit card. 60% have a credit card.

Contactless payments are growing strongly and will account for 30% of all consumer payments by 2025. Today, contactless payments are mainly in grocery (37%), restaurant/takeaway (16%) and transport (10%.) Contactless usage is higher among ABC1s and younger people.

There are 11bn cash payments which could be replaced with contactless. These are in grocery (21%), confectionary/tobacco/news (14%) and restaurant/takeaway (13%).

Consumers are keen on remote banking. Only 25% are exclusively branch banked. However, just 33% use their bank’s mobile app. This will restrict the utility of “push” payments from bank apps such as Pay By Bank App (PBBA).

Interchange

UK retail should benefit from £700m reduction in Interchange payments. This is equivalent to just 0.14% of retail sales so there’re really no way of telling if/when it is passed on to consumers.

Android Pay

Now live in the UK, Android Pay has signed a number of card issuers including most of the large banks. A big marketing push is planned for September.

The user experience for POS not quite as elegant as Apple Pay. For example, for a combined payment and loyalty transaction, shoppers need to make two taps of the phone. In-app seems better designed and Google are quoting some nice KPI’s from early customers in the US. One shopping app is receiving 20% of transactions by Android Pay with a doubled conversion rate.

Apple Pay is notoriously hard to speak to. One very large retailer told me that her organisation was offered one 20 minute slot – take it or leave it – with no refreshments provided. Apple Pay won’t even speak at industry conferences so Google will surely pick up some business for Android Pay just by being human. Google’s business model remains advertising based and it doesn’t charge retailers or issuers for Android Pay transactions.

Hillarys Blinds

Good case study from Hillarys which dominates the UK window covering market. Hillarys has over 1,000 agents out in the field measuring windows and providing instant quotes. Obviously, it makes sense for Hillary’s to try and take the money there and then rather than sending an invoice.

It wrote some bespoke software in 2005 for its agents to use to take customers’ card details on via their Hillary-issued mobile phones but this was not really compatible with updated PCI regulations. Instead, it wanted to use an mPOS device. The challenge was that 20% of UK homes do not have a mobile signal so Hillarys needed a device that could take transactions when offline. Adyen has done this with a solution from the airline industry linked to a Verifone E355. £20m of payments annually is going through these devices and customers very much like the idea of paying with chip & PIN in their own homes. Transactions are tokenised so that Hillarys can take balance and staged payments.

Harris & Hoole

This 42 shop chain of specialised coffee shops was owned by Tesco but has recently been sold to Caffe Nero. Harris & Hoole is now on the fourth version of its successful mobile app and can arguably claim to have the most effective on the market. The key components are loyalty, drink preference, payments and deep ePOS integration.

The payment wallet is pre-pay because pay per transaction card processing fees for very small amounts has been uneconomic. This has changed following the Interchange caps and post-pay would now be a viable option.

The app geolocates the customer within the store and prompts the customer to check-in. At this point, the customer’s name/photo/regular drink are passed to the ePOS so the server can say “the regular, Geoff?” If the customer says yes, a push of a button on the ePOS sends the drinks order to a screen above the barrista. If the app is set up for payments, then the stored value account is debited. If not, the server asks for cash/card payment in the normal way.

There is no way of telling for certain the business benefit of the app as H&H don’t know the behaviour of app users before they began using the app. However, H&H did reveal:

  • Orders from the app are processed 20% faster than others
  • 20%-25% of all orders involve the app. At Tooley Street, 46% of all orders are driven by the app including 15% of payments.
  • In 98% of stores >10% of orders come from the app
  • In 25% of stores >20% of orders come from the app
  • The app grew from 6% of orders to 18% when H&H retired the previous paper-based loyalty stamp card. This was a bold move but a successful one.
  • Where Apple Pay is offered to a shopper, it is used in 85% of cases
  • Support has been a headache, especially for Android as there are so many versions

Busaba

This is a fast growing chain of Thai-inspired casual dining establishments that does a big lunchtime and post-work trade in central London. Table turnover is fast and many parties want to split the bill.

Busaba launched a pay at table app which allows easy bill splitting but also includes its “39 steps to enlightenment” loyalty programme. The app is based on MyCheck. In 2016, 83,000 transactions were made with the app to a value of £2.9m at an ATV of £38. So far this year 70,000 transactions have yielded £2.3 revenue with an ATV of £44.

The app has been downloaded 170K times (75% iOS) with 147K registered users and 100K regular users across 17 restaurants. Apple Pay usage is growing fast and doubled in the last quarter. As well as turning tables quicker, the app gives RFM and other useful CRM data.

The next phase is to add extra features to the app including e-gifting and order at table. The latter is expected to result in additional sales of drinks.

Waitrose

The big trend in grocery is more customers buying more often but buying less. 40% of people don’t know at 4pm what they will be having for dinner. Waitrose customers are increasingly polarised between “fast lane” and “slow lane” behaviour. Its payment strategy focuses on security, choice and ease and is based on a fully tokenised managed PED service from Verifone.

