Magazine Article | October 20, 2008

Identify Sales Opportunities Via Payment Trends

Source: Innovative Retail Technologies

Learn why contactless payments are on the rise while use of cash and checks continues to decline up to 15%.

Integrated Solutions For Retailers, November 2008

Payment acceptance is a hot topic today, as cash and check use is on the decline (10% to 15% year after year to be exact). On the other hand, electronic payments continue to gain popularity. In fact, Federal Reserve studies state that electronic payments now exceed 2/3 of all payments. The number one reason people give for the use of electronic payments is convenience. For example, in a study of grocery checkout lines, research suggested paying with a card reduces checkout time 30%. Today's consumers want you, their favorite retailers, to provide them with payment options. There are many payment options that consumers are excited about, including contactless payments and prepaid cards. Are you offering your consumers these kinds of payment options?

Debit Versus Credit
Experts agree that cash and check use is declining all over the world. "We're seeing a decrease in paper-based payments," explains Cathleen Conforti, senior vice president global pay pass at MasterCard. "We conducted a payment trends survey in 2007 that reached 13 countries, and we saw the same payment trends among all of them. Seventy-five percent of respondents claimed they no longer need to carry cash." Yet, if people are not carrying cash, clearly they need to carry and use an alternative payment method. Debit continues to grow in popularity, even more so than credit. However, retailers may prefer to accept credit over debit. "Debit requires retailers to have a PIN pad in addition to a dial-up terminal in a credit environment, and therefore, debit adds another device," explains Jeff Wakefield, VP of marketing at VeriFone, a provider of solutions and services that enable electronic payment transactions and value-added services at the point of sale. "In the quick service restaurant environment for example, credit is cheaper than debit on transactions less than $14.50. It costs retailers more to process debit than credit."

Prepaid card growth continues to rise, especially in the wake of paper-based payment decline. "Year over year, retailers are looking at 75% to 115% growth in prepaid cards," explains Rob Seward, senior marketing manager at ACI Worldwide, a payment software solution provider to financial services and merchant retail businesses. Prepaid cards are being used as a budgetary tool. For example, the days of parents providing their college-age children with credit cards are fading. Prepaid cards are an easy way for parents to control what their children are spending.

Minimize Form Factors
Retailers must capitalize on the one item that people are never without — mobile devices. In 1994, 16 million Americans subscribed to cellular phone services. By 2005, worldwide subscribership skyrocketed to 1.2 billion. People may not bring cash into your store, but rest assured, they will bring their mobile devices. "In the next five years, most payment devices will have contactless readers in them," explains Wakefield. "Some devices will be accepting mobile phone payments. Someone is going to find a way to offer a payment method that benefits consumers and merchants." Seward agrees, and states, "There will be a change in form factors — the mobile phone will be a key driver in the marketplace. Every two or three years, a new form factor comes out. I actually believe mobile phones will alter the payments arena."

Broad-minded retailers may want to include mobile phone payment options as they become available. "Consumers will want to use their mobile phones at the POS," explains Conforti. "Different devices, like key fobs, will also be accepted at the POS. For example, someone may not want to pull out a credit card at Subway, but they'll have no problem using a small, inconspicuous key fob."
Capitalize On Social Networking
The decrease in cash and check use opens doors for retailers to meet consumers' needs. Younger generations (e.g. Generation Y or the millennial generation), specifically, want to make purchases wherever and whenever they want. "As retailers, if you want to appeal to the broadest range of consumers, offer them the payment options they want," explains Wakefield. "Retailers should pick what makes sense for their customer base. If you aren't adapting to customers' payment preferences, you'll lose them."

In addition, today's consumer takes advantage of multichannel retailing. For example, some people research products online, and then they go to the brick & mortar store to make the purchase. "Today's consumers know who's offering the best price through research and social networking [i.e. the grouping of individuals into specific groups like hobbies, religion, or politics, and it is most popular online]," says Seward. "Social networking is a lucrative tool, and the retailers who leverage this are going to be very successful in the next few years."

It's a fact — consumers are steering away from paper-based payments. Sure, cash and checks are still used and accepted, but electronic payments are pervasive. You must offer your customers payment options such as PIN-based debit and prepaid cards or risk losing their business. Stay abreast of advancements in payment technology and what payment options your customers want. The combination of the two can help improve your brand — and your profits.