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Consumers, Checkout & Creating Experiences That Resonate How alternative payment methods can fulfill the promise of flexible, friction-free shopping—both online and off.


Boost sales with Pay later.

Let customers pay in four equal installments, interest-free. Learn more at klarna.com/us


PAYMENTS REPORT 2019 3

IS EXPERIENCE THE NEW LOYALTY?

A

consumer-led revolution is shaking up retail. Over the past decade, the way people shop has changed dramatically, with the evolution of technology and mobile shopping. Today’s online shoppers are empowered and their expectations are high. They demand highly intuitive personalized experiences and the ability to shop anytime, anywhere and from any device. If a retailer doesn’t meet these demands, shoppers will move on to one that does. At Klarna, our philosophy is to give shoppers the freedom to decide how and when they want to pay. We’re all about a smoooth (yes, so smoooth it needs 3 o’s) buying experience that not only maximizes conversion for our clients, but empowers consumers. Retailers need to keep shoppers engaged throughout the purchasing journey in order to attract and maintain customers. From more payment options and harmony between instore and online, to exceptional service 24/7 and pain-free returns, if retailers want to stay ahead of the competition, their customers should come first. So, what’s most important to shoppers today? They want choice. The way that they pay for goods is one of the most fundamental elements of the check out. Studies show that shoppers of all ages are demanding better ways to checkout and new ways to pay that meet their individual needs. The payment

TABLE OF CONTENTS 3 INTRODUCTION 4

journey is now essential to capturing a loyal shopper and ensuring a positive consumer experience. Retailers around the globe have answered this call with alternative payment methods (APMs). Once a concept goes mainstream, it transforms from fad to norm. This is the case with APMs, a phenomenon that is rapidly merging into the world of e-commerce. There are now many payment options for shoppers —bank transfers, mobile and digital wallets, instant financing and try before you buy. Via Klarna, retailers can give their customers increased purchasing power, right when they need it at the point of sale. Klarna lets shoppers pay 30 days after delivery—enabling them to try goods first and pay only for what they keep. Shoppers also have the option to pay over time in installments with Klarna. And all our payment methods are proven to increase repeat purchase, average order volume and sales for retailers. In the years to come, shoppers’ demand for flexibility and convenience will continue to grow, while patience with the status quo will decrease. We will see payment providers and retailers working closer together to drive a cohesive consumer experience. And we can expect the number of merchants incorporating increased payment options to rise. Ultimately, the future of payments lies in ensuring shoppers have a great user experience from start to finish—after all, experience is the new loyalty. And only the smoooth will survive. —Sebastian Siemiatkowski, CEO & Co-Founder of Klarna

PAYMENTS NEWS

8 THE GLOBAL PULSE ON PAYMENTS 10 IS THIS THE END OF ‘CASH OR CREDIT’? 12 GRAB N GO 14 RETAIL THERAPY 16 WHY VOICE SPEAKS VOLUMES IN PAYMENTS 18 THE FUTURE OF FINTECH 19 PLAYING CATCH UP


RETAILERS LATE TO MOBILE WALLETS COULD PAY THE PRICE Driven by the growing popularity of mobile shopping, more and more payment options are flooding the market. Mobile commerce, including in-app payments and mobile browser payments, accounted for 48 percent of digital commerce sales globally as of 2017, and are forecasted to reach 70 percent by 2022, according to McKinsey & Company. Faced with those statistics, retailers racing to put omnichannel in focus for 2019 should integrate mobile payment options into their e-commerce strategies as well, according to industry leaders. “A one-size-fits-all approach to payments doesn’t work on a global scale,” said Ralph Dangelmaier, CEO of online payments company BlueSnap, speaking at the NRF Big Show. “Consumers want options.” Those options, he said, need to include mobile payments and digital wallets like AliPay, Apple Pay and Google Pay. There are plenty of reasons for consumers to seek out alternative payments like mobile wallets, but chief among them is ease of use. “Convenience is king,” said Kamran Zaki, president of payment platform provider

Adyen North America. As mobile shopping surges in popularity, retailers will need to focus on mobile purchasing options to remain competitive. “Optimizing the design and function of mobile checkouts is more important than ever,” he said. According to a recent study commissioned by Adyen, 86 percent of U.S. consumers have left a store due to daunting lines at checkout, only to head to a competitor or skip the purchase altogether. Purchasing decisions are made just as quickly online, making facilitating easy payments critical. “Consumers no longer have to memorize their card information or type in 15 numbers for every purchase,” Dangelmaier said in reference to e-wallets. “When shoppers have the payment options they want and the most streamlined path to purchase, that’s when they convert.” And providing custom perks help too, said Zaki. “Shoppers want experiences tailored to them as individuals, from personalized coupons, to deals based on past purchases, to recommendations based on their geographic location,” Zaki said. Some mobile wallets tied to retailers, like the pay-with-app feature

from Starbucks, even allow consumers to earn rewards points. Consumers also respond well to digital payment options that provide added security, especially protections against identity theft. Dangelmaier said that technologies like Apple Pay make consumers feel secure, since they require shoppers to scan their fingerprints or faces to authorize a payment. Retailers who neglect the mobile wallet may also be missing out on international e-commerce customers. “In markets like Asia and Latin America, many consumers are mobile-first,” said Zaki. Mobile wallets can be an easy remedy. While installment-pay plans like Klarna and Afterpay are gaining traction among consumers making larger purchases, retailers who want to convert new customers—and maintain repeat customers—need to be thoughtful about implementing mobile wallets. “A complicated checkout process makes consumers feel confused,” Dangelmaier said. “An insecure checkout process makes them feel vulnerable.” Neither of those is likely to make a purchase. —Hattie Hayes

GENERAL STATS Consumers who say mobile payment is more convenient than cash

84% Those that use their mobile wallet more than they did 2 years ago

83%

41.8 b

Shoppers who anticipate using their mobile wallet much more in 2 years

85%

Globally that represented 8.6% of global non-cash transactions

World Payments Report 2018 from Capgemini and BNP Paribas

Paysafe’s “Lost in Transaction: Payment Trends 2018” report based on a survey of 5,056 consumers in five countries


PAYMENTS REPORT 2019 5

STANCE STEPS INTO MOBILE CHECKOUT

H&M AMONG THE LATEST RETAILERS TO EMBRACE “TRY BEFORE BUYING” PAYMENT OPTION Will having the option to receive clothing packages and model the garments yourself prior to purchasing one day be standard across fashion e-commerce? With Amazon Prime Wardrobe leading the way and denim darling Kut from the Kloth among those already offering the service, anything’s possible. Now, Sweden’s H&M is the latest fashion retailer to let online shoppers try before buying as part of a broader push into frictionless omnichannel shopping. In addition to taking an equity stake, the Stockholm-based apparel purveyor said it’s integrating solutions from payment technology firm Klarna into its core H&M mobile app, as well as H&M Club, the retailer’s digital loyalty program. With Klarna underpinning payment technology, customers will be able to complete in-store checkout with just their smartphones and use that same tech when ordering and paying online. An associate at the cash wrap will scan a customer’s loyalty app and ask if she wants to use the pay later option, an H&M spokesperson said. If she chooses to pay later, she’ll receive an invoice for the purchase, and use the H&M app to later decide how to pay— with her debit or credit card, bank account or in installments. Working closely to develop a solution that offered the same seamless experience in brickand-mortar as on the web was a key feature of the Klarna partnership, H&M said, noting that it will be integrating the technology in 14 of the 71 markets in which it operates, starting

with the U.K. and Sweden in 2019. One of today’s top payments innovators, Klarna offers a couple of ways to help cashstrapped and credit-shy millennials afford purchases, or at least encourage them to take the plunge online. One option is to split the purchase total into smaller payments over time. The other is pay later, which is targeted squarely at apparel e-tailers and allows shoppers to order a number of items to evaluate at home before being charged for whatever they decide to keep. Klarna vice president of communications Aoife Houlihan told Sourcing Journal the “pay later” option, already popular with many of Europe’s fashion retailers, “bridges the delta between the online and offline experience.” In a traditional four-walled store, shoppers have the luxury of ducking into a fitting room to assess which items to keep. Pay later, Houlihan said, aims to increase the parity between physical and digital channels. Despite the many conveniences of shopping online, returns remain an onerous part of that end-to-end process. H&M said Klarna will be a strategic partner in making pay later returns seamless; users of the retailer’s app can look up the nearest pick-up or drop-off points for their unwanted purchases. An H&M spokesperson noted that though users of the pay later option are invoiced for their items 30 days following their order, they can further extend that timeframe by choosing to pay their balance in installments or delaying even longer. —Jessica Binns

