Written by Scott Thompson
Scott Thompson reviews the 2015 FStech/Retail Systems Payments Conference, which took place in London during October
Mobile payments are gaining traction, sparking many potentially gamechanging solutions and services, but the sector as a whole needs to maintain some semblance of sanity. For all the hype and extravagant claims (RIP cash etc etc), it's still a niche thing and banks, new entrants and tech startups need to better communicate the benefits to merchants and consumers. That was a key message to come out of the conference, sponsored by NetPay and SlimPay.
The payments landscape is rapidly evolving. Cash remains the preferred method in the majority of UK payments, according to the latest BRC Annual Payments Survey. Despite a slight decline it continued to account for over 52 per cent of all transactions. However, the survey also reveals that UK customers are finally embracing non-traditional methods. Non card replacement product (payment via app etc.) use has expanded six-fold over the last five years. Whilst it’s still only a small piece of the pie, improvements in technology and innovation from banks, retailers and payments providers mean mobile will increase its prevalence over the coming years.
Even contactless cards, for so long all hype, no substance, are catching on. More and more people, of all generations, are buying into contactless, although as a conference delegate pointed out, TfL remains the main driver, having rolled it out across the London transport network. Research by Saga (involving 6,267 people) shows that seven out of ten Brits over 50 now have contactless cards. And 29 per cent use them up to three times a week to buy groceries, food and drink in restaurants or cafes (21 per cent) and coffee and cake in coffee shops (16 per cent). One in ten say they no longer dig around for loose change for the bus or have to rush to buy a ticket before hopping on the tube. And they like not having to carry cash with them (31 per cent) or having to remember their PIN (24 per cent).
Just as loyalty has been won or lost in the past over whether or not a store accepts card payments, so too will customers opt for retailers who meet expectations and offer a wide choice of ways to pay. This will require considerable investment from retailers but meeting the ever changing needs of increasingly tech-savvy customers will be a key issue in the years ahead. The Rugby Football Union (RFU) is one such organisation that has (wait for it!) tackled this challenge head on. A partnership between Worldpay, MasterCard and the RFU meant that contactless payment technology was available at Twickenham throughout the stadium in time for this year’s RBS Six Nations tournament and ahead of the Rugby World Cup.
RFU’s senior projects manager George Vaughan said: "At Twickenham we have been working towards a dynamic, PAYG model that is a unique but essential proposal for this sector. Why should we pay a monthly rate when we only operate around 25 main events a year?" he asked.
One of the biggest hurdles to any visitor experience is queuing and that is increased by cash, Vaughan noted. "Cash management leaves us vulnerable to theft and user error. There are significant costs associated with the management and banking of cash."
“Six years ago the RFU estate was very different to the one now hosting Rugby World Cup matches; we were primarily cash driven and in fact the majority of transactions in stadiums are still via cash. The main sponsor area used paper vouchers. It was a visitor experience disconnected from the general commercial world and we lacked the ability to market directly to our fans,” said Vaughan. “Upgrading was costly. Infrastructure is key; even the most advanced till system is just a cash register if it isn’t connected. Your PoS system needs to innovate and interface. Operational processes also need to be reviewed and there will always be those who don't want to change.” Not that this spells the end of coins and notes. “I don’t see us completely eradicating cash. People will always come to matches with it.”
FIs, meanwhile, know that there is a wide trend of consumerisation in the industry and retail banking is no exception. Users now expect and demand the same kind of omnichannel experience they receive from the retail sector in their banking platform, and nowhere is that more evident than payments. Many banks are rising to the challenge and putting digital channels at the heart of their activity, but there are a huge amount of startups and new entrants snapping at their heels with cool new solutions. Anne Boden, CEO and founder of new digital-only bank Starling, for instance, shared her point of view on integrating payments in a full stack, startup bank. Having spent over 30 years in banking and finance, she has seen many changes and said she is excited about the possibilities today’s world give us.
Paul Horlock, head of payments, Nationwide, spoke about the challenge faced by the building society in building a ‘Digital Society’ that is relevant to all its members, present and future. Payments are a crucial part of that relationship. “We are in a unique position, spending our customers’ money, so can’t be as adventurous as other banks. We have a strong tradition in mortgage and savings provision and we intend to protect and build on that, yet at the same time provide a fully serviced banking proposition to our customers and that means building scale in the personal current account market. The reason you have a current account is to manage money, that means payments and the ability to do that whilst on the move is clearly what customers want. Our strategy is to provide our customers with their bank account in their pocket. A mobile capability that meets their needs real-time, with security confidence and simplicity. A service that facilitates their everyday needs and requirements.”
