Rita Liu, Chief Commercial Officer at Mode, writes for Payment Expert on how the past year has accelerated alternative payment methods and what it means for the commerce sector.
The Covid-19 pandemic has undoubtedly led to polarisation in the retail market over the last 12 months. There has been a clear divide between retail sectors; ‘non-essential’ retailers were forced to close while ‘essential retailers,’ including food retailers and DIY brands, continued to welcome customers to their physical stores – many even saw a spike in sales. In comparison, fashion retailers have seen the biggest decline in sales in 25 years – with those selling work wear, party wear and footwear hit the hardest.
Despite the challenges facing non-essential retailers, there have also been new opportunities. The growth of E-commerce has been accelerated by five to seven years, consumers have pivoted away from cash and Alternative Payment Methods (APM) have risen to the top of the agenda. What’s clear is that all retailers have needed agility and resilience in response to reduced spending as well as evolving consumer preferences. Looking ahead, retailers must be attuned to these changes, to retain existing customers and win the loyalty of new ones.
Shift to online shopping
Social distancing and other safety measures to stop the spread of Covid-19 have accelerated the transition from ‘bricks’ to ‘clicks’, forcing generations of customers to dramatically alter their shopping habits, with many shopping online for the first time in their lives. The move to digital has also forced retailers to scrutinise their online proposition and quickly adapt to fit the mass migration online. This shift has not been an easy one and many retailers have stumbled across a multitude of issues, from user experience to the speed of their website or app.
During a recent Mode webinar on the Rise in Alternative Payments L.K.Bennett CEO Darren Topp stressed that “the pandemic has brought into sharp focus those retailers that invested in their digital platforms and those of us who have been playing catch up.”
Frictions in the checkout process such as inputting your billing details or creating an account can significantly increase abandoned carts and therefore reduce conversions. The ‘immediate’ nature of online shopping means that customers now expect to be able to make a convenient one-click purchase while research shows that the average checkout process takes 22 clicks today.
As we discussed with Darren Topp, it’s becoming increasingly clear that retailers must deliver an effective and smooth transaction process or risk losing customers.
Evolution of payments
In addition to the mass migration to online, the pandemic has normalised a number of trends within the payments industry; cashless, contactless and cardless. Cash is no longer king – the public has shown a reluctance to handle cash throughout the pandemic and businesses in the UK have increasingly implemented ‘no-cash’ policies.
This has driven the contactless and cardless payments revolutions. In fact, two-thirds of all Mastercard transactions in the UK are now contactless, with 76% of Brits saying that they will continue to use contactless payments after COVID.
The fastest-growing trend is cardless. The UK is leading the APM charge with 24% of the population using mobile payments and digital wallets; the second-highest rate of digital adoption in Europe. This is only set to continue and by 2023 it is expected that 72% of adults in the UK will use mobile apps for payments and transactions. That is a huge shift for a society that was largely cash-based until a few years ago.
But it’s not just the pull of frictionless, faster payments that are driving this change. Mastercard recently announced that it will increase fees more than fivefold for British shoppers using a debit or credit card to buy a product from EU based companies.
It is concerning for businesses to be paying such substantial fees for credit card payments, which directly hit their net margins and ultimately, get passed on to the consumer. Many merchants are searching far and wide for alternatives to card payments that are not associated with such extortionate interchange fees.
Maximising the user experience
Streamlining and reducing friction in the payments process can also have a significant impact on the customer experience and conversion rates. This is particularly important for retailers who are new entrants to digital retail and e-commerce. Technologies such as APMs and Open Banking help retailers to provide a true omnichannel experience for customers.
The bar has been set high by e-commerce giants such as Amazon, and customers have come to expect the same level of service and ease of usability from all online retailers. In today’s ‘instant gratification’ culture propagated by social media platforms, a positive shopping experience that reduces the time and effort taken to checkout can help to build loyalty and reduce shopping cart abandonment.
The retail sector has faced many challenges over the past year, but it has also demonstrated remarkable resilience. The retail ‘winners’ are focused on delivering a seamless customer experience and frictionless payment processes leveraging innovations such as APM and Open Banking. This does mean taking the time to truly understand your customers. The payoff? Long term customer loyalty that lasts.