Stance, the sock chain beloved by the likes of pop siren Rihanna and the NBA bearded wonder James Harden, is likely to cement its cool-kid status with the addition of mobile self-checkout in stores. To bring its vision of mobile selfcheckout to life, Stance partnered with API-first digital commerce platform company Moltin to develop an app-free solution to the cash-wrap conundrum. “People don’t want to wait in line, and they don’t want to download an app to avoid a line either,” Paul Zaengle, executive vice president of direct to consumer at Stance, said in a statement. Together, Stance and Moltin created a mobile-optimized progressive web app that “provides the ease of an e-commerce checkout experience in a physical store.” To check out, customers pull up a short URL on their phones, scan the product barcode with their smartphone and are prompted to pay with Apple Pay, Google Pay or a stored credit card. Zaengle said Stance will continue to enhance the checkout solution and could add other payment methods in the future. “However, we’ve tried to minimize keystrokes and taps to increase convenience, and at this point, the thumbprint and facial recognition of Apple Pay and Google Pay are the fastest and easiest methods for our guests,” he explained. The completed transaction generates a receipt, which shoppers must display for employees on their way out of the store. The goal, Stance said, is to free store associates from the chore of checking out and have them focus instead on value-added activities such as customer engagement and product education. Mobile checkout, which was piloted in Stance’s on-site store, represents 20 to 30 percent of all transactions. Moltin CEO Jamus Driscoll said the Stance deployment is proof that retailers of all sizes can achieve frictionless checkout. “It’s proof that cutting-edge solutions are not only for those with massive resources and footprints—the future is accessible to everyone,” he said. —JB


SAM’S CLUB NIXES CHECKOUT LINES WITH SCAN & GO TECHNOLOGY Scan & Go may have flopped at Walmart stores—so much so that a January 2018 rampup was pulled entirely by May—but now the mobile app store experience is powering a new experimental small-format facility in Dallas dubbed Sam’s Club Now. Shoppers at Sam’s Club have embraced self-checkout using the Scan & Go app, which now forms the bedrock for how customers will experience the just-minted Dallas location, described by CEO Jamie Iannone in a blog post as the “epicenter of innovation” for Sam’s Club as a whole. Shoppers open the app and point the scanner at a product’s barcode to shift it from their smart shopping list (more on that in a moment) to their mobile basket—similar to how Chinese consumers pay by scanning a QR code. By scanning items as they go along, shoppers can quickly check out via Walmart Pay or other stored payment options once they’ve completed the shopping trip. But the company’s stab at rethinking retail

doesn’t end there—and borrows heavily from much of what China’s been up to for the past few years. While Scan & Go simplifies checkout, the chain offers smart shopping lists, powered by machine learning and history data, which guide customers to their desired products efficiently. No more wandering back and forth and wasting time searching for an elusive item. It achieves this with wayfinding technology powered by augmented reality (AR), meaning a shopper simply has to look at his or her smartphone to see accurate, time-saving, turnby-turn directions to the next destination. And it begins with a voice request, contributing to the seamless and human feeling of engaging with an otherwise pretty utilitarian store. Though technology has a starring role in this experiential “technology lab that doubles as a live, retail club,” per Iannone, the 44 store associates remain a critical asset, especially the 11 “member hosts” who Sam’s Club described as concierge-like employees equipped with handhelds and apps to help

expedite membership sign-ups and facilitate returns. The company noted that one moveable checkout station will be on hand for any outlier instances, though “the expectation is that it is rarely used,” a spokesperson said. Sam’s Club’s decision to locate the Now store in Dallas’ “really cool” Lower Greenville neighborhood demonstrates considerable savvy about its current—and, its hoped, future— customers. The company wants to attract “early adopters” whose feedback will be instrumental with co-creating future tech and experiences, the spokesperson explained. Scan & Go’s disparate fates in Walmart stores versus Sam’s Clubs boils down to a tale of two use cases—and “friction” that wasn’t quite anticipated. The app made shopping for Sam’s Club’s bulk items faster and easier but made checking out weighed items, like fresh produce, cumbersome and unwieldy in Walmart big boxes. —JB


PAYMENTS REPORT 2019 7

RETAIL’S CHALLENGE: DELIVERING ON TRUE CUSTOMER CENTRICITY Customer centricity was a hot topic at this year’s NRF Big Show. Exhibitors asked about the future of direct-to-consumer retail all seemed to agree that the customer is calling the shots in 2019, and they’re asking for more in the way of omnichannel and seamless checkout experiences. “The learning curve for direct-to-consumer is really around becoming consumercentric,” said Terri Pucin, senior consultant at FitForCommerce. Pucin pointed out that many manufacturers are used to cyclical product launches, and that developing a production timeline that meshes with consumer demands isn’t always intuitive. An even bigger stumbling block for companies, Pucin said, is pushing customers through to a sale. While the direct-to-consumer space is rife with savvy social media marketing, many retailers entering the market lack the knowledge needed to go beyond generating buzz. “Selling directly to customers requires merchandising and marketing expertise designed to convince a customer to purchase

now,” Pucin said. “It’s important that retailers map their customer journey, from discovery to purchase to post-sales, to understand all the customer touchpoints.” Phil Granof, CMO of NewStore, reiterated Pucin’s statement, adding that retailers may be overthinking the delineation between online and in-store experience. “Consumers don’t think about retail in terms of channels,” Granof said. “What they want online is exactly what they want in-store and on mobile: a shopping experience that is simple, novel, authentic and personalized.” Granof said creating a true omnichannel experience is vital for brands to succeed, and retailers should not assume a path ends online. Shoppers are coming to expect an omnichannel experience, he said, and want multiple fulfillment options like pick up instore or at a locker. Further, he said alternative purchase options can be the difference between completing a purchase or abandoning a cart. And expanding payment options is another aspect of retail that direct-to-consumer brands are uniquely positioned to take advantage of.

