As a result of the global pandemic, both consumer and retailer adoption of digital payment solutions has taken a leap forward – potentially by at least 5 years.  This has had huge implications for retailers to examine the payment acceptance strategy, payment partners and the cost of payment acceptance.

Some retailers that used to be cash-only have had to pivot 100% to become cashless, and now accept digital-only payment methods.  Restaurants and cafes that never used to use home delivery services such as Deliveroo, Just Eat, Uber Eats, etc. have opened their kitchens and succumbed to leveraging the gig economy to make sure they retain their customers and stay in business.New business models, indirect to consumer, marketplaces, new click-and-collect options have been implemented to sell the build-up of inventory.  Some of these new sales channels are expected to remain in place for the foreseeable future.

As markets begin reopening, following the lockdown, businesses are considering how to return to some semblance of normality in an unstable environment in which lockdowns will ease (and potentially be reinstated) in different waves depending on the local spread of the COVID-19.

New sales channels are coming up regularly; old channels are changing their requirements and processes, and technological innovation is changing the way consumers shop in-store and online.  Furthermore, markets differ around the world not only for the consumer’s preferred ways to pay but also in their use of technology in response to the pandemic.

Terms such as agility, flexibility, the right mindset, are being used by retailers to describe their need to respond to the pandemic and the changing customer behaviour. These terms are expected to be the retailer’s new axiom.As retailers start to re-start their businesses following the pandemic and, in some cases, forced closure, there are three structural changes that are playing out:

• Customer behaviours and preferred interactions have changed significantly, and while they will continue to shift, the surge in the use of digital services is here to stay
• As the economy returns, demand recovery will be unpredictable and often slow to return to pre-crisis levels; we will expect this to be uneven across geographies and different product categories
• Many organizations have shifted to remote-working models almost overnight - a “remote-first” setup allows retailers to respond to customer inquiries more rapidly by providing everything from product information to sales and after-sales support digitally

The demise of cash and the rise of contactless payments in-store is the first major change seen in customer behaviour.  By the end of February 2020, the World Health Organisation (WHO) stated that banknotes and coins could carry the virus and advised the public to wash their hands after handling money, especially if handling or eating food.  Contactless payments have been an obvious winner during the crisis.  This has been driven in two ways, firstly the retailer not wishing to endanger their staff, but also, consumers don’t want to handle paper notes or coins.

The heart of any omnichannel strategy is the tenet of placing the customer at the centre of an integrated multichannel strategy, enhancing the customer experience and providing greater speed and convenience.  A content-rich experience has started to transcend beyond online-only retailers, creating truly omnichannel retailers of the future that unite m-commerce, e-commerce and the in-store shopping experience.

Some of the notable developments in omnichannel retailing have included:

• Deployment of in-store kiosks and self-service kiosks
• Click and Collect, or Buy online Pick-up in Store – and when the store is shut - curbside pickup
• Use of mPOS and tablet devices with value-added services
• Smartphone mobile payments
• Wearables

The pandemic has highlighted the fact that all types and sizes of retailers must have a digital channel. The ability to accept payments online and be able to interconnect across all functions – including warehousing/kitchens, merchandising, marketing, customer support, etc. is more important today than it was immediately before 12 March 2010, when it was announced that the COVID-19 outbreak was a pandemic.  Some retailers were ready, many others were not.

The need to improve the online basket size over physical stores will be a priority for retailers.  Companies must also re-imagine customer journeys to reduce friction, accelerate the shift to digital channels, and provide for new safety requirements.  Omnichannel customer journeys will change – some will be less attractive, whereas others will be more relevant.  There were over 20 unique omnichannel customer journeys identified by Edgar, Dunn & Company’s retailer payments practice. These will be reviewed, and investment in innovative customer journeys in light of the pandemic will be a priority.

The step-change in consumer remote adoption is enough to reconsider current business models – SMB marketplaces are expected to increase, small businesses that can operate from home will be online, home sales will change, buying local produce will be more viable and preferred by a larger pool of consumers.

The crisis has highlighted the importance of selecting the right payment partners.  To be quickly able to respond to the implications of the pandemic, retailers are reviewing which payment methods to accept and how their financial institutions and payments technology partners supported them through the crisis.

Paying for things via mobile phones has become commonplace in Europe and China.  Whether that’s through scanned QR codes or Near Field Communication (NFC) usually depends on the country the payment transaction is being made.  All across Asia, there are examples of cashier-less, cashless stores, mobile kiosks, talking vending machines, and even card-less stores.  The United States, which was at the forefront of retail consumer payments, now lags behind other markets when it comes digital payment acceptance.  The crisis may have renewed the importance of contactless payment; however, cash acceptance is expected to be around for many years.

The Cost of Payment Acceptance (CoPA) is a metric that many retailers may not accurately measure.  The relationship between electronic payments and cash payments, or between debit cards and credit cards or the split between internationally-issued cards compared with domestic cards are a few of the key performance indicators that every merchant ought to understand and track regularly.  However, it is recognised that capturing the full spectrum of all electronic and non-electronic payment arrangements is a complex and time-consuming task for any merchant.  As a result of the pandemic, there are fewer Chinese tourists, and the need to accept Alipay or WeChat Pay in-store does not need to be so high on your development roadmap.

With so many components to consider – card processing relationships, acquiring banks, foreign exchange and treasury management, cash management, network fees, smart routing solutions, payment gateways, PSPs, dispute management and fraud management – it is difficult for retailers to know where to spend their internal resources.

As businesses plan to re-start as lockdown is eased country by country and market by market, they have to review their back-office operations.  Legacy processes and inefficiencies within the operational infrastructure may not have been agile enough to adapt to the changing consumer behaviour during lockdown and as we navigate towards the ‘new normal’.

360° Payments Diagnostic CoPA

Edgar, Dunn & Company uses a proprietary methodology called the 360° Payments Diagnostic that assesses the payments strategy of retailers to identify and prioritise cost reduction and revenue enhancement opportunities.  The 360° Payments Diagnostic encourages the smart use of payment information as a valuable tool and is a proven process to reduce operational costs, improve revenues and engage customers across all channels, regardless of their preferred payment method.

The coronavirus pandemic is accelerating dramatic changes across the retail industry.  When stay-at-home and social-distancing measures have shut down hundreds of thousands of retailers it has given the opportunity for many to re-think their payment acceptance strategies and the design of their customer journeys; from product discovery to payment checkout.  Unfortunately, there will be casualties and the next time you put on your face mask to amble down to your local shops it will be very different.

‍The content of this article does not reflect the official opinion of Edgar, Dunn & Company. The information and views expressed in this publication belong solely to the author(s).