The New world of reTailNew Challenges and Opportunities for the retail industry in the digital era

Summary

1. Executivesummary 1

2. Introduction 2

3. Omni-channelretailingandindustryconvergence 2

4. Paymentsandchangingconsumerbehavior 4

5. Driversofchangetotheretailbusinesses 8

6. Newchannels,consumerperception,attitudesandpreferences 10

7. Newwaystopayatcheckout 15

8. TheaddedbenefitofValueaddedServices 17

9. Fraudasalongtermchallengetothefutureretailingbusiness 18

10.Theimplicationsofpaymentcredentialstorageforretailers 21

11.Thesolutiontothesecuritychallenge:HostCardEmulationandTokenisation 23

12.Conclusion 25

Francesco Burelli –PartneratInnovaluemanagementadvisorsinLondon.Email:burelli@innovalue.com

Gina M. Lularevic–associateatInnovaluemanagementadvisorsinHamburg.Email:lularevic@innovalue.com

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1 - ExEcutivE suMMary

TheretailindustryischangingthedevelopmentsinInformationTechnologyandCommunication(ITC)technology.Consumers’increasedadoptionofmobiles,theconvergenceofretailingchannelsandtheemergenceofnewpaymentsolutionsdemandaconstantreevaluationofexistingandrequiredtechnologies.Whileinitiatives,likethedevelopmentofapplePay,theroll-outofNFCenabledandroidOSoperatedandmicrosoftoperatedphones1,areimportanttodriveanaccelerationofsolutionslikeNFC–thereissomuchmoregoingonunderneaththesurfacewithnewsolutions,liketheacquisitionofLoopPaybySamsung,beingtakentomarketandconsumer’schangingpaymentpreferencesatcheckout.

Comfort,safetyandconveniencerankhighonconsumerscriteriaforpreferringaspecificpaymentproductsuchthatitsavailabilityinfluencestheprobabilityofcompletionofthecheck-outprocess.Consequentlythesekeyfactorsdonotonlyinfluencepaymentdecisions,butalsoconsumers’shoppingpreferencesandthesuccessofacheckoutprocess.moreover,consumersareaskingforinnovativepaymentacceptancesolutions,aswellasseamlessshoppingexperiencesthatcrosschannelsandtouch-points.Withtheproliferationofmobilewalletsolutions,increasedadoptionofNFC,theemergenceofnewmethodsofcapturingtransactions,offeringvalueaddedservicesandtheirrelatedmethodsofstoringpaymentandconsumers’credentials,retailersarefacedbynotonlyincreasedcomplexityofpaymentoptionsatcheckoutbutalsobyanincreasedrisktotheircustomers,andso,ultimatelytotheirbusinesses.

Fraudisstillarelevantthreattoretailers,notjustfortheshorttermlossesitcancause,butalsoasalongtermpotentialthreattoaretailingbrand’svalueandtoconsumers’trust.researchhasoutlinedhowtheconsumers’choiceofretailer,channelandpaymenttypeisinfluencedbyanegativeexperienceofafraudincidentregardlessoftheactualresponsibilityoftheretailerinwhosebrick-and-mortarorvirtualshopfraudhastakenplace.Withtheincreasednumberofnewpaymentmethodstherecomesanemergenceofnewpaymenttechnologiesbutnotallofthemofferthesamebenefitstoconsumersandmerchantsandprovidetheabilitytoaddresstherisksconnectedtomerchantsstoringconsumers’paymentcredentials2.