“Technology innovation has resulted in so many alternatives beyond cash and credit,” said Granof, going on to name Apple Pay, PayPal, Amazon Pay, AliPay, AfterPay and Venmo as examples. Those payment alternatives, along with buy-now, pay-later options, are crucial for upstart brands to convert fans into customers. “Retailers are focused on payment options today because they have to be. They have to accommodate, or at least manage, consumer expectations around these new payment options, or else they risk losing out to those who do.” Just as mass personalization continues to reshape the way retailers approach their product, a custom purchasing experience might become the hallmark of winning retail strategy in the coming year. Personalizing the shopping experience for each customer used to be considered innovative, but now it’s a determining factor in brands’ success, said Pucin. “Customers have extremely high expectations,” Pucin said. “They expect that retailers are learning about them and will therefore deliver relevant shopping journeys.” —HH

MOBILE WALLET ADOPTION VARIES BY GENERATION Mobile wallet market share by transactions

of millennials say they’re likely to use them

Apple Pay Samsung Pay Google Pay

32% of consumers ages 35+ 16%

56 %

Amount of younger millennials (ages 18-24) who use alt payment methods like PayPal FICO Survey: “American Millennials Will Step Up Use of Non-Traditional Banking Services This Year”, 2016

Average transaction per user per month

5.5

7.3

5.5

2.1b

Number of consumers who will use a mobile wallet in 2019, a ~30% increase over 2017 Juniper Research study: “Mobile Wallets: Service Provider Analysis, Market Opportunities & Forecasts 2018-22”

Apple Pay Samsung Pay Google Pay

Mobile wallet market share by transactions in China Iresearch Global

54% 40%

Alipay WeChat Pay


THE GLOBAL PULSE ON PAYMENTS INNOVATION IN PAYMENTS COMES FROM ACROSS THE GLOBE, WHERE CONSUMERS ARE MORE EAGER TO USE ALTERNATIVES TO THE TRADITIONAL CREDIT AND DEBIT CARDS. JESSICA BINNS

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he U.S. likes to think that it’s No. 1 in just about everything, but when it comes to innovative payments options, America takes a back seat to countries that have seized the lead in building the future of moving money around. China is obsessed with all things mobile and that means payments, too. The nation of 1.3 billion’s rapid adoption of fast and convenient digital payments in essence boils down to one simple thing: infrastructure. For many Chinese, Internet connectivity came through their one connected device—the mobile phone— making the transition to paying for things by phone the next logical step. Today, at least 68 percent of Internet-connected Chinese make mobile payments, far ahead of the 15 percent of Americans doing the same. China clocked $12.8 trillion in mobile payments for the first ten months through October in 2017, multiples more than the U.S.’s $48.3 billion, according to Mobile Payment Conference. For decades the U.S. has led in infrastructure, meaning that consumer behavior followed as new technologies like broadband and then wireless became widely available. The opposite has happened in many developing countries, where wireless leapfrogged broadband and created an explosion in mobile-first behaviors without ever really landing on desktop devices. The smartphone, and to a wider degree the mobile phone, has been the great equalizer, bringing people around the world online and into a digital society. Now people in China pay not only with QR

codes on their mobile phones but via facial recognition, too. Alibaba’s Alipay teamed up with fast-food giant KFC in 2017 to let customers pay “with a smile,” and the Chinese megacorp similarly partnered with the city of Wenzhou early in 2019 to enable facial recognition-based payments on an entire street full of shops. The overall Asia-Pacific (APAC) region favors

“ CHINA CLOCKED $12.8 TRILLION IN MOBILE PAYMENTS FOR THE FIRST 10 MONTHS OF 2017, MULTIPLES MORE THAN THE U.S.’S $48.3 BILLION. —Mobile Payment Conference

alternative payments over the West’s love affair with traditional cards. Usage of alternative payments ticked up from 49 percent to 51 percent from the first quarter of 2017 to the same period in 2018, according to GlobalData’s Consumer Payments Insight Survey. Australians used alternative methods for one-third of their e-commerce payments in 2017, while India’s government-led demonetization initiative in 2016 deprioritized cash to the advantage of alternative digital options. Israel, aka “start-up nation,” is home to roughly 500 fledgling fintech companies that have secured about $600 million in funding as of July 2018. Splitit is leading that pack.with an

installment payment option, which has become one of the pillars for firms like Klarna. Part of the problem with payment solutions today, according to Splitit CEO Gil Don, is that many are constrained to preferences and regulations of their country of origin, which presents a challenge to global fashion brands looking to expand across borders. Better to invest in customer-friendly payment technology that’s purpose-built to operate in hundreds of countries instead of having to find a new solution for each new locale. In contrast to innovation-hungry global consumers, plastic gets the job done in the U.S., which means most consumers seem pretty content paying with credit and debit cards, though continuing fraud and cybercrime put a damper on card usage online. However, the shift toward innovative payment technologies is moving beyond the mobile wallets of Apple and Google into creative new ways of making purchases more affordable, thanks to the habits and preferences of younger consumers. Beyond Splitit, Australian firm Afterpay offers an installment payment option to rival Klarna’s based on how millennials want to pay for purchases and make their dollar stretch today. The growing U.S. interest in alternative payments like Klarna, Splitit and Afterpay comes at a time when retailers are looking to expand from their current options. Forrester’s State of Retail Payments – Outlook for 2019 shows that enthusiasm for digital payments is waning among U.S. merchants. Roughly 20 percent of retail executive decision makers surveyed for its report said they’ve


PAYMENTS REPORT 2019 9

deployed contactless payments in their stores, while about 30 percent expressed no interest in bringing this technology into their organizations. What’s more, those that have gone contactless haven’t seen much usage, the report said. Similarly, customers can pay by digital wallet at 20 percent of the surveyed retailers, though they’ll be out of luck at the roughly 50 percent with no such integration plans, according to Forrester’s data. Asked about plans for the next 18 months, just 35 percent of decision makers claimed their top payments priority will be integrating innovative digital technologies, down from the 50 percent who responded similarly in 2016. “Consumer usage and demand for digital payment methods just hasn’t materialized for most merchants,” the report explained. However, more than half are eyeing the success of store-branded digital wallets a la Walmart Pay and Kohl’s Pay and thinking about similar efforts to lower transaction costs. As young millennials and Gen Zers grow into spending power that’s expected to exceed more than $1.6 trillion by 2020, retailers will need to adapt to their mobile-first mindset that dominates virtually every aspect of their digital lives, including frictionless ways to pay. In fact, 43 percent of the retail executive decision makers that Forrester surveyed expect social media-based purchases to impact their payments processes in the next year and a half. Only regulatory and policy changes were seen as having a greater impact, signaling the importance of integrating emerging payments options to meet consumers on the social platforms where they spend so much of their time and look to spend more of their money. It’s important to note that retailers seem discontented with their payments vendors, based on Forrester’s research. Half are dissatisfied with the capabilities of their vendor’s platform while another 48 percent described their providers’ reporting capabilities as “insufficient.” Like everything in retail these days, winners in payments will be the ones focusing on what matters most: the customer experience. The best, according to Forrester, are those that bring “payment order to omnichannel experiences” and reduce complexity.

MOBILE WALLET TRANSACTIONS Number of transactions with mobile wallets in 2018

16.3 b in China

39%

China makes up 39% of all mobile transactions in the world.

