As the year draws to a close, there are three trends I see taking shape in 2020 and impacting both merchants and their payment providers:
The Reverse Omni-Channel Journey
We will start to see larger pure-play eCommerce sites opening physical locations (the obvious example being Amazon, which is now moving into brick-and-mortar) – though we are not likely to see a situation where a pure play becomes a huge franchise department store.
There are a few factors driving this particular trend. First is how consumers are choosing to interact with merchants. Today’s shoppers have different needs and interests – some prefer mobile shopping, while others prefer to touch and feel a product before buying. If businesses limit themselves to a single channel – even if it’s the eCommerce channel only – they will be leaving opportunities on the table.
Secondly, the ease of access to the physical store helps bolster customer experience. For example, it will unlock the buy-online-pick-up-in-store (BOPIS) or click-and-collect model for those consumers looking for immediate gratification. Merchants risk missing out on business from consumers who prefer this channel, which is rising in popularity, according to Nielsen.
Physical stores also make returns easy. With pure eCommerce players, the return process is usually a daunting ordeal including re-packaging the goods, printing out shipping labels and a drive down to a shipment store like UPS or FedEx and then waiting for a refund. From the merchant’s perspective, expanding the consumer’s access to a physical store not only improves the ease of doing business, but also solves logistical challenges.
The Growing Importance of Artificial Intelligence
As retailers experience price compression, along with the need for revenue retention and a stellar customer experience, getting every possible advantage over the competition is becoming critical. Artificial intelligence (AI) will play a significant role here.
In the realm of fraud prevention, distinguishing a bad customer from a good one is important. You need to catch the fraudsters while concurrently creating a smooth and frictionless experience for legitimate customers. Using machine learning as part of a multi-layered approach to fraud detection, merchants can build predictive models to automatically identify legitimate transactions, ascertain how they compare to a customer’s purchase history and isolate the potentially fraudulent ones with greater accuracy – all in near-real time.
AI will also play a role in optimizing conversion rates. When a consumer walks into a store or goes online and interacts with a merchant, the percentage of consumers who were engaged and those who then completed the payments process are key metrics. Understanding and influencing what nuances and experiences helped capture the consumers’ attention from the initial touchpoint through to the checkout process and final payment will be increasingly important.
AI will also drive the consumer’s payments experience as well as the merchant’s experience. For example, when the consumer has swiped their card, providing the best connection to avoid card declines will improve the outlook in terms of revenue conversion and a good payments experience. At the same time, merchants must also ensure that they route the payment through the least expensive path.
At a macro level, retailers will depend on AI to help manage their business. What kind of goods to stock up on, what kind of marketing to undertake all the way through to how the business is doing compared to competitors will all be driven by AI, and this will be important for merchants’ success.
Continued Growth of the “Subscription” Business Model
If you listen closely to the younger generation, owning goods or property is going out of style. While the older generations tended to measure success and happiness based on what they owned, younger generations are measuring their success in terms of experiences. The advent of subscription businesses like Netflix and Rent the Runway have led consumers to focus on the experience without the need to own movies/TV shows or clothes, respectively. Today, everyday brands like BMW and Nike are also using the subscription model to create differentiation through experiences – and immediate gratification. It will be something that merchants continue to drive.
From a payments perspective, in order for merchants to continue benefiting from those recurring subscription fees, they need to remove hurdles and friction that could prevent these recurring payments from taking place. For example, in situations where the consumer didn’t get their paycheck on time, it might lead to a decline in payment. In such cases, merchants will want to consider giving the consumer time to retry, or approve the purchase knowing the consumer is good for it, rather than immediately shutting off the service and losing the consumer’s future business. Merchants will also have to think about how to manage collections with customers who do default on payments.
Next year is going to be an exciting time for merchants as they navigate the growing consumer demand for all things digital and experience-driven. Merchants with a strong digital presence and strategy will certainly have the edge in 2020’s competitive environment.
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