HostCardEmulationand,inparticularTokenisation,offerretailersthesolutionneededtoaddressconsumers’concernsregardingsecurityrisksrelatedtonewdevicesandtechnologieswhilemeetingconsumers’evolvingpaymentpreferencesatcheckout.

masterCard,withits-brandagnostic-masterPasswallet,itsTokenisationstandardsanditspaymentexpertise,offersretailerstheidealsolutiontoaddressthesenewchallengesandtoremainfocusedonthepurchasejourneyandoptimalconsumer3experiencetoenableaseamlesscheckoutforthedigitalconsumerwithinamulti-channelretailenvironment.

ultimatelythepaymentisonlythefinalsteptoapurchasecustomerjourneythatshouldbeanenablerandnotabarriertothecompletionofapurchase.Bothconsumersandretailersdemandsimplicity,seamlessness,andsafetybutitisuptothepaymentindustrytoprovidesuchfeaturesandtotheretailertoensurethatthesimpler,seamlessandsaferoptionismadeavailabletoconsumersbothonlineandoff-line.

1)E.g.androidOSoperatedSony’sXperiaZ2andZ3series,Samsung’sGalaxy5andmicrosoftOSoperatedNokia’sLumia2)PleaserefertoChapter10forriskrelateddetails3)DigitalConsumersareconsumerswhointeractandcollaboratethroughwebenableddevicesanddonotjustpurchaseorare“soldto”

throughtraditionalmarketingefforts.DonTapscott’svideo:“TheDigitalConsumerandtheriseofaNewParadigmformarketing”-http://blogs.sap.com/innovation/sales-marketing/video-digital-consumer-rise-new-paradigm-marketing-0758591

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2 - introduction

Theretailindustryisundergoingsignificantchangessimilartoretailbanking,paymentsandallotherindustriesthatareimpactedbythedevelopmentsinInformationTechnology,CommunicationServicesandHardware.Theseconvergencetrendshavebeenongoingforthelasttentofifteenyears.Thepaceofchangeisacceleratinginallindustriesduetobusinesspotential,changesinconsumerbehaviorandconsumerexpectationstriggeredbysmartphones,tabletsandcloudcomputing,assuch,thenewesttechnicalstandardisconstantlychangingandblurringthelinebetweenthee-commerceandthephysicalretailenvironments.

Withinthiscontext,consumersarechangingthewaytheyshopand,therefore,retailersmustprovidetheabilitytoacceptapaymentinanenvironmentthatprovidestheconsumerwithaneasyexperience,secureandconvenientpaymentsataphysicalorvirtualcheckout.

3 - oMni-channEL rEtaiLinG and industry convErGEncE

Todayonlineandin-shopbuyingexperiencesareconvergingasaconsequenceofconsumeradoptionofnewdevicesandincreasedavailabilityofrealtimeconnectivity.

E-commerceandthenascentm-commercearegrowingatafastpace,offeringretailersopportunitiesthatwerenotavailableuptoafewyearsago.Nevertheless,theestablishmentofnewchannelsandnewdevicesdoesnotonlyimplythattherearenewwaystoreachconsumers,butalsothatthecustomerjourneyismixingchannelsonasinglepurchase.Consumerscanreviewagoodonline,andpurchaseitofflinelater(behaviorotherwiseknownas“rOPO”-effect4),ortheycanwindow-shopinabrick-and-mortarstoreandthencompletethepurchaseonline(knownastheshowrooming-effect).

Byfocusingononechannelonlyorbynotintegratingchannelsatall,retailersareatriskofdisconnectingwiththeircustomersandlosingrevenueinanenvironmentwhereacompetingretailerisjustaclickaway.

Intoday’sworldretailersarenotonlychallengedbytheneedtobeabletooperatethroughmultiplechannelsbutalsobytheneedtoseamlesslyintegratealltheirchannelssoastoofferaconsistentandsmoothcustomerexperience.Thisseamlessorrathercoherentintegrationissometimescalled“channelconvergence”or“omnichannelretailing”andpracticallyconsistsofthecustomers’abilitytoshopanywhere,anytimeandanyhow.

Thesetrendsareacceleratingastheadoptionofdigitalchannelshasbecomeevenmorepervasivewithinthedailylifeofconsumers.Omnichannelretailisalong-termtrendthatrequirestoday´sretailerstoreactandadapttothedramaticchangesinconsumerbehavior.