25.5 b

in the rest of the world ”World Payments Report 2018” from Capgemini and BNP

12.8 t

25.5 b

Transactions in China for the first 10 months

in the U.S. for the year

eMarketer

Percentage of the Chinese population who will use mobile payments, up 13.2*

45.2% Percentage of Americans who use ewallets^

19% *eMarketer, The Mobile Payments Series ^The Future History of Payments whitepaper from Kapronasia


IS THIS THE END OF ‘CASH OR CREDIT’? ALTERNATIVE PAYMENT OPTIONS ARE PAYING OFF, GIVING SHOPPERS THE CONVENIENCE AND FLEXIBILITY THEY NEED WHILE PROVIDING RETAILERS WITH HIGHER SALES AND BETTER INSIGHTS INTO CONSUMER BUYING HABITS. JASMINE GLASHEEN

C

redit cards might still be the No. 1 payment method in the U.S., but younger demographics don’t have the same affinity for them that their older counterparts do. The result is a rise in alternative payment methods. While only 17 percent of U.S. consumers reported they had shopped via a mobile device in the six months leading up to GfK’s 2018 FutureBuy Study, interest in this form of payment is on the rise. The market data firm found that 28 percent of shoppers are looking forward to having more options more often. That number is up from 17 percent in 2015. As affinity for mobile pay increases, consumers are coming to expect retailers to keep up. And increasingly, stores from Target to Rebecca Minkoff are racing to do just that. While it’s commonplace to see Apple Pay and Google Pay options at relatively new chains, traditional retailers have been slower to accept payment beyond the usual cash, credit and debit. That’s starting to change as the benefits of alternative payment methods—like mobile wallets or try-before-you-buy services—have become more well known. Beyond offering a lower friction experience for shoppers, they also allow retailers to tap into younger demographics, gather more customer data and boost sales. “Mobile wallets are definitely the future,” said Ray Hartjen, marketing director and customer behavior analyst at RetailNext. “But the current implementation in retail is rather clunky.”

Hartjen said alternative payment methods are all about giving customers the ease of online one-click shopping when they check out in physical stores. Yet most retailers are still falling short of the ideal friction-free in-store experience. “Friction-free, of course, is not always cashier-less, like Amazon Go,” Hartjen tells Sourcing Journal. “But its principles are the same and C-stores, especially those with petroleum, are very much leading the charge.” He also credits the big mass players like Walmart for getting traction in this area. Ultimately, Hartjen said, “the retail industry

can expect younger shopper generations—Gen X and Millennials—to drive adoption across all categories and segments.” In order for alternative payments to really take off, they need better PR. Consumers and retailers alike also have concerns about the security of using mobile payments. A 2017 U.S. Consumer Payments Report by payments firm TSYS found that “Security remains a leading concern for consumers (when doing in-app mobile shopping) and high-profile breaches most likely reinforce this concern when shopping online.”

MOBILE DEVICES FOR SHOPPING

The percentage of U.S. Internet users who agree “My mobile device is quickly becoming my most important shopping tool.”

45% 29%

2018 2018 FutureBuy study from market and consumer data firm GfK

2015


PAYMENTS REPORT 2019 11

While issues like these can dominate the headlines, it doesn’t mean these payment methods are flawed, according to Jordan McKee, analyst at 451 Research LLC. “It’s not that mobile payments are inherently insecure,” McKee told Digital Transactions. “It’s a matter of messaging. There needs to be strong messaging about the security that mobile payments provide.” While security concerns might give some consumers pause, it’s actually the younger demographic’s fear of going into debt that makes them primed for alternative payment methods. Millennials are less likely than their predecessors to use credit cards for their purchases. And according to financial services research company Aite Group, less than half of Millennials use their credit cards weekly, which means retailers need to look for new ways to inspire young consumers to spend. To encourage credit card-shy consumers to spend on big-ticket items, Danny Choi, founder of Payment Depot, a membershipbased payment processing company, suggests that retailers keep a close eye on ‘buy now, pay later’ platforms. “’Buy now, pay later’ serves consumers’ need for instant gratification without hitting them too hard financially,” Choi says. “That’s a winning combination, and one that’s sure to be popular—particularly with Millennials and Gen Z. Any retailer selling highticket items should look into it.”

Offering shoppers the option of deferring or splitting payments can make splashing out on a luxury item much more palatable. “Retailers know that allowing consumers to delay payment can dramatically increase their readiness to buy,” Shahram Heshmat, Ph.D, associate professor emeritus at the Univeristy of Illinois at Springfield, told Addiction magazine. It comes as no surprise, then, that retailers geared towards older Gen Z consumers and affluent Millennials already offer ‘buy now, pay later’ options. Urban Outfitters began offering customers the option to choose zero interest installment payments at checkout in 2018, and Anthropologie, Steve Madden and Rebecca Minkoff have also recently added installments to their offerings. In addition to providing shoppers with an array of ways to pay, retailers are also starting to find ways to tie perks to payments. “Starbucks is a prime example of a business that’s done well with mobile payments,” Choi said. “Tying in their payment system with their rewards program was a smart move because it allowed them to increase repeat spending while at the same time giving shoppers a convenient way to pay.” Starbucks was an early adopter of mobile payment technology, having partnered with Square to bring mobile payments to the masses back in 2012. Many retailers in the

fashion sector, however, are a bit behind the curve on mobile payment adoption. Case in point: Macy’s just got on board as recently as spring of last year. On the other hand, Nordstrom launched mobile payments in 2012. The department store chain’s recent acquisitions of databased clienteling and personal shopping tools BevyUp and MessageYes indicate it’s moving toward creating a single platform for conversational commerce, customer relationship management and payment processing. Brian Gill, technology senior vice president at Nordstrom, summed up the evolution of payment processing within the retail industry perfectly in a recent press release: “The retail environment is changing faster than ever, but the value of service, speed, convenience and newness remain constant,” Gill said. “To continue to be successful into the future, we need to invest in technologies that will enable us to deliver on those qualities and better serve customers in a digitally-connected world.”

INCENTIVES

DETERRENTS

Consumers say they would try a mobile wallet if it benefited them.

Shoppers who shy away from using mobile wallets explained their reluctance.

Consumers would want:

Consumers say:

to receive better promotions/offers

they have security concerns about mobile wallets

30% it to organize coupons/offers, boarding passes, loyalty cards, etc

27% to get offers based on their purchase histories and locations

9% Vibes’ 2018 US Mobile Consumer Report, which surveyed 1,000 U.S. smartphone owners

59% not enough of their favorite stores offer it as payment format

19% they don’t know where they are accepted

17%


GRAB ‘N GO RETAIL IS RACING TO PERFECT WALKOUT TECHNOLOGY THAT’S AS EASY TO USE AS THE AMAZON GO MODEL.

JESSICA BINNS & CALETHA CRAWFORD

A

mazon Go put cashierless retail on the map—and in all the headlines. The new store format, which launched in January 2018, weaves together a sophisticated system of cameras, sensors and computer vision to track the items shoppers place in their bags. Upon entering the store, consumers must first scan their Amazon app at a turnstile and once they leave, the system automatically bills them for their purchases— no formal “checkout” required. Dilip Kumar, vice president of technology, Amazon Go and Amazon Books, told the audience at ShopTalk last year that his team knew Amazon’s solution had to be accurate or there was no chance people would return to a store that charged them for the wrong items. “The approach we chose was to see how best to leverage computer vision and bring it to solve this problem of who took what in a grocery store setting,” he said, adding that in addition to sensors, the technology turned out to be the best choice in an environment where ther are multiple shoppers and tons of product choices. While the Amazon Go fleet is still small, the store’s influence can be felt across retail, as a steady stream of tech companies introduce solutions that allow for a similarly frictionless shopping experience. But several questions remain. First, are consumers as excited about these grab-and-go stores as the industry seems to be? A recent survey conducted by Paysafe found that 56 percent of the consumers it polled across five countries are wary of the concept. Jesse Collins, research analyst (Digital Retail Innovation) at Edge by Ascential, told Sourcing Journal some initial qualms are to be

