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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Waiting for wearable payments? DigiSEq may have the answer.

It’s taken a while but consumers, merchants and banks have finally fallen in love with contactless payments. Fast, secure and convenient, contactless speeds up urban life and reduces the need to carry cash. Rapid transit, grocery and hospitality are just three of the sectors in which shoppers seem particularly keen to use their contactless cards.

One of the few drawbacks of contactless cards is the actual card. Wouldn’t it be lovely if we could pay by tapping a watch, fitness band, signet ring or other accoutrement on a payment terminal? So, it’s no surprise that the payment industry has been working on embedding payments into popular brands such as Swatch or Fitbit.

This is harder than it sounds.

The technology and processes that lie behind contactless cards are complex. They have to be. This is a globally interoperable set of standards that needs to be 100% reliable and (almost) 100% secure.

A security key provided by the card issuer needs to be recognised by the security key on the payment terminal. Each card issuers’ security keys are different and, of course, jealously guarded but without them, you can’t make a payment.

At the moment there are just two options for brand owners to get these keys into their products – either become a card issuer themselves or do bilateral deals with a selection card issuer in each target market.

Becoming a card issuer (or partnering with one) normally involves equipping the product with a pre-pay card account at the point of manufacture. Consumers then need to sign-up for this account when they buy the device and fund the pre-pay account with (for example) a direct debit mandate or link to a credit card account. This is how bPay from Barclays works.

The technology is reliable but consumers are obliged to sign-up for a new account. Not only is this a poor experience but it requires the brand owner (or partner) to make credit, KYC and AML checks. This costs money. The final drawback of this approach is that the additional payment hop (brand owner’s pre-pay to cardholders preferred) is likely to cause delays in payment processing and extra costs which need to be borne by the brand owner or the consumer themselves.

If brand owners don’t want to become card issuers themselves, they will need to reach commercial agreements with individual issuers that already have large customer bases. These are necessary to get the security keys required to pre-provision the relevant credentials within each product.

This is a good option for wearable owners as they get to use their favourite cards but creates several headaches for the brand owner. The first is to establish relationships with all the major card issuers in a particular market. This is time consuming and expensive. The second is that since the security keys need embedding at the point of manufacture, the brand owner needs to know very early how many products it needs to equip with each of Barclaycard, MBNA, Capital One or other card issuers credentials. There is plenty of scope to over/under produce and be left with significant stock shortfalls or overhangs.

The paucity of wearable payment products on the market indicates that neither option is particularly attractive, from either a technology or marketing perspective. Indeed, despite some eye catching announcements, the only wearable payment products available (or close to availability) are commercialised by payment companies rather than brand owners. And many of these seem primarily designed as technology showcases rather than as credible attempts to launch mass-market consumer products.

So much for the problem. What about a solution? Well, I’ve been intrigued by a new approach from a UK start-up called DigiSEq – a resident at Techstars’ London Fintech Accelerator at which I’m one of the mentors.

Staffed by ex-MasterCard folk, DigiSEq’s aim is to allow any payment card to be provisioned ‘over the air’ onto any product. DigiSEq would do the hard work of establishing relationships with all the card issuers, negotiating the commercials and persuading them to part with their security keys. Brand owners would no longer need to insert the payment credentials at the point of manufacture. Instead, the consumer’s preferred account details can be written to the device later, at some point in the distribution chain.

The customer experience would be like this. When someone buys a watch, the jeweller asks whether they would like it payment enabled. If the answer is yes, the jeweller taps first shoppers’ payment card and then the watch against the DigiSEq “appliance” and the card’s credential are now embedded in the watch. For an online purchase, the shopper would submit their card details via a secure website and the security key would be provisioned at the distribution centre just before shipping.

I love the concept. The advantages for consumers and brand owners are clear but there’s plenty of detail to be worked through. This won’t be plain sailing for DigiSEq.

The first challenge for Digiseq is to sign-up enough card issuers to excite brand owners. Each issuer then needs to be brought on board with its own commercials terms and security set-up. Issuers are normally banks and never do anything in a hurry so this may take a while.

The second challenge is that of adding contactless technology in the manufacturing process. To succeed, Digiseq will probably need to develop a managed service capability to offer wearable payments as near to a turnkey solution as possible. Brand owners love their brands. They don’t need to know about secure chip design.

Consumers and brand owners are ready for wearable payments but the mechanics of provisioning card credentials are complex. If DigiSEq can crack this conundrum first, a sizeable prize awaits.

How to make Money 20/20 (even) better

Back from four days in Copenhagen, my verdict on the conference is: outstanding networking, average exhibition but poor content. I had hoped to return with a notepad filled with case studies, new product launches and sundry useful facts with which to surprise and delight my colleagues. No such luck. The curated part of Money 20/20 disappointed.

Let’s start with what was great about the event – everybody was there. Everybody. 3.500 people from over 1.000 businesses involved in Fintech and payments from across Europe and beyond. And exhibitors seemed pretty happy, or at least those that had booked a stand on the main thoroughfare. It was tumbleweed in the boondogs where the Fintech start-ups were banished.

