By Dale S. Laszig
Retail trendsetters are leveraging the traditional store infrastructure and transforming showrooms, fitting rooms and mirrors with advanced technology solutions. Part 1 of this article explored how startups are rewriting the retail playbook, highlighting retail and payments industry innovators who are finding new uses for old things.
This follow-up article examines how traditional, multinational retail and payment brands are transforming to make commerce more agile, profitable and secure. It will also reveal how new commerce solutions can help merchant level salespeople (MLSs) fulfill their merchants' need for contextual, personalized payments in the app-driven POS marketplace.
Imagine showrooms connected with online catalogs and fitting room mirrors with capacitive screens and two-way camera technology that facilitate video chat and ecommerce transactions. Today's retail may have a different look and feel, but the sector's core objectives are the same as they were yesteryear.
Major retailer Macy's Inc., established in 1858, now employs a three-pronged strategy, dubbed M.O.M., to capture the imagination of today's shoppers and foster a culture of prosperity, agility and innovation. The three elements of M.O.M. are detailed as follows:
"Retailing is a dynamic business that requires continuous reinvention," wrote Terry Lundgren, Chairman and Chief Executive Officer in Macy's 2015 annual report. "Our company has experienced great times and challenging times throughout its long history, but we have at all times embraced change."
Lundgren acknowledged that 2015 was disruptive to Macy's brand, prompting its management to "pause, reflect and hit the reset button." The retailer's leadership committed to building a flatter, faster Macy's by realigning resources and laying the foundation for future growth, and M.O.M. remains the blueprint for the brand today, with each element coming closer together to work holistically," the company noted.
To paraphrase Lundgren, payments is also a dynamic business that requires continuous reinvention, particularly when traditional companies are being disrupted by fintech startups. A 2016 study by Deloitte Center for Financial Services titled Disaggregating fintech: Brighter shades of disruption, urges incumbent payment firms to protect their turf by leveraging existing infrastructure. "Payment firms can counter fintechs' growing clout by exploiting the ecosystem while leveraging their brand, distribution and data," the authors wrote.
Deloitte observed that mobile wallets and machine-to-machine payment schemes have affected front-end processes while leaving underlying payments infrastructures largely undisrupted and ripe for upgrades. These underlying infrastructures contain transaction management, routing and data security capabilities, which are highly-valued digital assets in the data-driven retail community.
Deloitte encouraged traditional payment brands to play to their strengths while facilitating an increasingly diverse population of devices and payment schemes. Incumbent companies must coexist with emerging payment methods to improve market reach, the authors stated.
Just as Macy's has embraced continuous reinvention, leading payment acquirers and device manufacturers have transformed their business models. Many, including First Data Corp., Ingenico Group, Verifone Inc. and Digitzs Solutions Inc., have replaced former proprietary hardware and software systems with open source app marketplaces that support new payment brands and third-party applications.
Bruce Dragt is Senior Vice President of Global eCommerce at prominent acquirer and technology provider First Data. The company noted that it serves approximately 6 million businesses and 4,000 financial institutions in 118 countries, processing more than 2,500 transactions per second and $1.9 trillion annually.
"First Data created a platform of business services that merchants can consume to run their businesses," Dragt said. "The Clover platform is an app market that works with physical POS, so innovative companies can create apps across a spectrum of things they need."
Tech-savvy merchants can choose from an expanding menu of third-party solutions or develop and market their own apps on the Clover platform, he added. The platform can integrate business management functions and back-end accounting software to provide a single-access view across an entire enterprise.
"Today's smartphones handle a range of business and personal tasks – from sending and receiving email to managing calendars, businesses, online banking and mobile wallets," said Rhonda Boardman, Vice President of Strategic Development, Acquiring Channel at Ingenico, an international payment technology provider. "In a similar way, Ingenico is bridging the gap between the business and payments worlds with the Telium Tetra suite, our next evolution."
Ingenico provides a comprehensive range of fixed, wireless and mobile POS solutions and managed services designed to make payments secure, simple and seamless. The company said its global presence in five continents, 170 countries and 88 sites informs its multilocal approach to understanding local businesses and regulatory environments.
"Payment acquirers can set up their own estates within Telium's Tetra app marketplace, segmenting each market so that restaurateurs, taxi operators and retailers see apps that are most relevant to their businesses," Boardman said. "The freedom to develop apps on the fly is balanced with enterprise-level security and firewalls; built-in checks and balances fully vet new apps before they're loaded into an online store."
"Merchants want to understand consumers and leverage technology to help their businesses grow," said Shan Ethridge, Vice President and General Manager of North America Financial Services Group for Verifone. "Carbon is a platform that enables small and midsize businesses to use geofencing and beacon technology to communicate with their customers while increasing loyalty and conversion rates."
Established in 1981, Verifone provides payment terminals, global payment-as-a-service and commerce enablement solutions, including mobile, countertop and self-service payment devices, software and web-based gateways. The company stated its global distribution network spans numerous vertical markets in 150 countries.
"Verifone Carbon is a truly integrated, processor-agnostic platform that merchants can use to run their entire business and create personalized offers for customers to make them feel important," Ethridge said. "Merchants can download apps from the online app marketplace that are simple, secure and designed to enhance the consumer experience."
A recent Accenture study identified white-label merchant platforms as a leading trend in 2016. These platforms enable large organizations to support extended merchant families by providing simplified payment and donation buttons. Small merchants can simply add "Donate now" or "Pay Now" buttons to their existing websites to redirect purchasers to branded payment pages. Customers and donors can use the buttons for one-time donations and recurring payment transactions and share activities with friends on social media. Platforms typically charge a small percentage plus card processing and transaction fees.