expected with any new technology—especially one that monitors consumers’ every move. But ultimately, he thinks the convenience factor will win them over. Collins said the concept has other problems though. “Cashier-less formats, specifically those that leverage AI-based camera analytics (e.g. Amazon Go) are the future of retail. The biggest barrier to widespread adoption is not the consumer, but the cost of implementation,” he said. What we’re talking about, after all, is a very sophisticated web of technology that can identify products, people and movements in dynamic environments with a high degree of accuracy—all while allowing customers to go about their shopping trips as usual. Thus far, cashierless checkouts have been containted to the convenience and grocery space, but Collins can foresee a time when adoption will be widespread. He said the sheer number of players trying to crack the friction-free code means “implementation costs will be driven down over time, and retailers in other categories will begin to experiment with it. While this is far out, eventually everyone will have to use it (or some form of automated checkout), since no one can afford to allocate labor to operations that competitors are automating,” he said. Beyond the Amazon Go solution, here’s a look at some of the other technology vying for retail adoption. AVA retail AVA retail brings together top players in tech and fintech, including Microsoft Azure IoT and Mastercard, from which it’s leveraging cashierless technology. According to the company’s CEO, AVA retail wants to bring a

more data-driven, consumer-friendly approach to the in-store shopping journey. Beyond cutting the checkout line, the company strives to provide retailers with data on how consumers move throughout their stores, what makes them stop and take notice and which products garner the most attention, Atul Hirpara, AVA retail CEO, said. “With AVA retail they can leverage IoT sensors to digitally transform physical retail locations, creating digital footprints of in-store shoppers, store associates and store inventory that was not available before. AVA retail then converts this data into insights through its Analytics dashboard, empowering retailers and CPG companies to create better shopper experiences, drive staffing efficiency, and higher sales conversion,” Hirpara added. “Taking our AVA Experiences to the next level of truly frictionless shopping was not a huge step for us.” AVA offers three products: AVA Analytics, which helps retailers conduct A/B testing, generate heat maps, perform funnel analysis and more; AVA Experiences, a product portfolio comprising mobile apps, smart shelving and displays; and AVA SmoothShop, the cashier-less checkout experience. According to AVA retail, consumers don’t need a special app or to walk through a turnstile upon entering to shop in a participating SmoothShop store, although retailers can chose those options if they prefer. AVA retail’s solution employs a SaaS model to keep costs affordable for retailers, and the SmoothShop experience relies on computer vision, sensor fusion, machine learning and artificial intelligence to create the seamless customer checkout. Upon completing their transaction, shoppers immediately get a receipt so they can confirm how much they’ve spent.


PAYMENTS REPORT 2019 13

Caper With Caper, the checkout process happens within the Smart Cart itself. The company’s technology allows consumers to shop as usual—no apps or smartphones needed. Currently, consumers do need to scan items on the built-in interface on the cart, but the company plans on launching an enhancement that instantly recognizes and scans goods as they are added using machine learning and computer vision capabilities. Along the way, the in-cart display provides a store map and item locator function as well as information on deals and promotions, features that Caper said increase basket size by up to 18 percent. At the end of the shopping trip, the customer can swipe a credit or debit card to pay or opt to use their mobile wallet. Caper says by putting the tech in the cart, it makes it easier for retailers to get up and running with the cashierless concept.

Zippin In a recent blog post, Zippin’s CEO and cofounder called other cashierless solutions “stop-gap” at best since they often require shoppers to assume the work of the cashier or force them to hunt around the store for an employee who needs to verify their purchases. Consumers download Zippin’s Android or iOS app and scan an in-app QR code to commence their shopping experience and from there, overhead cameras track their movements throughout the store by recognizing body shape and clothing, and not facial recognition, founder Krishna Motukuri told Fast Company. The company says cameras work in concert with shelf sensors to ensure accuracy. In contrast to the camera-riddled set-up in Amazon Go, Motukuri said the average-size bodega, at around 1,000 square feet, would require just 15 cameras. Zippin’s goal is to sell its software technology that provides image recognition

and inventory management, with retailers installing their own hardware, though a fullservice solution would run as much as $25,000. Zippin said its solution provides real-time data analytics and inventory tracking. Inokyo Inokyo’s AI-powered retail experience requires an in-app QR scan to get going but it requires another upon exit, largely to assuage consumers feeling like they may be stealing, co-founder Tony Francis told TechCrunch. Inokyo’s Mountain View, Calif. beta shop hawks typical corner-store snacks and drinks that are monitored through computer vision to detect when items are removed from or put back onto a shelf. Customers receive a digital receipt detailing their charges after leaving the store. Retailers are provided with a dashboard on which they can track inventory and store metrics as well as update products and pricing.

PROS & CONS What Consumers Say About Shopping In Store

75%

of shoppers prefer to shop in store

73%

identify checkout as the biggest pain point in physical stores

1/5

abandon carts if the lines are too long

“Understanding Frictionless Commerce 2018” report from transaction technologies company NCR

The Impact of a Bad Checkout Experience

Consumers Aren’t Ready to go Cashierless Yet

It negatively impacts their perception of the store or brand

They’re are wary of cashierless stores like Amazon Go

88% It makes them less likely to shop there

56% They struggle to see the benefit

79% Popspots “Why the checkout line is retail’s next gold mine” report, based on a survey of 611 consumers who shop at physical stores

18% Paysafe’s “Lost in Transaction: Payment Trends 2018” report based on a survey of 5,056 consumers in five countries


RETAIL THERAPY NOW THAT SHOPPING FOR NECESSITIES HAS MOVED ONLINE, PHYSICAL RETAIL HAS TO FIND NEW WAYS TO FEED CONSUMERS’ EMOTIONS, PUTTING THEM IN THE MOOD TO SPEND. MELISSA TWIGG

I

n a world where phrases such as ‘the retail apocalypse’ and ‘the death of the high street’ have become commonplace, shopping starts to sound like a bummer. But it’s possible for merchants to bring the fun back to the whole experience if they commit to understanding the psychology behind why we do it in the first place. By knowing what makes consumers’ synapses tick, retailers can devise a potent formula to lure customers in—and get them to part with their hard-earned cash. We generally enter a store for one of three reasons: to seek good value, to relish an enjoyable experience or for convenience. Now that e-commerce has largely removed the convenience factor, customers are either searching for a great deal or for something unique. The current retail landscape illustrates this point. “The value market is growing hugely,” said Garrick Brown, a retail analyst at Cushman & Wakefield. “The U.S. has seen the arrival of 10,000 new dollar stores since 2011—a rate of nearly four a day—while really beautiful experimental stores in big cities are flourishing. It’s everything in the middle that is struggling. To survive, you need to be a discount or a luxury or lead experience store.” The psychology of the bargain hunt has been well documented. Shoppers want to feel like they’re getting a deal, even when they know the store’s sale price is essentially their everyday price. Take J.C. Penney. The department store chain learned this the hard way. “When J.C. Penney had an overhaul and

changed their business plan from offering discounts throughout the year to dropping their overall prices, their sales plummeted,” said Brown. “Why? Clothes cost the same as they had the year before, but the J.C. Penney customer was used to the thrill of getting a bargain and wasn’t happy.” Ultimately, bargain shoppers need the serotonin rush that comes with a markdown. For other shoppers, the emotional need is different. As the number of renters living in eversmaller apartments skyrockets, cities have turned into a Millennial living room. These consumers are looking for something else,

“art and science.” “We know that there is a devil and angel in everyone’s head—the angel is saying ‘walk on by,’ but the devil is saying ‘wow, let’s check it out’. We need to get through to that devil,” he said. Tapping into the voice that says “shop” starts with creating a vignette that speaks to the target consumer through lifestyle imagery: a Christmas party, an office environment or a beach vacation. “We all still live in uniforms—be it the trendy work uniform of someone who writes for Vogue, the uniform of a corporate lawyer or a well-off mom on weekends,” says Underhill.

