Last year, the customer was still king and ensuring a smooth customer experience (CX) throughout a payment process continued to drive transformations for both regulatory and industry players. British shoppers spent over £76.04 billion on online retail, and 32% used digital or mobile wallets to do so.
Globally, businesses and consumers are shifting from cash and cheques to digital payment methods like bank and credit cards, digital wallets, and more. Cards continue to dominate the in-store retail payment channel; however, digital and mobile wallets like Apple Pay, PayPal, WePay, and Paytm are seeing increases in usage and could pave the way for the future of retail payments. McKinsey found that the average digital adoption rates across Europe rose to 94% and that more than 70% of European consumers plan to use these digital services as much in the future.
Simultaneously, eCommerce retail chipped away at brick-and-mortar retail as mobile shopping options continued to attract a larger share of digital shoppers. According to ACI Worldwide, there was a 28% increase in buy now, pay later (BNPL) transactions in Q4 2021 in the U.K. The buy online, pick up in store (BOPIS) option such as click and collect and curbside pickup gained traction as consumers enjoyed saving on shipping costs, skipping long lines, and getting online orders faster.
Here are a few more retail payment trends from 2021 that caught our attention.
- Payment platforms and super apps became more available and powerful
Banks and financial institutions outsourced their payment platform technology and operations to third parties to boost digital innovation and stay relevant in a competitive marketplace. They depended on these reliable, flexible retail payment services that could be scaled up quickly based on evolving customer needs. The third party solutions helped them fill technology gaps by bringing complementary services that allowed them to match customer needs without serious investment.
The super app combines social, financial, utility services, and entertainment functions into one. Businesses and retailers continued to roll these out since they’re a powerful and easy way to leverage customer proximity and loyalty. PayPal revamped their app to offer a high yield savings account, bill consolidation, a direct deposit feature, pay with QR codes, access and manage credit and buy now, pay later services (BNPL,) and more. In Latin America, Columbian on-demand food delivery app Rappi expanded into eScooter rentals, digital payments, P2P transfers, movie theatre ticketing, and debit cards.
- Transaction security became high-priority
With so many online transactions happening every minute, fraud prevention is critical. Shoppers will always prefer using a payment method with high security. That’s why 85% of payments executives invested in AI, machine learning, and digital ID methods last year to spot suspicious activity faster. These tools can analyse transaction activity and notify consumers and merchants if something’s gone wrong.
For example, it can spot a processor with a high rejection rate, notify merchants about it, and automatically reroute the transaction to one with lower rejection rates. UK-based Revolut partnered with Germany-based Exasol to offer more in-depth transaction analytics for fraud detection and financial reporting.
- The pandemic accelerated alternative payment methods
In the last two years, consumers increasingly relied on digital transactions to pay for digital purchases. Retailers had to quickly pivot their payment options to ones that customers demanded and that were available to them if they wanted to retain their customers.
Banks and financial institutions augmented their digital payment offerings through increased card limits, fee waivers, and new payment solutions. Fintechs increased their market share by helping retailers offer alternative payment methods such as digital and mobile wallets, QR code-based payments, BOPIS, and BNPL options.
Even Big Tech got into the payments landscape with companies like Amazon and Google starting to co-brand super apps and payment solutions with established banks and financial institutions. For example, Samsung partnered with Curve and Mastercard in the UK to launch the Samsung Pay Card. Meta launched Meta Financials to build a digital wallet to hold their branded cryptocurrency and drive WhatsApp Pay efforts in India and Brazil.
- Regional payment schemes challenged the incumbents
Depending on where they’re located, people have different payment options available to them. Location-specific payment schemes helped address payment fragmentation, card scheme dominance, and regional needs. Local card schemes like Argentina’s Naranja, Uruguay’s Oca, and Columbia’s Exito have higher penetration than global cards, while in Brazil, over a dozen fintechs, neobanks and digital wallet firms such as Nubank, PicPay, PagBank, and MercadoPago, are competing in the market for customers and loyalty.
Last year, consumers and merchants were enthusiastic about accepting these payment alternatives since they addressed personal and regional needs better than worldwide options could. They handled all transactions with domestic payment networks thanks to internal regulator and central bank support. Customers appreciated this since they could shop in their local currency and be confident that their financial information was handled domestically.
Merchants enjoyed lower transaction and settlement costs with these regional options. Financial institutions, banks, and regional scheme vendors used these regional options to develop customised products and services for their markets, helping power them to higher revenues and more efficient processing.
Now that we’ve taken a look back, what about the future? What retail payment trends can we expect in 2022 and more?