Payment providers that don't move to support more integrated digital commerce may find themselves unable to serve the "connected consumer" of the future.
Too many payment companies don't share expertise or seek partnerships to advance at the same pace as technology, but opportunities exist to help merchants fill gaps between online and mobile shopping experiences, according to new research from global consulting firm Strategy&.
Indicating the shopping and payment experience is becoming more digital, 90% of consumers consider online payments "almost ubiquitous," while 40% felt the same way about mobile payments.
Chicago-based Strategy& recently surveyed more than 1,000 consumers, 25 merchants and 50 payments executives to compare consumer and merchant pain points to payment providers' perception of the market.
Strategy& describes consumers in three categories traditional consumers who shop mostly in physical stores; digital consumers who shop online and sometimes with mobile phones; and "connected" consumers, usually millennials, who mostly research products, communicate with other customers and merchants, and initiate transactions through mobile devices.
"The payments community has to support all three, but commerce is becoming more digital and there is a 'before, during and after' each transaction for the connected consumer," said payments analyst Kevin Grieve, a partner with Strategy&.
As such, payments providers must work together to provide value-added services to the connected consumer of the future, Grieve said.
"A mobile phone in the hand shifts to a two-way communication device, so an influencing message can be sent to the consumer, and it is possible to track attribution all the way to a sale and beyond," Grieve added. "You have to close that loop, and one company can't do it all. Multiple parties and the consumer have to be involved to get to an actual marketing return on investment."
Payments providers are in the best position to close the consumer loop, but it will take a concerted effort from "everything from the POS backwards," Grieve said. Merchant acquirers, card networks, issuers, processors, and any other company involved in facilitating a payment must work together to achieve this common goal, he added.
Many current initiatives attempt to put all of the pieces in place to assure an attraction for connected customers in the future, though most are missing at least one or two key ingredients, Grieve said.
"Google tried to do it on their own with Google Wallet and wanting to own the data, and everyone bailed on them," Grieve said. "Apple was smart in first asking how they could make Apple Pay work in the payments industry. Now they have a beachhead from which to work and can expand from there."
The Plenti loyalty program managed through American Express is an example of an initiative seeking cooperation across merchants and acquirers, though it currently operates only as a plastic-card program at certain merchants.
Anything the Merchant Customer Exchange ultimately delivers to the market may also have many of the pieces desired by the connected consumer, though MCX had initially indicated its CurrentC mobile wallet would operate without traditional card networks and its focus was on the physical point of sale. MCX has yet to announce a launch date for its CurrentC wallet.
Merchants are generally more in tune with digital shopping trends, with 75% saying they see a shift to mobile, 42% seeing a shift to two-way customer communications and 25% recognizing social media-influenced shopping. They also say they are seeking help from payment service providers to analyze payment data, integrate loyalty programs and strengthen card-not-present fraud protections.
Security remains a major concern for consumers, as about 20% in all three consumer categories indicated they would stop shopping at a retailer that had been breached, according to the Strategy& research.
Observations about connected consumers and security resonates with all payments providers. These trends caused Visa Inc. president Ryan McInerney to signal innovation and security as key factors for his company moving forward.
"We have spent a lot of time discussing how we can develop deeper and stronger relationships with issuers and merchants," McInerney said at the recent JPMorgan Technology Conference. "We are bringing in a much broader suite of assets and capabilities that we have inside of Visa to help them run and organize their businesses."
Visa is trying to move its partners into the digital age through its Visa Digital Enablement Program, a tokenization program for mobile wallets and digital products.
More legacy payments companies may seek partnerships to get a fuller view of their customers.
A merchant knows when a consumer shops in its own store, regardless of the payment method; while an issuer knows whenever a payment card is used, regardless of where. Both sets of data are valuable, but incomplete.
A card network can see activity across issuers and merchants, but is limited to only its network. Merchant acquirers say they can see activity across cards, merchants and networks, while Google says it can see what everyone is sharing.
"A consumer has to opt into all of this and then these players have to share across this value chain with each other," Grieve said. "And that's a problem that hasn't been solved yet."