THERE IS A DEVIL AND ANGEL IN EVERYONE’S HEAD. WE NEED TO GET THROUGH TO THAT DEVIL. —Paco Underhill, environmental psychologist, Envirosell

whether it’s entertainment, connection or distraction. Young shoppers are far more likely to linger—and therefore shop—in a beautiful, unique environment that offers more than just retail. Successful add-ons include juice bars, coffee shops, yoga studios and nail bars. Ultimately though, to get shoppers to spend, you have to get them in the doors. Environmental psychologist and the founder of consulting company Envirosell, Paco Underhill says creating arresting window displays is part

“Make your window tell the story of their life— the importance is in all the little details—and they’ll come in.” Once they’re inside, the focus is on getting them to try on a piece of clothing. The moment the customer has looked at themselves in the mirror wearing something, they feel an attachment to it that makes them far more likely to carry through to purchase than if they had merely picked it up on the shop floor. This is more likely to happen if moving from the


PAYMENTS REPORT 2019 15

racks to the changing room is seamless. “One of the most important things that retailers often forget is where to leave someone,” says Underhill. “This is essential in increasing the conversion rate, as women in particular are far less likely to buy if they feel like they are being rushed.” Underhill also says retailers can’t forget the shopping companions. Getting everyone in the frame of mind to shop is important, whether it’s the husband tagging along on a lingerie shopping trip or the girlfriends hanging out in the changing room at a department store. And while the lighting and design of cabins has always been important, today changing rooms can be make or break. Clients spend 20 percent more time in changing rooms than they did a decade ago due to the advent of

selfies, Snapchat and Instagram. Customers under 35 are now likely to share an image of themselves in a potential purchase online and wait for the responses before they buy. “The bonus of this is that the client will spend more time in the piece of clothing,” says Underhill, “adjusting the lighting to get the perfect picture, waiting for the response and getting more attached to whatever it is they’re wearing.” Another important factor in converting from browsing to shopping is the sales staff. Retail wages—if you allow for inflation—have declined by 30 percent since the 1980s, which means the levels of service have inevitably dropped off. “I can see why, with sales as they are, brands just want to pay low wages. But a knowledgeable, friendly, committed sales

staff—even if they cost more—is very important in the long term, as once a customer trusts the sales assistant, they are far more likely to buy,” says Brown. Once we get to the till, the psychology behind plastic versus cash is also welldocumented— much like using chips in a casino, buying items with a card or Apple Pay allows the customer to mildly disassociate from the act of paying. But ultimately all these small adjustments are catering to one overall sensation: the buy high. “It’s all about the sense of adventure— whether that comes from a bargain hunt, or a treasure hunt for a unique piece of clothing,” says Brown. “Too many retailers have forgotten that it’s this sensation that motivates humans to shop at a primal level.”

PAY LATER GETS YOU PAID Klarna’s flexible and frictionless payment methods yield big benefits for retailers. Consumers shop more, spend more and are more loyal. Retailers reap the benefits— with no extra effort and no risk to cash flow because you’re paid upfront always.

Consumers’ Path to Purchase:

1

2

Spot something they want to buy

Retailers’ Benefits:

50%

3

Select Klarna at checkout

4

Pay the first installment

58% Increase in sales

5

Receive their purchase

46% Uplift in average order volume

Make three subsequent payments automatically every two weeks

90% More return customers

Customer satisfaction


WHY VOICE SPEAKS VOLUMES IN PAYMENTS AS VOICE - BASED COMMERCE EVOLVES, IT HAS THE POTENTIAL TO INFLUENCE ALL MODES OF SHOPPING — PRESENT AND FUTURE. JESSICA BINNS

V

oice assistant technology is catching on with consumers and businesses alike. Companies across a spectrum of industries are integrating Amazon Alexa and Google Assistant, two of the most popular voice assistants, into cars, washing machines, flatscreen TVs and more. New data from UKbased Juniper Research indicates that 8 billion voice assistants will be in use by 2023, up from 2.5 billion in late 2018. That means consumers are using 3.25 billion voice assistants today and Google Assistant accounts for 1 billion, or about 30 percent, according to analysis from Voicebot AI. All of this movement in the voice market means brands and retailers must pay attention to what their customers want from voiceenabled experiences. Nearly three quarters (72 percent) of global Gen Zers flat-out expect that everyone will routinely interact with their own digital voice assistant, they told WP Engine and The Center for Generational Kinetics, indicating the prevalence of this technology in the notso-distant future.

Voice & Commerce But for now, the role of voice in commerce remains a mixed bag. Western Union’s June 2018 SpendingPulse report shows that just 10.3 percent have used voice tech to pay a bill within the 12 months prior, though young adults indicate strong interest in pay-by-voice

services. Millennials in the 23-to-34-year-old range reported the highest intent at 39.5 percent, while 34.2 percent of 18-to-22-yearold Gen Zers also would adopt voice payments. Research from PwC reveals that 50 percent of 1,000 people surveyed for its Prepare for the Voice Revolution report have made a purchase via voice technology, while another 25 percent claimed they’d consider such purchases in the future. However, they mostly hewed to what now is convention in the voice commerce landscape, purchasing “safe” commodities like dog food and household goods, and one focus-

BY 2023, VOICE COMMERCE WILL DRIVE $80 BILLION ANNUALLY — Juniper

group participant even told PwC that using voice for a considered purchase like a sweater seemed “too risky.” That cautious sentiment dovetails with PwC’s findings that just 3 percent of surveyed consumers have purchased apparel by voice, though another 22 percent are open to voicepurchasing clothing in the future. The good news is that so far, the data indicates that the companies offering voice-enabled purchasing are doing a pretty good job, per the 34 percent

of Paysafe polltakers who approve of their experiences shopping with voice tech like Alexa. Even better, 80 percent of those who’ve shopped using a voice assistant were pleased with the experience, according to PwC, and 39 percent said they’d do more business with that retailer and spread the word to their circle of family and friends. Another 36 percent think more highly of that merchant, while 24 percent said they actually boosted their spending with that business.

Voice & Trust These results are encouraging but hardly paint the full picture. Privacy, security and trust remain key barriers to adoption in voice-based commerce. Consumers told PwC in similar numbers they don’t believe voice tech can “correctly interpret and process” their orders (46 percent) and don’t trust these digital assistants with their payment information (45 percent). They voiced other concerns as well; a focus group participant wanted to be sure a voice assistant could detect that she was alone before it spewed out recommendations calculated from her purchase history. Another shared that many people having access to a voice assistant device, like a smart home speaker, could wreak havoc with stored, preauthorized credit card details. Juniper Research senior analyst James Moar agrees that there’s room for improvement in voice tech security. Companies that already


PAYMENTS REPORT 2019 17

24 % OF CO N S U ME R S S P E NT M O R E MON E Y W H E N S H OP P I NG V I A VOICE A S S I S TA N T

— PwC

have your payment information on file don’t require further disclosures or confirmation before authorizing a voice transaction, he noted, and such security concerns are even more important “particularly when the [voice] ordering facility is open to anyone (including the family parrot).” Sixty-five percent of consumers told Paysafe in its Lost in Transaction Volume II report that voice technology currently isn’t secure enough for shopping. “Voice assistant providers need to be able to demonstrate they can deliver secure voice ordering to a much greater degree than they currently do,” Moar noted, adding that so far voice tech companies aren’t widely implementing the biometric security

tools available to them. In addition, personal data security is top of mind for 44 percent of consumers polled by Gartner who said their willingness to use voice assistant technology would increase if their details were stored locally on the device.