4)rOPO(orrOBO)–researchOn-line,Purchase(Buy)Off-line

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Fig 1 – the digital consumer type

Paymentisthepointofultimatevalueexchangebetweenthebuyerandselleranditisakeyfeatureofanycustomerjourney.Oftencanbeabarriertothecompletionofcheckout.Theretailchannelisnolongerlimitedtomanagingthechannelsandthelogisticsofgoodsbutisfacedwithagrowingcomplexityofpaymentinterfaces,instruments,increasedsecurityrisksandchangingconsumerpaymentsbehavior.

“By FocusinG on onE channEL onLy or By not intEGratinG

channELs at aLL, rEtaiLErs arE at risk oF disconnEctinG with

thEir custoMErs and LosinG rEvEnuE in an EnvironMEnt whErE

a coMpEtinG rEtaiLEr is just a cLick away.”

1) Digital informer

2) Digital buyer

3) Digital hypertasker

63%

13%

24%

62%

Online used predominantly as a source for information. Purchasepredominantly in-store:• Lower income, more often in emerging markets• Highest brand focus and loyalty• Lowest affinity toward new devices (tablets, smartphones, etc.)• Not very open to involvement in co-creation(2)

Online used predominantly as channel for purchase. Information predominantly in-store: • Younger, less educated, more often in emerging markets• Strongly influenced by price and availability• Low influence through brand and the company s social and ethical attitude• Highest acceptance of credit card payment• Most open for involvement in co-creation(2)

• Higher affinity toward new devices (tablets, smartphones, etc.)

Mixed usage of online and in-store for both information and purchase:• Higher income, well-educated, more often in mature markets• Lowest brand loyalty• Most time spent online for research• Most critical to social media• Less sensitive to pricing, quality or warranties• Highest interest in technical features as well as the company s social and

ethical attitude(1) Across the majority of surveyed categories (minimum 5-10) ; (2) Co-creation: “A business strategy focusing on customer experience and interactive relationships. Co-creation allows and encourages a more active involvement from the customer to create a value rich experience” – from BusinessDictionary.com

(1)acrossthemajorityofsurveyedcategories(minimum5-10);(2)Co-creation:“abusinessstrategyfocusingoncustomerexperienceandinteractiverelationships.Co-creationallowsandencouragesamoreactiveinvolvementfromthecustomertocreateavaluerichexperience”–fromBusinessDictionary.comSource:Ey2014

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4 - payMEnts and chanGinG consuMEr BEhavior

Paymentsarenotonlyacorestepinthepurchasingprocessbutalsoagoodindicatorthatreflectsthechangesthataretakingplaceintheretailingindustry.

Paymentsatretailpointofsale,onlineandmobilearefundamentallydifferentinregardstopaymentmethodsinuse,volumes,andgrowthrates.Verygenerally,intheoverallretailindustry:

•Thetraditional“brickandmortar”shopisstillthemostrelevantchannelwiththehighestvolumesbutcharacterisedbyrelativelysmallgrowthrates.Inthischannel,electronicpaymentsaregainingrelevancebuttheshareofcashpaymentsisstillsignificantlyhigh;

•Online/e-commercepaymentsexperiencearesimilarintermsofvolumesandgrowthratesbutitisworthnotingthat,comparedtothephysicalchannels,onlinepaymentsaremorefragmentedandvaried;

•mobilepaymentsandpaymentsvianewconvergingdevicesbasedonmobileinterfacesandinfrastructuresthatsharecontentacrossmultipledevicesrepresentasmall-sizedchannelbutwithhighgrowthratesandshowearlysignsofheadingtoanevenhigherdegreeoffragmentationthane-commerceandonlineretailchannelsinregardstopaymentoptions.

payments at a retail point of sale5

althoughtheonlinemarketisstillgrowingstrongly,thebrick-and-mortarchannelisstill,byfar,themostimportantchannelfortheretailindustryintermsofsalesvalue.InEurope(Eu26),in2013,retailshopshadanapproximatemarketvalueoftransactionsof€5,452.4bn6,ofwhich42.4%(€2,311bn)ofsaleswerecompletedthroughacardpaymentand57.6%(€3,141.4bn)weresettledbycash.

