2020 will go down as the year of the digital transformation. And, whether you were ready or not, you have been forced to transform. No one industry has escaped changes during this pandemic and payments is certainly included on that list.
Many consumers have turned to card-not-present options and recurring payments during this time and there are many reasons why. We see three key market drivers that will take us through 2020 and into the new decade. These include: The rise of invisible and frictionless payment experiences; explosive growth in the subscription business model and; the intersection of the software and payments industries.
Payments have become central to the customer experience and that is driven by the consumer wanting a seamless, integrated shopping experience –regardless of touchpoint.
1. The Rise of Invisible and Frictionless Payment Experiences
For several years, in retail, experience was everything – and that had to do with the shopper’s journey. All messaging was around line busting, avoiding cart abandonment – both in-store and online – those messages have not changed. It is still imperative for the retail experience. What has changed is now retailers understand that the most overlooked aspect of the journey is the most critical to their business in more ways than one – the actual payment process.
A customer doesn’t like waiting more than a moment or so for the signature prompt to come up while standing at the register. It’s even less time online. No one likes to see the spinning wheel of uncertainty while waiting for payment confirmation.
Whereas five years ago, it was swipe and go, or click and go, today consumers want touch and go, wave and go, and even, face and go. They want a quick and contactless payment. Many customers still do not feel safe in a retail store, so a quick checkout experience is critical whether that’s in-store or online.
Consumers really would rather pay for something while they’re in an app and or while they’re online – which by the way, is almost all the time thanks to mobile phones.
2. The Subscription Business Model
The explosion of the subscription model has also played a role in the growth of frictionless payments. According to Zuora’s 2019 Subscription Economy Index™, there is data suggesting that the growth of subscription revenue tracks ahead of the US Gross Domestic Product. We envision that will continue to grow.
Between 2012 and 2018, companies in the Index saw sales grow more than 300%. Revenue growth was five times faster than S&P 500 company revenues and U.S. retail sales.
Why the leap? Subscription-as-a-service isn’t a new concept.
It’s been the model for publications, both print and digital, for decades, and the model for software for at least a decade. The retail experience over the last decade has been about the shopper journey – personalizing the shopper experience. Forming a direct relationship between a brand and a customer creates loyalty and trust, which in turn, equates to repeat shoppers. Or, to put it another way, recurring shoppers. How better to have recurring customers and therefore recurring revenue than a subscription?
Industry disruptors realized that when you put together convenience, curation, and in some cases concierge service, and offer that weekly or monthly, people sign up.
They do it in ways that have broadened the idea of what a subscription is – beyond publications and software to verticals such as Personal Care, Automotive, and Meal Delivery. Subscriptions are how we groom and dress, take in entertainment and culture, care for our pets and ourselves and digest food and beverage.
It’s no surprise then that 70% of business leaders say subscription business models will be key to their prospects in the years ahead. Which brings us to the intersection of the software and payments industries.
All subscription companies, no matter the vertical or service, have one thing in common – online payments.
3. Intersection of the Software and Payments Industries
Software companies, marketplaces and platforms have all integrated payments into their offerings. A credit card or a digital wallet is used to set up the subscription at the point of interaction – be it on a computer, tablet, phone or in some cases, over the phone.
Companies have been slow to adopt some of the newer digital payment options. This is understandable, as they recently went through the EMV mandate for their in-store payments. Now, they’re being asked to take on mobile wallets and contactless payments.
Some are naturally waiting to see what that rate of adoption is before making the investment. Well, they were waiting…and then along comes a global pandemic to shift things into overdrive.
On March 11, the World Health Organization declared COVID-19 a global pandemic and as the physical world shut down, the online world became omnipresent.
According to an analysis by ACI Worldwide, “Transaction volumes in most retail sectors have seen a 74% rise in March compared to the same period last year.” According to a payments.com study, between March 6 and March 28 the percentage of consumers who shopped online for groceries tripled. Online shopping for non-grocery doubled, and the percentage of people who interact with restaurants digitally more than tripled.
So, there was – and naturally continues to be – a huge uptick in online sales and therefore online payments. This is great for Card Not Present businesses – as long as they’re prepared.
Subscription metrics firm ProfitWell has been indexing direct-to-consumer and software-as-a-service companies to understand how the market is moving in real-time with the virus. They’re seeing churn rates of between 30% to 40% attributable to failed payments.
Losing four out of 10 customers to a failed payment is a high price to pay during a time with so much economic uncertainty. Businesses can’t afford to lose customers and they certainly shouldn’t be losing them due to a payments issue.
Payments tend to be a “checkbox” item when running a business. Most people know it happens – they just don’t know how it happens. Now more than ever, companies need to understand the different types of payments and how they’re processed.
For instance, if a customer standing at checkout makes a payment using a digital wallet instead of swiping their credit card, the payment is considered a card-not-present transaction, which puts it in a different processing category. If a customer uses their checking account to enable recurring payments for a charity or a utility, those payments are handled differently than if they’d entered credit card information.
These seemingly minor differences actually have a major impact on business operations as each transaction incurs a different cost to process.
At this year’s Subscription Insider show, the impact of COVID on the industry was a hot topic, with several sessions and many discussions centered around how companies were coping, surviving or thriving. A recurring theme was how companies need to start looking at subscriptions as relationships and not transactions. Like any relationship, building trust and communication with your customers is important. So is recognizing when something isn’t working or realizing your customer wants more from the relationship.
If you’re still unsure of the importance of payments in this relationship, consider the following:
Per a WorldPay study, 72% of people are more likely to make a purchase if they can see the payment options at the start of their interaction (e.g. the home page). That same study shows 26% of users will drop and shop elsewhere if their preferred payment is not an option.
Don’t underestimate the importance of payments to the overall success of your business. It could be the key to surviving the COVID19 economy.