Nonetheless, it’s a tribute to the brand and the organisers hard work that the launch event was so successful.

Here are few things to work on

  1. Because everybody was there so it was almost impossible to find people and, when you did, there was nowhere to sit and limited refreshment options outside of meal times.
  2. The conference app needs a lot of work. The search facility was too basic and there was no way to give in-session feedback or ask questions.
  3. Rudimental. Seriously?? We’re here to network, often with people who don’t speak great English. We don’t need drum and bass blasting us into the corners.
  4. Don’t push us out into the cold on the third evening. For €3000 I could have had an all inclusive in the Caribbean so it’s not too much to expect some food and drink every night. Maybe there was no money left after Rudimental.
  5. Reduce the number of sessions using the panel format. I know it’s easier to get people to agree to get up on stage if they can sit down and shoot the breeze rather than do some work in advance to construct a serious argument but it was frequently deadly dull at Money 20/20. In the wrong hands, panels can allow speakers to bat business buzzwords back and forth rather than tell the audience some things they don’t know. Four out of five tracks were back-to-back panels. That’s too many.
  6. Theme the product launch track. It was great that so many businesses got 10 minutes to pitch but the chances of finding two in a row that were relevant was low.
  7. Find some better moderators. I’ve paid good money and travelled a long way. I want some difficult questions asked. The moderators need to be expert in the subject at hand (some were not) and willing to stand up for the audience.
  8. Let the audience participate. There are number of effective techniques to get everyone engaged the organisers need to use some of them. Otherwise, speaker go off-topic and the delegates begin to snooze (or start playing with their phones).
  9. Invite some retailers. We spent four days discussing an ecosystem but the sharks at the top of the food chain weren’t there. I don’t want to hear what a banker things omni-channel is about, I want to hear Nordstrom or House of Fraser.
  10. Invite some software vendors. These guys are driving the bus so where were they? Not invited or not interested? If the latter, the payment industry may be in more trouble than we’d realised.
  11. Cut the prices. Or at least offer flexible options so people can come for part of the event or share a ticket with a colleague.
  12. Kill day four. Enough already.

November Newsletter

The quixotic US decision to implement chip and signature gives a good excuse to show this video of Americans buying stuff by drawing pictures of cats on touch screen payment terminals. Only in America, of course, as the head of NRF discovered when he tried to use his signature card in London.

Interesting innovation

Reductions in Interchange and consequent cuts in credit card reward programmes leave space in the market for rebooted store cards. The good news is that issuing cards just got easier. Marqeta aims to “democratise” this market with a developer friendly platform that allows any business to set up its own Visa or MasterCard- badged payment cards. Take a look at the Kabbage Card as an example of what’s possible.

3D Secure has been annoying shoppers and merchants ever since its introduction in 2001. One possible alternative comes from New Zealand start-up MyPinPad, which would like to replace your 3DS password (which you’ve probably forgotten) with your payment card’s PIN (which you probably haven’t).

On a similar theme, Oberthur is commercialising payment cards with dynamic CVV codes that change hourly. BNP is said to be running a trial although I would hope that biometric authentication via mobile will soon make both 3DS and CVV largely redundant.

In-store analytics

In-store analytics is hot right now as digital natives begin to take control of retail operations and despair at a black hole where they expect KPI’s to be. Simple footfall monitoring, for example, is no longer sufficient and it was good to see retailer Dune adopting a Walkbase solution based on Wi-Fi analytics and video monitoring.

“As well as tracking transactions of all visits, we can now use transactions per engaged visits as one of the key performance indicators for our store teams.” – Zoe Owen, retail sales director at Dune Group

Analytics don’t need to stop at the shop door. Facebook announced a new product that will provide retailers summary demographics for people passing nearby including how many have seen a particular advertisement online. The challenge with these services is not the technology; it’s going to be to recruit/retain enough clever people to do something useful with the data.

Square heads for the mid-market

Square’s IPO has been well covered elsewhere but I was intrigued by these two graphs showing that the US business has steadily been moving away from its initial audience of micro-businesses. There’s no money in that part of the market. Instead, it has quietly gravitated towards serving more established, larger retailers although its one brush with the enterprise market didn’t end well. The processing contract with Starbucks has been terminated amidst much red ink.

Square revenue by customer sizz

Square losses on Starbucks contract

While Square had a revolutionary product for the little guys, as it moves up-market it is pushing up against more established competitors (such as Heartland, see below) who have been given plenty of notice to up  their game.

SmartPOS

SmartPOS is the new way small retailers are buying technology – as a bundle of ePOS software, in-store hardware and fully integrated payment services. With Clover, First Data has one of the most complete solutions including an app store. I’d been wondering what manner of apps retailers would find attractive. According to First Data, the most popular app is Homebase which helps businesses manage their employees.