Thesenumbersareanevidenceofthefactthat,whilecashisstilldominant,itislosinggroundoverallduetotheincreaseofelectronicpaymentsalthoughthisvariesbytransactiontypeandvalue.Generally,thesmallerthetransactionvalueis,thehigherthepossibility/probabilityisthatitwillbesettledbycash.TheshiftawayfromcashtoelectronicpaymentswilllikelyaccelerateastheEuropeanunionCommission7hasrationalizedthecostofelectronicpaymentstoadegreethatarguablythesearelowerthancashhandlingtoretailers,henceeliminatingaperceivedcostbarriertocardpaymentsacceptanceforsmallretailers.

5)By„retailpointofsale”itismeantaphysicalshop.6)Sources:EPC2013-2014,EuropeanCountryrankings_C&mI_FINaL_0914.7)EurLex,regulationofTheEuropeanParliamentandofTheCounciloninterchangefeesforcard-basedpaymenttransactions,

“COm/2013/0550final-2013/0265(COD)”,2015

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Fig. 2 – cash payments by value of transaction

asitisgoingtobetoucheduponagaininthefollowingchapters,thefollowingliststhetypesoftransactionsthatwilllikelybenefitfromthefunctionalityofcontactlessorNFCinitiatedpayments,potentiallythroughamobilephone.

E-commerce:

Theretailchannel“e-commerce”hasbeengrowingbyadouble-digitpercentagerate,whichisthekeytothegrowthofallretailsectors.Thisstronggrowthisstillongoing:Europe’stotale-commercemarketin2013was€518bn8,anditisexpectedtogrowto€826bnby2018.Thisequatestoanaveragegrowthrateof11.4%p.a.TheuKistoday’se-commercemarketleaderwithavalueof€128.9bnofonlinepurchasesandisexpectedtokeepitspositionuntil2018withanestimatedtransactionvalueof€175.3bn.emarketerestimatedbusiness-to-consumer(B2C)ecommerceworldwidesalesat$1.471trillionin20149,increasingnearly20%over2013withsalesexpectedtoreach$2.356trillionin201810.

Whilethevalueofe-commerceisgrowingrapidly,itstillrepresentsonlyasmallpercentageofthetotalvalueofretailers’transactions.Overall,theweightedmarketshareofe-commerceinEuropewaslessthan10%11ofthetotalretailrevenuesin2013.

E-commerceisveryfragmentedintermsofpaymentmethodsusedbyconsumerscomparedtoretailPOSwherecashandcardsdominate.Withintheonlinecontext,cardpaymentsleadthemarketwithashareof51%followedbyPayPalwithashareof19%,banktransferwith9%,andcashatdeliverythatholdsa8%share.

8)Source:Eu26,EuropeanCountryrankings_C&mI_FINaL_09149)Source:http://www.emarketer.com/article/Worldwide-Ecommerce-Sales-Increase-Nearly-20-2014/1011039#sthash.G2yLwgB5.dpuf10)emarketerestimatesforecasta2014-18growthrateof14%CaGrforNorthamerica,11%CaGrinLatinamerica,24%CaGrinasia

Pacific,13%CaGrWesternEurope,9%CaGrinCentralandEasternEurope,20%CaGrinmiddleEastandafricarespectively.Source:emarketer

11)Source:Eu26,EuropeanCountryrankings_C&mI_FINaL_0914

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Fig. 3 – online payments by payment type (% split based on transaction volume)

Mobile payments:

Withtheforcefulbreak-throughofsmartphones,theirincreasingcapabilitiesandaccessiblecontentduetobandwidthgrowth,mobiledevicesareincreasinglyusedforthepurchaseofgoodsandservices.Inparticular,mobiledevicesarestillusedpredominantlytobuyvirtualgoodsonwebsites,e.g.music,e-booksetc.andthesetypesoftransactionsareoftenreferredtoasremotepayments.Itisworthnotingthatthroughmobilewalletsandmobileaccountinterfaceapplications,mobilephonesarenowstartingtobeusedasinstrumentstopayinshopsthroughaPOSterminal.Thistypeofpaymentiscommonlyreferredtoasaproximitypayment.