He added that Nationwide is investing £500 million in its branch network over the next few years, with a focus on self-service technologies. “The pace of change is faster than ever; exceptional customer service is expected,” said Horlock. It has also played a leading role in the UK roll-out of Apple Pay (“a no-brainer for us as so many of our customers own iPhones, particularly those who visit our City of London branches”) and Paym, the British bank-backed person-to-person mobile payments service launched under the Payments Council umbrella last spring, although Horlock conceded that, “we have sometimes as an industry been guilty of not communicating with customers and joining things up. We get good feedback about Paym but as an industry we have not been good at communicating the benefits. The same applies to Barclays’ Pingit offering. The Faster Payments Service is another great success story in the UK. Zapp are leveraging it, but again we need to better promote it.”
Another FI leading the way here is Barclays. It is obviously known as a major bank. But it also now wants to be known as a major digital innovator, helping to create and use the latest state-of-the-art technology that will bring the branch/online/mobile experience into line with what modern customers demand of their FS providers. As such, it has been winning praise for the likes of its Pingit mobile payments service which currently has 2.81 million users. A good example of an old bank doing interesting things with new tech. Milon Veasey, head of mobile solution specialists, Barclays Mobile Banking & Pingit, said: “We don’t see Pingit as a banking app, but rather an engaging way to pay. It’s about staying relevant to our customers and of course driving more transactions.”
At the same time, however, he sounded a note of caution. “We need to maintain a semblance of sanity around e-commerce sales; it’s still in the minority. And a lot of mobile payment offerings are just enabling a card in a slightly different environment.”
It was a POV which dominated a discussion panel entitled, Mobile Payments, Sifting Through The Hype, and featuring Will Grant, co-founder and CTO, Droplet, Glen Richardson, CMO, Fruugo, Matt Simester, director, Piran Consulting, and Kristian T. Sorensen, Member of Board of Directors, Mobey Forum. With Zapp launching in 2015 (fingers crossed!), Apple Pay landing in Europe and a host of startups jostling for attention, will 2015 be remembered as the year that mobile payments finally took off? Probably not, was the consensus view, although Mobey Forum’s Sorensen argued: “2015 will go down as the year consumers became aware of m-payments, thanks to mainstream interest in the likes of Apple Pay. It was a major step forwards. Apple Pay is a smash hit, not because of the transactions, but because they have got into the minds of the consumer. Apple fans are saying, we need this, our lives are not complete without it.”
Banks and retailers stand to gain significant competitive advantage from offering and accepting mobile payments at an early stage, or so the pitch goes, but the march towards a cashless society is littered with obstacles. Despite growing awareness of mobile payments in North America, only 18 per cent of consumers use them regularly, according to a recent Accenture survey. Based on a survey of 4,000 smartphone users, the report found that, while the number of North American consumers who know they can use their phones as a payment device jumped nearly 10 percentage points since last year, to 52 per cent, actual mobile-payment usage remained flat, growing only one per cent. When looking at which ecosystems are gaining the most momentum, Apple Pay – just one year after launching – is used for 68 per cent of all mobile payments in US stores.
But even Apple’s much hyped offering has its limitations. Speaking at Money20/20 during October, Best Buy’s Mark Smith said that the retailer only recently added Apple Pay but, while it is driving higher value purchases, it will need rewards and loyalty to take it to the next level in terms of adoption. “Best Buy was a founding member of MCX but felt it had to provide consumers with choice. All of the digital wallet plays want to capture both online and offline purchases eventually. Retailers suffer from extremely low margins so price discounts, such as those offered by Chase on Chase Pay, are very compelling,” he observed.
That’s a viewpoint backed up by further Accenture research showing that more than three-quarters of consumers who currently make mobile payments would increase their usage if offered discount pricing or coupons based on past buying behaviour (cited by 79 per cent) and if they received reward points (78 per cent). Additionally, more than half of those not currently making mobile payments would make them if offered discount pricing or coupons (cited by 54 per cent of non-users) or reward points (53 per cent).
Another obstacle, noted Piran Consulting’s Simester, is that, “there are a multitude of m-payment options. People don’t seem to have settled on one. Transactions are growing but they’re still in the minority; it isn’t a mature market.”
Fruugo’s Richardson added: “I struggle with the term m-payments; all you’re doing is paying by card. It depends on your definition. Mobile traffic is on the increase online, so, if you say mobile is buying things via mobiles, then absolutely 2015 was a landmark year.”
