The new payments paradigm: On the path toward a cashless, card-less checkout experience

BY RANDY SCOTLAND

The goal of a truly friction-free, cashless point-of-sale shopping experience is more than a passing fancy. In fact, the technology to make the dream a reality has been available for several years now. But implementation has come in fits and starts, and the roll-out into the wider marketplace has been, at best, uneven.

Industry observers are expecting that to change, spurred on by a younger generation of smartphone-enabled consumers who are demanding the same shopping convenience in-store as they currently enjoy online.

For their part, retailers appear keen to deliver on that promise, and strides have been made to do just that.

However, it seems that for every step forward—most markedly the nascent success of checkout-free Amazon Go stores—there’s been a corresponding falter—such as Walmart’s decision to scale back its trial of Scan & Go technology.

So says Daniel Kornitzer, Chief Business Development Officer of payments firm Paysafe Group, who adds in a recent blogpost: “Despite being received with widespread enthusiasm, Amazon Go has had teething problems too. Many customers have noted that buying from the store felt like stealing, with some even asking staff whether it’s really okay to just walk out.”

Notwithstanding the hiccups, 40 per cent of North American retailers polled by Paysafe in its most recent Lost in Transaction survey reported they plan to introduce checkout-free shopping within two years, which Kornitzer characterizes as “a tad too ambitious.”

“As things stand, only 36 per cent of U.S. and Canadian SMBs [small and medium-sized businesses] accept contactless,” he points out. “And adoption of other frictionless technologies is even further behind: 9 per cent have self-checkout options, 8 per cent have order-ahead apps and a mere 1 per cent have biometric capabilities.”

In other words, it could be a longer road ahead than some might wish. But there is light at the end of this particular tunnel, as a growing number of industry studies attest.

The evolution of payments

For example, Payments Canada—the organization established by the federal government in 1980 to be responsible for the country’s clearing and settlement infrastructure, processes and rules—says in its 2018 Canadian Payment Methods & Trends report that the momentum towards frictionless transactions is becoming ever more entrenched.

“As consumers opt for more convenient and digital methods of payments such as contactless,

online transfers and in-app purchases, we see traditional forms of payment, like cash and cheque, declining in the marketplace,” the report concludes, adding:

“While traditional forms of payment still comprise the majority of Canadian payments, there is fast growth in the number of transactions using newer channels to access funds from deposit and credit card accounts, including e-wallets, contactless technology and e-commerce portals.”

Further evidence of this development—and the impetus behind it—is found in the organization’s most recent Payments Pulse Survey: Consumer Edition. It identifies Millennials and Gen Z—two cohorts that “yearn for easier, more convenient options to meet their changing purchase and lifestyle patterns”—as a driving force.

The study, conducted by Leger Marketing on behalf of Payments Canada, found that increasingly the traditional fallback of paying with cash or cheque is losing its cachet, especially among the younger set, a quarter of whom say they have stopped using cash for low-priced purchases.

Further, a clear majority (70 per cent) of those in this 18-34 age group profess to be willing to move away from cash entirely in favour of other forms of payments.

“Millennials and Gen Z are more likely to choose retailers based on how easy it is to check out,” says Lisa Sattler, Policy Manager at PaymentsCanada. “They are more likely to make spontaneous purchases because their payment data is already stored on an app or online. So, I think that friction-free environment is something that they’re looking for in particular, more so than other generations.”

Why this need for speed? Sattler offers her take.

“I think it is human nature and the way the rest of the world is evolving, and how the online environment has changed,” she says. “There’s different options for shopping online, and people’s lives are busy and it’s easy for them to just do their groceries online, check out and pick them up on the way home.”

In short, we have reached an inflection point; the world of cash—though it will remain an option for the foreseeable future—is giving way to a new payments paradigm.

“It’s an interesting thing for retailers to think about in terms of how that friction-free, easy, fast experience could be now a way to compete,” Sattler observes. “Where the payment experience in the past might have just been one small piece of their overall experience in a retail environment, now it’s a way for them to compete for customers.”

She adds: “I don’t think that cash or cheques are going to be going away anytime soon. We’re obviously seeing a decline in both of those options, but I think every retailer is unique and needs to understand their market well, and what [payments] choice they need to provide their customers based on who their customers are.”

The smartphone revolution

Any discussion about the movement towards a friction-free POS environment is predicated on the continuing ubiquity of smartphones. In this regard, Canadians are well equipped.

Says Paul Briggs, Senior Analyst, Canada with digital research firm eMarketer: “This year, our forecast is for 6.6 million proximity mobile payment users, and we define that as a point-of-sale transaction made by using a mobile device.

“That includes scanning, tapping, swiping or checking in with a mobile device at a point-of-sale to complete a transaction. It doesn’t include purchases of digital goods on mobile devices, or purchases made remotely on mobile devices.”

He expects this volume to increase by another 10 per cent to 7.3 million proximity mobile payment users in 2020, based on an October 2018 eMarketer study. Going forward, projections call for 7.8 million users in 2021 and 8.3 million in 2022. This latter total would represent 30.9 per cent of all smartphone users.

“I think what’s driving the growth is the pervasiveness of smartphones and the pervasiveness of contactless payment options in retail environments,” Briggs says.

Mobile’s abiding appeal

Briggs believes that the ability to make mobile payments has broad-based appeal. “I think it’s fairly even across the board,” he says. “But as in all of our forecasting for all digital behaviours, we tend to see that younger cohorts are more likely to be higher adopters of digital tools to do anything in their lives—it could be payments, it could be e-commerce generally, it could be social media usage.

“All digital metrics show that Gen Y and Millennials tend to be higher adopters of these technologies and mobile payments. We don’t have the data specifically on mobile payments to prove that breakdown—we don’t break it down by generation, at least in our last forecast—but my feeling is that that would be true.

“The ability to pay with your phone is pervasive. And the mobile payment apps that are in the market are very mature as well. The payment apps from Apple, Google and Samsung are pretty common and are adopted well. The Starbucks app is also a pretty popular one in Canada.”

As for the future of payments, Briggs says the writing is on the wall.

“I certainly think that cashless transactions will be predominant, for sure. I think it already is predominant in terms of how you check out at the retail level. I know in my own personal life I’m pretty much cashless the whole time. It’s either a debit card or a phone or a credit card that allows me to transact.”

He adds: “I’d say the physical card is still king really, but I could see a day where the credentials on your phone replace the plastic in your wallet.”

Asked about the full-fledged adoption of Amazon Go-style shopping in Canada, Briggs is less certain about timing.

“It’s speculative in terms of when that might be a pervasive experience in Canada for consumers in terms of eliminating the checkout line, but it certainly would make a lot of people happy if they could grab stuff and go,” he says, adding:

“I know, speaking personally, that friction at the checkout line is still a big one, especially in the grocery environment.”

FUTURE OF PAYMENTS?

40% of North American retailers plan to introduce checkout-free shopping within the next two years.

36% of North American SMBs [small and medium-sized businesses] currently accept contactless payments. 9% offer self-checkout options. 8% have order-ahead apps. 1% have biometric capabilities.

Source: Paysafe Lost in Transaction survey

70% of millennials would move away from cash entirely in favour of other forms of payments.

Source: Payments Canada and Leger Marketing’s Payments Pulse Survey: Consumer Edition

6.6M The number of proximity mobile payment users in Canada.

7.3M The estimated number of proximity mobile payment users in 2020, growing to 7.8 million in 2021 and 8.3 million in 2022.

Source: eMarketer