Fig. 4 – Global share of mobile payments by type

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mobileonlineretailpaymentsstilldominatetheuseofmobilephonesforpaymentpurposes,butmobileproximitypaymentsareexpectedtogrowatanincreasedrateviatheleverageofpaymentapplicationssuchasGoogleWallet,applePayandmobilenetworkoperator’swallets.

ThisisexpectedtogrowfurtherasSquarehasallegedlybeenworkingonanandroidtabletofitsownthatwouldreplacetheiPad-poweredSquareregisterstypicallybysmallbusinesses12while,inresponsetoapplePay,Googlehasbeenworkingonanewmobilepaymentssystem,called"Plaso"(pronounced"play-so").PlasoiscurrentlybeingtestedatPapaJonesandPaneraBread,thatwouldletpeoplepayatcheck-outbyjustconfirmingtheirnameorinitialstothecashier.

SamsungElectronicsamericaInc.purchasedin2015LoopPaydrivenbyitsvisiontobe“attheforefrontofcontactlesspaymentstocreateaplatformthatbringstogetherissuers,merchantsandconsumersthatfacilitateaseamlessandrewardingdigitalwalletexperience13”

Theseinitiativeswillultimatelybringmoremobile-initiatedpaymentsintobrickandmortarcommerce.

Themarketsizeofmobilecommerceisstilllowcomparedtoin-storeandonlinepurchases.Themobilecommercemarketaccountsforavalueof€158.7bn14in2013butisgrowingatahigherrate(31.8%compoundannualgrowthratebetween2010-2013;23.2%CaGrforecastedfortheperiod2013-2018)thantheestimatedgrowthof11.4fore-commerceuntil2018.

Fig. 5 – European m-commerce value

12)http://www.theverge.com/2015/2/11/8019413/square-apple-ipad-mobile-payments-terminal-android-report13)http://www.looppay.com/announcement14)“Source:Eu29,Euromonitor2013”.

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Mobile commerce per capita:

Fig. 6 – m-commerce per capita in selected countries (2013-2018 forecast)

Overall,thereisageneraltrendofincreasedadoptionandgrowthofmobilecommerce.Tomakesenseofandmaximizethisopportunity,retailershavetobeabletounderstandconsumerpreferencesandbehavioursaswellastounderstandthedevelopmentofthepaymenttechnologiesthatareunderlyingatransaction,andthecoherentrelativeimplications

5 - drivErs oF chanGE to thE rEtaiL BusinEssEs

Thepaymentmarketiscurrentlyexperiencinghighlydynamicchangesthatleadto,and–atthesametime–areconsequencesof,newemergingtechnologiesinthemarket.TheintegrationofpaymentcardfunctionalityintomobilephonesenablinghandsetstobeusedasapaymentinstrumentisindicativeoftheestablishmentofnewpossiblebusinessmodelsliketheimplementationofNFCtransactionsorthepossibilitytopayforgoodsviascanningaQr-codethathasbeenprintedintoacatalogue.

allofthesechangesimplyacosttoupgradetheinfrastructureandanincreaseofriskfromtheretailer’sperspective.So,thequestionarises,whyweareexperiencingsuchawaveofinnovation?