He continued: “We are at the innovators stage, mobile nerds like us are the early adopters, we’re the last necessary step before the consumers. The industry needs to concentrate on them, get them to adopt, incentivise them. The more fields you put at the checkout, the more your conversion rates go down. It’s about the right payment method at the right time, personalisation is key.”
For Droplet’s Grant, it’s a case of, “making the payment disappear (as happens with Uber), that’s what the customer wants.”
Simester flagged up Paym as “a fantastic, industry-led solution, with great mass market potential, but the marketing has been disastrous.”
Somewhat inevitably talk turned to Zapp. Since the venture held a media launch event in early 2014 to highlight its new mobile payment solution, things have been rather quiet and, worse still, Apple Pay has been blazing a trail. When speaking to Retail Systems in October, Peter Keenan, chief executive at Zapp, was “loathe to give dates” for an eventual launch, but he was keen to quash any rumours of problems and doubts about the impact it will make when it does finally hit the market. He suggested much work had been done since April 2014 that has eaten up time: “Since we announced the solution one year ago we have been working on it from a technology standpoint to see what’s needed and also from a business standpoint to see where the pain points are.”
He also highlighted the grocers’ requirement for multi-step payments whereby they take authorisation ahead of a customer building their shopping basket online but do not actually process the payment until the order is completed. Keenan admits to the build-out of this multi-step payment functionality taking a full nine months and that the creation of the infrastructure has been particularly complex – in contrast to the likes of Apple Pay and Samsung Pay, which he says simply sit on the existing infrastructures (‘rails’) of the card schemes.
The message didn’t, however, appear to have hit home with those in attendance at the Payments Conference. A delegate asked: “What problem does it solve?” Whilst Grant argued: “Zapp is the banks’ attempt to make their payment rails relevant to mobile consumers. Their mistake has been the new Pay by Bank app paymark. No one loves their bank. At best you don’t hate them. For too long the banks have had it their own way, and that situation is about to be taken apart, I hope.”
For Grant, the world’s most successful mobile payment offering is the Starbucks app. “It has offers, it’s about giving back to customers.”
Whilst Richardson sang the praises of the Greggs Rewards app, the first entirely digital loyalty scheme launched by a UK food-on-the go retailer. In addition to paying for their sarnies, sausage rolls etc, customers can also receive offers and rewards. These include a free breakfast when opening an account with at least £20, hot drink incentives (e.g. buy seven coffees get your next free) and a birthday treat.
But whilst there are success stories out there, much more work needs to be done on getting the message across to the man and woman on the High Street. “It comes down to good old fashioned marketing. There are plenty of examples where the tech works but the offers and analytics are poor. Customers are very aware these days that they own their data and they expect to be rewarded for it,” said Simester.
The industry also needs to recognise that mobile can co-exist with cards and cash. Forty six per cent of turnover at UK SME High Street retailers is generated through cash payments, according to The Value of Cash on the UK High Street survey, published by Cardtronics UK and conducted by Populus. This also finds that High Street ATMs directly account for £36 billion of the High Street economy, whilst 11.7 million Brits will abandon physical stores if they can’t withdraw money and shop at the same time. The research involved 4,000 consumers and 250 SME retailers; a key message is that, although the High Street remains the heartland of British shopping culture, its face is continuously changing and evolving. The payments landscape is one of the most influential variables in this equation. The data shows that card payment options are available virtually at all shopping tills of SME High Street retailers, although they come at a cost: stores spend two per cent of their annual turnover on offering non-cash payments. On the consumer side, Brits prefer notes and coins over cards for purchases below £17.
Ultimately, the emphasis should be on what works for consumers, not the banks, card schemes and cool startups. In the rush to find the next big thing, the customer is often forgotten. Brad Hyett, head of business development UK & Ireland, SlimPay, remarked: “No one has ever said, I love paying.” But as things stand, they’re into a mix of cash and cards, the likes of PayPal for e-commerce and m-commerce and there’s a nascent interest in Apple Pay et al. The future is hugely exciting but a balance also needs to be struck, between on one hand the mobile enthusiasts and their extravagant ‘brave new world’ claims and on the other those spreading, as one delegate put it, “doom and gloom tales....So much being said is unproven and researcher scares.”
Or, to quote Steve Jobs via Carl Churchill, managing director, NetPay: “Get closer than ever to your customers. So close that you tell them what they need well before they realise it themselves.”
Further info on the conference at: www.fstech.co.uk/payments/