The challenge

A retail operator identified the opportunity to streamline its payments processes, which were heavily reliant on cash.  

The company had huge malls in 18 countries and operated more than 90 big name brands under franchise in them. Brands spanned sectors including fashion, food, health and beauty, home furnishings and entertainment. The company also operated ecommerce stores.

Three-quarters of the company’s payments were in cash, and electronic payments were only used for lower-value transactions. Cash was particularly problematic for ecommerce, where money would be collected when the goods were delivered. If a refund was required, the money would be biked back again, because local regulations meant that cash payments could only be refunded in cash. Transporting, counting and securing the cash was complex and costly.

The company also issued gift cards and loyalty cards, and was in the process of combining them into a single payment card.

There was an opportunity to introduce new payment capabilities, reduce costs, and improve security and compliance.

How EDC helped

EDC analysed the client’s internal situation, conducted a market analysis, and produced a SWOT analysis highlighting strengths, weaknesses, opportunities and threats. Finally, we helped the client to establish its new payments strategy.

We used our 360° Payments Diagnostic to analyse the retail operator’s payments strategy. To help them understand where the improvement opportunities were, we developed metrics for the cost of payment acceptance (COPA) and cost of payment issuing (COPI). The COPI was a lens for viewing the return on investment on issuing gift cards, which depends in part on how often they are used.

One of the revelations to emerge from our work was the impact of encouraging customers to use digital payments. For every 1% of transactions moved from cash to payment cards, the company would save US$2.8 million. These savings result from not having to handle cash.

We helped the customer to develop a new combined gift card and loyalty proposition. One of the challenges was that the individual retail brands were well known, but the operator’s brand was not. Its previous gift card scheme used the operator’s brand. We co-developed a proposition for a new loyalty card programme with a distinctive name, that is managed through an app for a smooth customer experience. The app allows customers to look at previous transactions and see the value of their loyalty points.

Through our work, we uncovered a number of implementation barriers in the back office, which we helped the company to fix. Business process reengineering enabled the company to make savings in operational costs.

The payments strategy included a roadmap to reform payments over the next five to ten years. It included changes in technology (both at the customer-facing and back end), organisation (including the establishment of a payments working group), processes (including customer experience design) and business process redesign. Many processes were manual with information undocumented, so part of the business process redesign was to capture information as a precursor to automating processes.

By following our recommendations, the company has been able to migrate 2% of customers from cash to electronic payments within 12 months, saving US$5.6 million. The time taken for a return on investment on the changes was between 1 and 2 years.

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