"MoBiLE onLinE rEtaiL payMEnts stiLL doMinatE thE usE oF MoBiLE

phonEs For payMEnt purposEs, But MoBiLE proxiMity payMEnts

arE ExpEctEd to Grow at an incrEasEd ratE via thE LEvEraGE

oF payMEnt appLications such as GooGLE waLLEt, appLE pay and

MoBiLE nEtwork opErator’s waLLEts"

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Theanswerliesinacombinationofmarketdriversofwhichthemainonesare:

1. rise of smartphones: Since2007,withthelaunchofthefirstiPhoneandofandroidbaseddevices,themobilephonehasbeentransformedintoanever-connectedportablepocket-sizedcomputer.TogetherwiththeincreaseindataconnectivitybytransactionstandardslikeumTS,LTEand4G,smartphoneshaveenabledaneverpresente-commerce-likeopportunityonasmallscreendevice.

2. rise of millennials:millennialsorDigitalNativesbornin1980orlatergrewupwithconnectivity,mobileinterfacesanddigitaltechnologyaspartoftheirlife.Digitaltechnologyseemstobeomnipresentinthelifeofmillennialstothepointthatsmartphonesareoftenquotedasthechannelofchoiceforanytypeofserviceincludingshoppingandpayments.

3. Emerging new business models and industry convergence: Start-ups,incumbentlayersfromthefinancialservicesindustryandtechnologyprovidershavebeenmonitoringtechnologyinnovationstodevelopnewservicesaswellastoevolveexistingservices.Payment,dataanduserinterfaceshaveconvergedintoamultitudeofvaluepropositionsbutultimatelythesizeandthebrandvalueofcompaniessuchasmasterCard,appleandGooglearenotonlyinfluencingandshapingconsumerpreferencesbutreshapingtheretailenvironmentthroughthedevelopmentofnewpaymentsolutionsaswellasevolvingtheirestablishedproducts.

Thesedriversofchangearehighlyinterconnected.moreover,theydonotonlyinfluencethewayconsumersexpectorarelookingtocompleteatransaction,butalsoaffectallotherpartsoftoday’slife.Fromaretailer’sperspective,thechangesgowellbeyondpayments,andonetypicalexampleistheretailchannelconvergence.Consumersrequireandexpectsalesandaccesstoinformationtobeintegratedintoaseamlessandconsistentuserexperience.Theirexpectationsaboutpaymentavailabilityandperformanceareonlyoneofthemanyaspectsofchannelconvergence,butitisacrucialpartoftheuserexperienceaswellasaninfluencingfactorforthecompletionofasalesjourney.

Fig. 7 - smartphone adoption Europe (m)

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Fig. 8 – demographic share of digital natives vs. digital immigrants

6 - nEw channELs, consuMEr pErcEption, attitudEs and prEFErEncEs

understandingconsumerpreferencesandtheabilitytoleveragetherighttriggersforthedesiredconsumerbehaviourarekeyfactorsforretailerstobesuccessfulingrowingtherateofcheck-outcompletion.Consumerbehaviourcanvarysignificantlyinregardstoitspaymentpreferences.Oftentheavailabilityofaspecificpaymentmethodcanbeadecidingfactorfortheconsumertocompletehisorherpurchase.

acrossallretailchannels,shops,e-commerceandmobilecommerce,consumersaregrowingmoredemandingandtheirneedsandwantsareincreasinglymorevariedthaneverbefore.Ontheonehand,customershave“classical”needs,suchasthepaymentstepofthetransactiontobeconvenient,secureandatnocosttothem.Ontheotherhand,consumersareshowinganewsetofrequirements:seamlessandconsistentexperiencesregardlessofsaleschannels,valueaddedservicessuchasloyaltyprogramsandintheperfectsolutionalloftheseservicesareconnectedtotheconsumer’smobilephoneforhisorherconvenience.

consumer payment preferences at a retail point of sale

Nowadays,in-storeretailershavetodealwithawidespectrumofconsumers:thosewhoprefertopayintraditionalwayssuchascash,thosewhopreferpaymentcards–debit,creditandprepaid–andtheyoungertechnologicallysavvier“GenerationZ”15,whomaywanttousetheirsmartphoneforeverything.

