The most popular retail payment methods & trends in 2021

The last two years have accelerated new trends in retail payment services as companies had to keep up with shifting consumer behaviours. Companies, retailers, and banks have shifted rapidly towards innovation as consumers and businesses shift their money from cash and cheques to digital payments.

Payment options embedded in branded apps are gaining popularity as they become more sophisticated and secure. Online eCommerce is chipping away at physical store retail as mobile payments and smartphones make it easier to shop and pay without pulling out cash or even a wallet.

Anything that increases consumer friction as they pay for their online purchases seriously impacts a company’s bottom line. And with an average cart abandonment rate of 78% across all digital retail channels, merchants and retailers need to make sure it’s not their payment process or methods that are causing the problem.

Pivoting retail payment methods to options consumers are looking for can be vital for online sales success. To see where we’ve been and where we might be going, let’s take a look at the most popular retail payment methods of 2021 and see what to look out for in 2022.

A look back at retail payments in 2021

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.

Retail payment services 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. 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 services trends can we expect in 2022 and beyond?

Retail payment method trends for 2022

We see five trends continuing in retail payments for 2022, including an increased focus on the customer experience; maintaining an agile, adaptable payment operations mindset; and incorporating Payment-as-a-Service (PaaS) and data-driven business models to unlock new opportunities.

Digital payment methods continue to drive tech evolution

Traditional payment methods will continue to move towards digital payments as customers embrace advanced and more convenient options. In Latin America, strong adoption of digital wallets is spurring fierce competition across the countries and regions as private companies challenge banks and payment incumbents. Africa’s payment landscape should evolve and grow like China and India before it, driven by local dynamics like strong consumer interest in mobile payment options and low card and banking penetration.

As consumers become more comfortable with digital payment options, they trust non-banks with more of their financial data to make payments easier. Contactless mobile wallet payments in stores exceeded cash and card in-store payments for the first time in 2020 and will account for one in three transactions by 2024.

Digital ID infrastructure becomes key

This trend will continue from 2021 as consumers demand safeguards from payment fraud and identity theft. Providing a secure digital ID infrastructure will be challenging for businesses, retailers, and payment providers as the ID authentication process is fragmented and complex today. In the U.K. alone, online identity fraud increased by 11% in the first quarter of 2021 (the last date data was available to CIFAS.)

As more retail payments are done online, industry stakeholders are demanding better standards that can be enabled to protect everyone. Some stakeholders have started collaborating to create better digital ID solutions, such as those using blockchain technology to generate, verify, and authenticate digital IDs. Spanish banks joined forces to create Dalion, a blockchain-based digital ID solution, while a private digital ID exchange was created in Australia. Eftpos allows Australian users to authenticate IDs with merchants, hotels, hospitals, insurers, and government agencies by linking to a verified digital ID.

PaaS and data-driven business models take centre stage

Payments-as-a-Service (PaaS) is gaining traction as the industry sees how they can reduce costs and expedite market delivery timelines for deploying the latest technologies. Banks and incumbents are embracing a partnership-based strategy to remain competitive, as seen in the partnership between Lloyds Banking Group and UK-based Form3 that developed a cloud-based PaaS platform. UK-based GoCardless launched an open banking payments feature to offer a low-cost way for merchants to collect instant payments and avoid high credit card fees on transactions. In Asia, meanwhile, payment businesses have started transforming into full-fledged payment platforms backed by digital banks as they try to stay competitive in the market.

New retail payment options are being launched at every turn, making it even easier for consumers to pay digitally for their purchases.

Cybersecurity is still a high priority

Cybersecurity is still a top priority in 2022 as everyone from customers to merchants and processors is concerned about fraud. The payment industry is investing in cloud technology, automation, and analytics to protect financial data and mitigate online payment risks. Mexico-based BBVA is adding biometrics to credit cards and removing card details on physical cards to prevent theft. Swedbank has enhanced its fraud platform to use machine learning and AI to deploy a more holistic fraud management approach. These systems proactively build better ML learning models that optimise transaction processing, reduce customer payment friction, and protect the entire payment process end-to-end.

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In a time frame that demanded digital transformation for retail payments, retailers, banks, and payment vendors prioritised and optimised their efforts admirably. They put the customer first, embraced fintech and new digital payment methods to offer the best options to customers, and maintained commitments to online security. Traditional payment firms and banks actively adopted a collaborative perspective and created partnerships with revolutionary fintechs to roll out new solutions to customers to keep pace.

Online shopping, eCommerce, and alternative shopping options (click and collect and BOPIS) grew significantly from 2021 to 2022 and show no signs of slowing. As consumers continue to live more of their lives online and use more digital payment options for everyday transactions, it will be interesting to see how the payment industry reacts. Will it continue to evolve based on consumer demand, or will it contract due to sluggish economic activity or regional pressures? Only time will tell, but businesses ready to deploy the right blend of retail payment methods will probably do well.

To find out more, take a look at our alternative payment methods page or get in touch with the CellPoint Digital Team today.

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