Heartland is another payment company moving into ePOS. It bought Digital Dining (a restaurant specialist), bringing to 100,000 the number of locations served by the string of small ePOS vendors it has acquired. The strategy is to cross-sell payments to the new customers but there is a risk Heartland will find itself saddled with a portfolio of difficult to maintain and non-compatible software applications.

A less risky alternative to commercialising ePOS software is to deploy more sophisticated payment terminals that can subsume some of the functions of a traditional PC-based till system. First Data are doing this too, with Clover Mini, but the smart money is backing Poynt, a start-up that has raised $28m with a promise to start shipping this quarter. Its cool looking terminal (shown below) runs on a modified Android operating system..

Poynt payment terminal

Omni-channel retailer needs omni-channel vendors

The crashing together of store and e-commerce technologies continues with the ambitious Payworks, a German cardholder present payment gateway making two interesting announcements. Firstly, it has commercialised an easy integration with e-commerce platforms so that shops can sell direct from their website using a chip and PIN machine. This is actually more innovative than it sounds. Payworks has also announced an integration with Stripe which will be attractive to app vendors making their first forays into physical retail and allows Stripe to position itself as an omni-channel payment service.

In enterprise, WorldPay quietly announced that it was partnering with Wincor to add integrated in-store payments for its large retail customers. The link takes you to an unofficial clip from its customer conference; you’ll find nothing on the web concerning the partnership. On similar lines, but more widely publicised, Cybersource and Verifone have partnered to produce a solution called Omnisource.

Wallet wars

The first anniversary of Apple Pay’s launch was met with some disappointment that the service hadn’t been more successful. The slow roll-out of contactless payment terminals in the US hasn’t helped but the international expansion has been slower than many would have liked. The UK is up and running but an announcement of five additional markets is with Amex only.

One innovation that comes with iOS9 is the integration of Apple Pay and loyalty cards within the Wallet app. Walgreens is the first merchant to provide this but the customer experience is less than elegant. First you tap for the loyalty card. This tap pushes the bill to your phone with any discounts/offered applied. Then you tap a second time for Apple Pay to work.

Meanwhile, Samsung Pay launched in the US at the beginning of October and reported an impressive average of eight transactions per user in the month.  Samsung Pay works on more payment terminals than Apple Pay as it spoofs the magnetic strip if there is no contactless pad to tap.

Retail Week Payments conference

Retail Week hasn’t run a conference on payments since the initial introduction of chip & PIN in 2005. At that time, all retailers wanted to learn about the same topic. Now, the diversity of presentations showcased the wide variety of challenges facing merchants today but also the challenge to conference organisers of programming a full day that keeps all delegates interested.

geoff tweet

I made the keynote presentation that you can see here. More interestingly, Subway showed that integrating card machines with till systems saves time and sells sandwiches. Green Man Gaming revealed that Bitcoin sometimes accounts for as much a 17% of sales value. This was the first positive Bitcoin case study I’ve seen but I’m still a sceptic.

Store of the future

It seems increasingly likely that the store of the future may contain no technology at all, at least none visible to the shoppers. Amazon – who have done their homework – made a first foray into physical retail that looks at first sight like a standard shop. All the smart stuff (including checkout) takes place on the customers’ phones, not on the store’s own systems.

Exhibit two is this thought-provoking video from Retail Week’s John Ryan, looking at the future of store design. Nobody mentions technology. Nobody. It’s all about lighting, sightlines and visual merchandising. Tech vendors need to learn to speak this language.

Finally, read RSR’s note “Why bringing digital into stores won’t work” which argues that under any viable staffing level shop assistants will be too busy folding clothes or bagging up click and collect orders to make use of any technology their employers provide. Unless you’re Apple, in which case different rules apply.

ePOS is back

Long in the doldrums, the enterprise ePOS market is picking up as retailers realise that they need both to invest in their stores and to integrate them fully with their e-commerce operations. Credit to George Lawrie at Forrester for producing the first POS Wave for some time, and more credit to Demandware for making it available free of charge.

Notable changes to the leaderboard include: Aptos (formerly known as Epicor) leading the pack; e-commerce giant Demandware making a new entry following its acquisition of Tomax, and Oracle slipping back as its inability to explain its roadmap begins to hurt. The newly reinvigorated Aptos has been quiet about its international expansion plans but must be considering a stronger partnership with BT Expedite, which holds European rights to most, but not all, of its software.

Forrester POS Wave

The mid-market is strong too. Sanderson said that it expected full year revenues (pdf) to be up 15%, and that sales at its OneIota business would grow an impressive 75%. OneIota specialises in bringing enterprise software to life on customer-facing store technology such as the iPads at SuperDry. Its acquisition is looking to be a smart move from Sanderson.

K3’s retail division reported full year revenues up 18% (pdf) as its mid-market fashion customers continued to spend on software upgrades.

Elsewhere, there’s still no sign of the new tablet-based ePOS vendors gaining traction in the mid-market. BT Expedite (Aptos) has won at Hobbs (replacing Prologic) and Futura at 99p Stores, replacing a DOS based Torex system.

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.

Finance

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