"Platforms are handy for SMBs who can't swipe cards face to face and have no use for a traditional shopping cart," said Laura Wagner, founder and CEO of Digitzs, a platform service provider. "Typical verticals include nonprofits needing to collect donations, marathon race companies needing to sell tickets to the race, an apartment complex needing to collect rent or the city of Los Angeles needing to collect fines." Merchants get more than a merchant account, Wagner said. For example, ticketing platforms might get expensive seating software; nonprofits might get customer relationship management systems to help manage donor relationships, at no additional charge beyond a simple transaction fee. "MLSs were once blocked from capitalizing on these middleware companies, but our revenue-sharing model has made it possible for ISOs and agents to participate in this vastly underserved, trillion-dollar market," Wagner said.
Macy's operates about 870 stores in 45 states, the District of Columbia, Guam and Puerto Rico and has licensing agreements with partners in Dubai and Hong Kong. As the retailer expands its global footprint, My Macy's localization will be a crucial component of the company's cross-border payment strategy. "Cross border has been a buzz word for a long time but payment systems have not always provided the most efficient approach," said Oren Levy, co-founder and CEO at Zooz Inc., a technology provider established in 2010 with headquarters in Israel and offices in London and San Francisco. "Merchants that use domestic payment partners incur higher cross-border fees and increase decline rates."
These days, working with just one acquirer is not efficient, Levy said. The process needs to be about giving data to the merchants and letting them decide. Zooz enables merchants to benchmark transactions against other payment providers, using key performance indicators. For example, a merchant opening a local entity in China may boost conversion rates by 7 percent and lower cross-border transaction fees, he said. "The international processing environment is 69 percent alternative payments," added Chester Ritchie, Executive Vice President of Sales and Business Development US at Zooz. "Today's payments are not about taking a transaction from one country to another; you have to facilitate all payment schemes." Ritchie noted that less than 10 percent of consumers use Visa Inc.- and MasterCard Worldwide-branded cards in China, where WeChat and Alipay, which are not even card brands, have 40 million and 500 million users, respectively. You don't want to send transactions back to the United States and incur foreign processing fees, he said.
Ritchie drew a distinction between transaction routing based on least cost and next-generation routing based on availability and monitoring for latency. For example, if a processor is down, transactions get routed over to a secondary network. "Sometimes networks may not be technically down, but they may time out," he said. "Or an Israeli using a card in the United States can route the transaction back to a home country." Routing options also include fraud engines that collect personal information and device verification that feed into machine learning, he said. For example, fraud engines can function so that if a score reaches a certain threshold, the transaction will be sent a predetermined way.
"Merchants have traditionally taken things to market expeditiously, looking for ways to make the most bang for their buck," said Michael Grillo, Director and Marketing Line Leader at ACI Worldwide Inc. "Machine learning and new tools have created more options for merchants, who may have previously been limited to accepting only traditional payment schemes, which is a very U.S.-centric approach and not necessarily the favorite or preferred payment method of merchants around the world."
ACI reported that it powers electronic payments for acquirers in over 160 countries and more than 5,100 organizations, including 1,000 leading financial institutions, and provides expertise in payments, alternative payment methods, risk analysis and global fraud prevention. It executes approximately $14 trillion in payment volume per day through its suite of software, managed services and payment gateway technology, the company added.
Paul Levine, President of Planet Payment Solutions LLC, a multicurrency and processing solutions provider, was a panelist at ACI's June 2016 eCommerce Disruption Opportunity Executive Summit in New York City. "Customers are wired and dangerous," Levine said. "They are Internet empowered, tech-savvy, data rich and socially engaged. They expect pricing transparency and shared buying experiences." It takes time to build relationships with local banks, network operators and software integrators in select markets, where local operators frequently feel that they don't need you, Levine noted. "As we look to the future, we can't create the old world in the digital world," he said. "The battle becomes which card do we want to embed and where does the one-click payment happen?"
Customers' payment preferences vary by country, stated Dmitry Savchenko, founder and CEO at Payzoff, a global payment platform and software-as-a-service company. "When retailers expand their businesses internationally, they need to take into account that millions of consumers prefer to use local payment methods for online shopping, for numerous reasons: they may not own a credit card, or they may have concerns about using payment cards online, or credit cards may not be their preferred payment method," he said. Savchenko also cited a study by Datamonitor Financial that found only 21 percent of German customers use debit and credit cards online, compared with 48 percent of Brazilian consumers who prefer to use national credit cards.
Writing the retail playbook has been a collaborative process spanning hundreds of years, as small and large retailers have searched for new ways to improve the shopping experience and the ever-present bottom line. Determining payments' place in the book will require an industry-wide effort by payments industry stakeholders to improve transaction processing, and more importantly, communicate the value of their solutions to retail partners and customers.
Following are recommendations provided by Oren Levy to help with this endeavor:
PayPal, Alipay and other forms of alternative payments may gain more market share, and cloud-based mobile wallets may circumvent traditional payment rails, but nothing will completely replace credit cards for the next 10 years or more, according to Levy. He further described payments as a facilitation tool for better commerce.
"I have to admit when I do a presentation to retailers I don't get a lot of excitement until I get to the real-time view of our company's dashboard and let the numbers tell the story," Levy said. "When I explain that they could have increased their conversion rate by 5 percent if they had only done 'x', that gets their attention." And capturing and keeping merchants' attention is now within the grasp of every MLS who serves the merchant community in new ways with a blend of the tried and true and the powerful and new.
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