Shoppers are dreaming of a frictionless Christmas when it comes to payment

17th December 2019

Shoppers are dreaming of a frictionless Christmas when it comes to payment

Christmas shoppers are warming to contactless mobile payments as a secure and convenient way to pay

Wallets were once a popular choice of Christmas gift, but these days people are increasingly ditching the traditional leather kind for a digital version.

The number of mobile wallet users is growing by 140 million a year, with the highest adoption rate in China. Mobile wallets account for a staggering 36 percent of China’s total point‐of‐sale (POS) transactions, which is more than a third of all payments in the country. And it’s a sign of the cashless future to come.

In the United States, currently 3 percent of all POS transactions come from a digital wallet, but this is expected to increase rapidly. Forecasts predict that in just two years’ time, only 17 percent of global payments will be made by cash, while e‐wallet usage will account for 28 percent of all POS transactions.

According to experts, this holiday season will see proximity‐based mobile payments get a boost as spending peaks. The National Retail Federation says US consumers are individually expected to spend 4 percent more than last Christmas, at an average of $1,047.83 per person. This will lead to a 2.5 percent increase in in‐store sales to $872.3 billion and a 13.2 percent rise in e‐commerce sales to $135.4 billion.

Meanwhile, eMarketer says US mobile device payment transactions will total $98.9 billion by the end of 2019 and grow 31.8 percent to reach $130.4 billion next year. The growth is being fueled in part by the attractive discounts and cashback offered by many of the prominent mobile wallet providers. Increasingly, you can also store retailers’ loyalty cards in your digital wallet, as well as tickets and passes, which means consumers are more incentivized than ever to use them.

“The days of fumbling around in your wallet for your credit, debit and thousands of loyalty cards are seriously numbered,” says Lucy Crossfield of Expert Market. “Mobile phones are becoming the number‐one device for everything because it’s just so much more convenient to have everything in one place.”

Crossfield adds that businesses have to adapt to this changing consumer behaviour not to fall behind. “Granted, China is leagues ahead of the competition in terms of leaving physical wallets behind, but it’s just a matter of time before consumers the world over opt for the more streamlined convenience of digital wallets,” she says.

So, if Christmas shoppers decide to leave their physical wallets at home when they hit the stores this December, how prepared are retailers to handle digital payments?

Starbucks model

The Starbucks app is one of America’s leading mobile payment platforms, only slightly behind Apple Pay, with a massive 25.2 million users. The coffee retailer is leading the way when it comes to creating a seamless experience for its customers, enabling them to order and pay through their mobile devices, and enjoy integrated access to coupons, offers and rewards.

It’s streets ahead of other retailers and shows no sign of taking its foot off the pedal. This holiday season, Starbucks is putting an even greater emphasis on mobile, with a marketing campaign dedicated to driving orders through the app.

Meanwhile, in Japan, the brand has released a special gel‐ink pen containing an NFC (near‐field communication) chip that lets coffee drinkers pay with a tap. Not offering much in terms of extra convenience, the Starbucks pen is somewhat of a gimmick, but it shows how aware the brand is of growing consumer interest in contactless payment.

Nestlé is taking alternative payments one step further by trialing facial recognition payment at its Nestlé Market store in Barcelona, Spain. The trial will run for three months to determine whether the system helps to improve customer checkout times, especially during peak demand over the Christmas shopping season. To pay with their faces, customers have to download a free app and head to a special fast checkout, which is equipped with a tablet computer and camera to take their picture.

It’s not just commercial businesses that are gearing up for a cash‐free Christmas, charities are too. The Salvation Army, for example, will be augmenting its familiar red collection tins and buckets with contactless readers so donors will be able to use mobile pay technology, simply tapping their smartphones or smartwatches to donate. It says the move is in response to the decline in people carrying cash.

How the IoT is changing the way we shop

While it’s important for high street retailers to embrace alternative payments, online stores also have to get ready for changes. With more and more purchases expected to be made via smartphones this Christmas, e‐tailers need to enable mobile wallets for a frictionless online checkout experience.

According to the Deloitte 2019 Holiday Retail Survey, 70 percent of US smartphone owners intend to use their mobile device to shop during December, an increase of 6 percent on 2018. “The smartphone is becoming as ubiquitous to holiday shopping as going to the mall used to be, maybe even more so,” the report says. “Consumers are taking advantage of quick access to products, reviews, social media and seamless checkouts, likening smartphone shopping to a point‐of‐sale anywhere.”

Smartphones might still be growing in popularity, but if China is any indication, screen‐free voice shopping is the future. And with smart speakers lacking any interface for entering card details, digital wallets become increasingly important. During China’s 2019 Singles’ Day shopping event, more than a million orders were placed and paid through voice command using Alibaba’s smart speaker Tmall Genie.

In America, more than a quarter of adults now own a smart speaker, so the device will undoubtedly come into play for holiday shopping.

The internet of things (IoT) will see more purchases made automatically, for example by smart fridges that reorder items when stock gets low. IoT is also changing the face of retail stores, with smart shelves that streamline inventory management and smart digital signage enriching the customer experience.

IoT looks set only to get more ubiquitous with the growth in wearable tech. This year, spending on wearables, including smartwatches, ear‐worn gadgets, intelligent clothing and head‐mounted displays, is set to reach $41 billion, Gartner predicts.

Google’s acquisition of Fitbit in November means Google Pay will be extended to Fitbit’s wearable fitness trackers. Meanwhile, trendsetter Swatch has extended its coverage for SwatchPAY! to new markets outside its home turf Switzerland in collaboration with G+D Mobile Security.

Buy now, pay later

Another trend set to have an impact on retail payments this Christmas are new buy‐now, pay‐later solutions, such as Klarna and Bread. Online retailers are introducing these financing options at POS to offer shoppers a more affordable way to pay.

Online installments are said to be especially popular with millennial and Generation Z consumers who do not embrace credit cards as readily as other groups of users. Recent research by Attest found 66.8 percent of US consumers aged 18 to 40 have a credit card compared with 72.5 percent of people over 40.

“The younger generation want this kind of simple and flexible payment solution that suits their financial situation without forcing them into one‐sided credit agreements with unfair interest rates,” says Daniel Jensen, vice president of product at Klarna. “Offering a consumer‐friendly payment method that provides an easy, short‐term, no‐interest solution, without requiring a formal credit agreement with these customers, is great for your business.”

Digital payments platform Bread, which works with more than 300 retailers, has recently expanded its offering to encompass a full‐funnel payment personalization engine. Optimized for a shopper’s cart size, it serves up the right payment options at the right time.

According to Bread’s chief executive Josh Abramowitz, price is the greatest point of friction for a consumer when making a purchase. A survey ran by the brand found 74 percent of shoppers would shop more at stores that offered interest‐free installments.

Jukka Yliuntinen, vice president of financial service solutions at G+D Mobile Security, adds that to be successful this holiday season, merchants must ensure shoppers feel secure when transacting payments. This is especially important with new methods of payment, which almost remove the payment experience completely.

“In terms of the user experience, the consumer wants the payment part to go away,” he says. “They don’t want to bother themselves with payment. They just want to concentrate on what they’re looking for, whether it’s a service online or something physical, and get the transaction done transparently.

“But at the same time, they want to control this process or at least have a feeling they are controlling it. It’s important for payment providers to give consumers something that enables them to have this perception. It could be giving your biometrics, your fingerprint recognition. Then people understand it’s now me who is accepting this and authorising the payment, and it’s something that is really part of my identity.”

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