Voice & Screens Voice assistants today might be most closely linked to smartphones and smart speakers like Google Home and the Amazon Echo, but they’re infiltrating everything from automobiles to smart TVs, which Juniper expects to grow at a compound annual growth rate (CAGR) of 121.3 percent through 2023. By contrast, voice speakers are forecast to increase at a 41.3 percent CAGR. Smart speaker devices will play a stronger role in the path to purchase in the short to medium, according to Moar, though TVs with in-built voice assistants will gain share in the long run. Today, most smart TVs limit purchasing to digital content like movies. “However, once the ability to ‘hand off’ requests from a voice assistant becomes common (we’ve seen the beginnings of this from Apple, but it is far from generalizable), then ultimately smart TVs will also become an important purchase portal,” Moar explained, adding that this advancement is still many years in the future. Rich displays and smart screens are “vital” to providing greater “visual context” for an important swath of voice interactions, Moar

said. Purchasing apparel benefits enormously from the visual information that a screen can provide, but the consumer’s initial request to a voice assistant might not differ from how they would order everyday essentials, which don’t really require serving up an image on a screen. “Voice assistants need to be able to work out which categories would benefit from visual information, which is still some way off,” Moar noted. By 2023, voice commerce will drive $80 billion annually, per Juniper data, though that figure accounts for traditional shopping purchases alongside money transfers and people buying digital goods. Consumer adoption (18 percent) of voice tech for payments lags awareness (65 percent), Paysafe reported, likely due to the sluggish uptake by merchants. Just 11 percent of businesses polled for its 2017 Lost in Transaction report claimed to offer voice-payment features, Paysafe noted, though 24 percent reported plans to implement voice tech within the next two years. There’s reason to be optimistic about the road ahead for payments via voice. Sixteen percent of people surveyed by Paysafe describe voice payments as “the future”—consumer behavior that they expect will be broadly adopted in the next two or three years.


THE FUTURE OF FINTECH THE FINANCIAL TECHNOLOGY SECTOR IS EVOLVING PAST SIMPLY PROCESSING PAYMENTS TO FULLY INTEGRATING INTO RETAILERS’ OPERATIONS. VICKI YOUNG

L

ooking at the FinTech market from an equity research perspective, Dan Dolev, analyst for business services and payments for global financial securities service firm Instinet, says FinTech firms have to do more than just manage financial transactions. He said the winners in the space will be those that provide context to how sales affect every other aspect of a retailer’s operations. Using that as his criteria, he measures competitors in the space to Square, which he says is a market leader because it sits at the center of retail, integrating with every aspect of the business. “In the U.S., Square is the most advanced company,” he said. “It started doing payments for babysitters and other people who don’t accept credit cards and has evolved into a cohesive payment [solution] for larger businesses. It offers really good analytics and HR and payroll packages at a fraction of the cost than if one got a separate program.” Here, Dolev discusses the white space he still sees in the otherwise crowded FinTech market, what it will take to emulate the success of Square and why the sector is ripe for consolidation.

the [profit-loss] statement... In other countries, such as the Chinese market, credit card usage is not that high, maybe only five to ten percent. Most use Alipay or WeChat Pay. It’s still a noncash, electronic payment, but doesn’t go over the MasterCard or Visa railways.

DD: There are a ton of start-ups everywhere… offering point-of-sale solutions. TouchBistro Inc. is one just for restaurants. One day these start-ups will be taken out by Square competitors who are struggling to catch-up to the innovation of Square.

SJ: How much growth is there in the sector? DD: That can come from different things. In Europe, integrated payments with other features that companies need are almost non-existent. If I go into a bakery, [it] may accept credit cards, but there’s no linking to anything. That’s a big area of growth, about tens of billions of dollars that are up for grabs. Worldpay is very aggressive in Europe, and PayPal [in September] bought iZettle [for $2.2 billion]. Square is also big in Europe. The biggest area of growth is B2B. Total B2B commerce is $125 trillion. Of that, only $2 trillion, less than 2 percent, is through credit card usage. In the U.S., B2B commerce is $25 trillion, with less than $1 trillion being transaction using credit cards. That’s a huge opportunity because that’s where growth is going to come from. Square just came out with a B2B debit card.

SJ: Is this sector one that could be impacted by mergers and acquisitions? If so, why? DD: Last month, FinTech provider Fiserv, a processor for banks, said it would acquire First Data for $22 billion. That’s a massive M/A deal in payments. The next wave of deals will have bigger companies buy start-ups to be able to compete with the Squares of the world.

SJ: What is the current state of FinTech? DD: Over the last five years, the U.S. has what I would call a very integrated payment processing system with other forms of analytics, such as inventory management. So, let’s say someone pays at a florist with a credit card. That payment actually would feed into how many flowers you need to order, or how many employees you need during certain holiday periods. The data is [layered] on top of

SJ: Who are the current players and how are they different from each other? DD: Square is the biggest winner of them all, and there’s Worldpay and TSYS. Square has a huge lead on the innovation front, but Worldpay and TSYS are bigger and have scale. SJ: Do you expect other start-ups entering the space, and how could they impact FinTech’s evolution?

SJ: What is the future of FinTech? DD: I think it will become more seamless, with Square being the leader... They are a fast innovator. SJ: What role do you think AI will play in the FinTech space as it evolves? DD: The more AI knows, the more it can predict customer needs. For example, Square sits on the P/L of a business. The owner can [open the store] in the morning, and Square can ask if they want a loan or cash advance. [The data] has already indicated the ability to pay it back, and Square has partnerships with certain banks to get the owner the loan. That gives Square control of the last mile. SJ: Voice commerce has been growing. Do you think voice has a role in FinTech? DD: I don’t think voice is that important... A customer going to a Starbucks is not going to go to a machine and ask for [a cup of] coffee.


PAYMENTS REPORT 2019 19

PLAYING CATCH UP SOME RETAILERS ARE FINDING IT NEARLY IMPOSSIBLE TO KEEP PACE WITH THE LATEST PAYMENTS - RELATED TECHNOLOGIES ON THE MARKET. TO HELP THEM LEAPFROG AHEAD, FINTECH FIRM KLARNA WORKS TO CREATE OPPORTUNITIES OUT OF OBSTACLES. CALETHA CRAWFORD

T

he checkout wars are in full swing with a slate of companies offering services that allow shoppers to pay how and when they’d like. Though payment alternatives are relatively new in the U.S., globally, buy now, pay later and installment plans are becoming standard for purchases made both online and off. With 60 million consumers using its payment solutions, Klarna is one of the biggest

or service for our customer,’” said Klarna’s CEO Sebastian Siemiatkowski. He added Klarna often finds itself in the role of consultant, helping create ways for retail partners to adopt new services no matter what shape their technology is in. “We tell them, ‘No, you don’t need to change all your point-of-sale systems. No, you don’t need to rebuild your e-commerce platform from scratch,’” he said. “There’s ways now to leapfrog into this.” Here, Siemiatkowski talks overcoming