In the “fast lane,” Waitrose introduced QuickCheck, hand-held devices which can be used to scan merchandise before it’s put in the trolley. At the end of the shop, customers go to one of the self-checkout machines, scan a barcode and pay with their card. This has been around for twelve years and have some devoted followers. QuickCheck is being upgraded with new handsets and an alternative in which the shopper can download a QuickCheck app and use their own phone to scan the products.

Click on the image for an explanatory video
Click on the image for an explanatory video

The service is only available to MyWaitrose loyalty members. This ensure that Waitrose knows where you are in-store and can send you relevant communications for the department in which you are shopping. Scanning is the spine around which everything else is built. People still have to use the self-checkout machine at the end because there may be age-restricted items in the basket.

Self-scanning has been quite slow to take off. The move to shoppers bringing their own bags should help – the old bagging process is a major disincentive to self-scan – but Waitrose is also trying to overcome customers’ concerns about not wanting to look like a shoplifter.

Waitrose installed “skinny” self-checkout machines in one London store – no scales, no cash drawer – and improved customer satisfaction from 56% to 72% in a week. Queues fell and the store is doing 2000 extra transactions/week at £12 ATV.

Across its estate, 35% of all transactions are now contactless. This is six seconds faster than chip & PIN. Waitrose has one cash-free store. This is on the Sky TV campus but is a special design due to space limitations. There are no plans for any other cash-free outlets.

Waitrose is piloting the VF355 for queue busting and fulfilling non-standard orders eg picking up a turkey at Christmas. Waitrose is very happy with Verifone as a strategic partner.

Tossed

London based healthy eating salad bar with 27 stores and ambitious plans.  Its USP is that you order a bespoke salad that is made in front of you. This is a great strength but also a major weakness because choice and customisation slow down operations. These have gone through four iterations.

  1. Order at the salad bar, pay at till – this was very slow and distracted the “tossers” from tossing.
  2. Order at the till and take a ticket to the salad bar – an improvement but was still too slow and resulted in a “mosh pit” of customers milling around the store
  3. Mobile app on which customers could pre-order for collection – nice idea but didn’t fit into how customers really have decide what to eat for lunch.
  4. Replace some tills with kiosks – nobody used the kiosks
  5. Replace all the tills with kiosks and forced the shift to self-service

In a typical store, six manned till points have been replaced with 17 tablet/kiosks, each with a Verifone payment terminal attached. Tossed spent a lot of time on getting the UI right having piloted in their head office canteen. Point One (the ePOS vendor) worked on the project.

The move to kiosk has taken cash out of the organisation completely. Nobody has complained. It has also increased the amount of customisation that consumers ask for which has put some pressure on production. Staff have been reassigned from the tills to production so net labour cost is the same.

This was a theme from the previous day’s Finance Director conference. A combination of Brexit and increases in the minimum wage means that retailers will need to ensure that scarce human resource is directed at things customers care about. In the Tossed example, staff are better employed making the product than with ordering/paymentt.

YoYo

This is a well-funded mobile wallet that spun out of Imperial College Labs. It began with close loop applications and is present in 35 universities and 66 office restaurant locations. It reckons that 13% of the available spend is made through YoYo today.

Longer term, it wants to enter the High Street – it has signed Planet Organic – and use its consumer insight to combine loyalty, offers and e-receipts.

When a customer want to pay by YoYo, the sales associate hits the YoYo tender type button on the ePOS. The customer opens his phone, opens the app which produces a bar code. This is scanned by a scanner attached to a special YoYo box attached to the ePOS. Merchants are settled by YoYo directly and independently of their merchant acquiring relationship.

DigiSEq

DigiSEq is a platform allowing the credentials of any contactless bank card to be provisioned to any piece of wearable technology. It’s a great concept although there are plenty of challenges. I blogged about DigiSeq here.

WoraPay

WoraPay has similar functionality to YoYo but doesn’t want to build its own brand. Instead, WoraPay offers white label payment/loyalty apps to retailers. It is has been picked up by the Lloyds Bank ventures team and is live at the Lloyds Bank staff canteens in which 10.200 man years are lost each year in queues.

At Lloyds, 1 in 3 lunch orders are now paid for by WoraPay. The app works very differently to YoYo. Customers order and pay for their food in advance via the app which gives them a virtual ticket to use when collecting their lunch.

Lloyds Cardnet are now selling WoraPay.

Universal Basket

This is an app that allows you to put any product from any retailer into a single shopping basket and to buy the basket with one payment. Universal Basket stores your details and automatically creates account and fills out the forms on multiple checkout pages behind the scenes.

universal-basket

The app works via screen scraping which means that there are some obvious PCI challenges. UB says it’s managed to meet overcome these and is now in Beta. There are some customer experience ones too – notably that you’ll get asked for your CVV code because UB isn’t allowed to store this. So, you could get multiple 3DS challenges which won’t be a great customer experience. But it’s a neat concept nonetheless and I’ll be keen to see how far Universal Basket gets.

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