[ BIG RETAILERS’] SYSTEMS HAVE BEEN MADE FOR EFFICIENCY BUT IT WAS FOR A SPECIFIC WORLD THAT LOOKED A SPECIFIC WAY, AND THE SYSTEM ISN’T BUILT TO ADAPT —Sebastian Siemiatkowski, CEO, Klarna

players in the market. While Klarna offers consumers a range of choices that allows them to spread out payments and try before they buy, it’s the company’s ability to support its 100,000 retail partners that has propelled it from an “alternative” to the new norm in places like Germany, where the company said it commands up to 80 percent of checkout in certain verticals. “The interesting part of solving problems for retailers—part of it is creating the experience, but a lot of them recognize the improvements to the experience they want to make—it is [answering] ‘how do I navigate this technical legacy of all these different systems that I have, and how do I get quickly to market with something that creates a different experience

cultural challenges, sidestepping legacy technology and delivering satisfying experiences. SJ: It seems that Europe is ahead of the U.S. when it comes to e-commerce and m-commerce. What are some of the things retailers in the States need to catch up on in order to provide shoppers with a better experience? SS: One of the things that surprises me a little bit is if you compare Europe to the U.S., in Europe, where we’re from, originally we were pushing one-step checkouts, one-click type of solutions, prefill. Guest checkout is an absolute must; you can’t just have registration. Everyone speaks about a very competitive

retail environment in the U.S., but I’m hearing merchants talking about these things today. I’m still finding 5-step checkouts. It’s mind-boggling. I don’t know why. In Europe it’s just a given. Nobody would ever have those kinds of lengths. We help merchants a lot with that pre-filling. We have a massive cookie network which helps customers go to different merchants and get a one-click, seamless experience. SJ: That makes it really easy to shop if you’re going from one site that accepts Klarna to another. On the other hand, some consumers can be hesitant to get that convenience if it means providing too much personal information. I think it’s in large part because security issues related to payment make for such big headlines. How do you strike the right balance so shoppers trust you? SS: The challenge around privacy is really that there’s been a couple of companies who have applied thousands and thousands of engineers to figure out how to use your data to track you with a very boring ad across the Internet. You look at this one item, and now you’re being haunted by it across the Internet. It doesn’t add value for the consumer. Consumers understand that companies use their data, but you have to use it in a way that actually gives value to the consumer. So, every time we have any idea related to consumer data, the first question we ask ourselves is ‘How is this going to benefit the consumer? What value are we going to create for the consumer?’ If we can prove that there’s value, then maybe we can offer a service that also helps the merchant or ourselves. I think that’s where


things have gone wrong. SJ: You talk about helping merchants but the truth is some of them can’t help themselves. They’re saddled with huge operations, legacy technology and infrastructures that were built for large, physical store chains. It feels like newer, upstart brands and retailers have the edge because they’re built for today’s consumer. How can traditional retailers pivot? Or can they? SS: I can basically put companies in three categories: [First,] the very most modern e-commerce companies coming now. They’re on Shopify, they can be hundreds of millions of dollars in revenue, and there can be two or three engineers. The engineers are really working on improving that extra mile of customer experience. [Next,] you have the more traditional e-commerce company that built their own tech

stack, and they have their own engineers who built their own experience, and that’s good. Then you look at the major retailers who want to create an experience, and every feature you want to develop has 55 people involved, every improvement has to go to committees. It’s a waterfall; it’s not agile. Obviously, coming back to the pace at which you’ll be able to adopt, that’s part of the challenge for these legacy players. These big systems have been made for efficiency but it was for a specific world that looked a specific way, and then the world changes and the system isn’t built to adapt. SJ: Then, how can you help these groups, especially the major retailers you’re talking about? SS: One of the things we launched is you can go into a store, and apply for promotional

financing, but we issue the virtual card on your phone. You add it to your Apple Pay wallet, and you instantly pay it. There’s no integration, no technical setup for the retailer. They can go live in a day. The challenge retailers have is ‘how do I navigate this technical legacy of all these different systems that I have, and how do I get quickly to market with something that creates a different experience for our customer.’ So, a lot of our time is consulting them on their tech stack. What we tend to do today, and what I feel like my job is when I speak to merchants, is to show them that there are ways in which they can go live superfast. One great example of that is IKEA. They came to us, and they have massive IT centers, legacy systems and everything. And they asked us, ‘Please, just help us. Is there a way we can go live, like, now?’ And we said yes! We have developed technologies

CART ABANDONMENT Many retailers have no idea what their cart abandonment rate is. Those that do say:

42.2%

32.3%

carts are abandoned “less than 20% of the time”

they see a 20% - 40% abandonment rate

The “2018 Mobile Payments and Fraud Survey” by Kount, The Fraud Practice and Braintree, which polled nearly 600 merchants

Top reasons for cart abandonment:

60%

Sticker shock from extra costs like shipping, tax and fees

37%

An unwillingness to create an account A long/complicated checkout process

23%

Can’t see/calculate total cost up front

23%

Website errors/issues Email marketing company Jilt’s publication Upsell

20%


PAYMENTS REPORT 2019 21

that allow us to take a piece of Javascript code, drop it into your website, and we will make the integration on your behalf. They were live in one week. They saw a huge and very sudden percent jump in sales, which was very dramatic and unexpected. The point is, there are solutions today. SJ: So, it’s not a tech barrier but a cultural one? SS: It’s a willingness to experiment. Obviously, we didn’t put it on 100 percent of the traffic from day 1. We took it live at 5 percent. We gave them controls to control how they were scaling it up. We helped them with the IT security topics that were raised. We can provide them guidance through this process. Again, we as a company are just there to help them grow their sales. We’re not charging consulting hours, we’re not there to sell them a contract, that’s not our job. We’re there to see how we as a partner can make them grow.

I’ve seen more companies doing that and I think the industry is moving in that direction. SJ: In that sense, you’re kind of offering to retailers what the retailers are attempting to offer consumers: an easy, hassle-free experience. But there are many more aspects to the retailer/consumer interaction than simply the payment piece. How do you help with that? SS: Chat is a great example. We’ve realized that many times when a customer has an error concerning a purchase, part of the question could be related to the merchant, part could be related to the payment company. What we do, is we’ve started experimenting with integrating chat flows, so there’s a representative from Klarna and the merchant in the same flow. We don’t need to send the customer back and forth between us, but can answer the question at that point instead.

Another great example is email. In email, you get a thread. You get a history, which is very efficient for the merchant, but a boring way to interact with the consumer who is waiting. So, what we’ve created in our chat is every question starts a thread. That thread stays there, so the consumer can go back and continue the chat whenever they like. We can answer instantly, but the customer can leave for five hours, come back, and the chat history is still there. A lot of our things we develop for our own app and the customer experience that we offer, we always say to the merchants, ‘We have APIs. If you want to use our components in your apps, go ahead.’ They don’t always have to come to us; they can use it for themselves as well, which is how we help them develop and make sure they have a great user experience.

CREDIT CARD USE BY DEMOGRAPHICS Online Purchase Payment Method

3.5 3

Credit Card

3.2

Debit Card

2.5

Online Payment Gift Card

1.4

Other Gen Z

Millennials

In-Person Purchase Payment Method Silent Gen

Baby Boom-Gen X ers

Millennials

Gen Z

Credit Card Debit Card Cash

Experian “State of Credit 2017”

2x

Mobile App Millennials are almost twice as likely as GenXers to rank debit cards as their first choice of payment.

TransUnion’s “Decoding Millennial Financial Health Generation Revealed” report 2017

Gift Card Check Gen Z

Fico Consumer Banking Survey Results 2017

Millennials

Other


The “Consumers, Checkout & Creating Experiences That Resonate� report was created exclusively for Klarna by Sourcing Journal Media, featuring a compendium of the most noteworthy stories published by the media company as well as original reporting on related topics.

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Consumers, Checkout & Creating Experiences That Resonate  

Today's consumer is spoiled for choice and catered to with every convenience. The retailers that are most likely to win them over are those...

Consumers, Checkout & Creating Experiences That Resonate  

Today's consumer is spoiled for choice and catered to with every convenience. The retailers that are most likely to win them over are those...