“consuMErs rEquirE and ExpEct saLEs and accEss to

inForMation to BE intEGratEd into a sEaMLEss and consistEnt

usEr ExpEriEncE.”

15)Bornbetween1995-2012,comingofagebetwen2013-2020.Source:www.socialmarketing.org

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mostconsumersprefertopaywithacardorcashattheretailPOSwithcashpaymentsbeingmostprevalentforlowvaluetransactions,typicallyforpurchasesbetween€0,01and€25,00.Thistypeofpaymentbehaviourisnowchangingrapidlyascontactlesspaymentsthroughcardsormobilesareofferingaconvenientmethodtoeliminatecashinlowvaluepayments.Nearlyhalfofallconsumersgloballyhaveorwanttousecontactlesscards16.Overall,consumerscontinuouslyshowagrowingpreferencetowardselectronicpaymentsandsmallvaluetransactionsareno-exception.NFCtransactionmarketisforecastedtoexperiencestaggeringgrowinthenext8years,accordingtorecentresearchfromreportsnreports.com,growingatanestimatedCaGrof8.83percentfrom2014to2022,reachingatotalglobalcontactlesstransactionvalueof$16.25Billionby2022.

drivers for consumer e-commerce payments behavior

asalreadymentionedinthepreviouschapter,paymentsaremorefragmentedfore-commercechannels.Notsodifferentfromthetypicalfindingsforthein-shoppaymentpreferences,therearesomekeyfactorsinfluencingconsumers’choicesintermsofpayments.Datamonitor’sresearchononlineconsumerpreferencesin2014inasampleofEuropeancountriesshowsthatthemainreasontochooseaspecificpaymentmethodiscomfort(25%-40%),followedbyconvenienceandsecurity.rewardsdonotappeartobearelevantdriverforconsumerbehaviourwiththeexceptionofpaymentcards.

Fig. 9 – Factors driving online consumers’ payment preference

Withinthiscontextitisalsoworthmentioningthattherearestillsignificantbarrierstoe-commerceadoptionasmorethan50%ofEuropeanconsumersinDatamonitor’sresearchstilldonottrustonlinepayments,and,assuch,theyavoidthem.reasonsrangefromlackofaccesstosecurityissuesaswellasgeneralpreferences–factorsthatappeartolimittheconsumerattitudetowardse-commerceinasimilarmanneracrossmostofthelargestEuropeanmarkets.

16)Datamonitor2010and2014

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Fig. 10 – consumers’ reasons not to shop online in selected European countries

Onlineretailersmayhavetoconsidersuchfactorsiftheyweretoreducetheshareofonlinenon-buyersortoreducetheprobabilityofconsumersabandoningtheirtrolleyswithoutcompletingtheirpurchases.Forexamplethiscouldbereachedthroughleveragingconsumerpreferencesforpaymentswithahigher(perceived)securitystandard.

consumer mobile payment preferences

Consumermobilepaymentpreferencesappeartobedrivenbyamorecomplexnumberoffactors,e.g.thegrowingnumberofsmartphones,improvedmobiledataconnectivityandoverallsocialchanges.analysingthesedriversforconsumeradoptionofm-payments,oneofthekeyfactorsisonceagain“convenience”.Butitisworthnotingthat“speedofpayments”(includingaquickpurchaseinstoreaswellas1-click-orderingviamobileapps)andvalueaddedserviceslikeincentivesandpersonalizedoffers,alsoscorehighlywithinthecontextoftheresearch.Thesenewfactorsappeartobehighlyrelevantinthecontextofmobilecommerceandprovideavaluableindicatortoretailerssearchingtomaximizesalesthroughthemobilechannel.

Fig. 11 – key drivers for consumer adoption of m-commerce/ m-payments

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Fig. 12 – penetration of m-commerce by type of handset operating system in use

Whilethemajorityofconsumersquotesecurityasakeyrequirement,theytendtotrustandseekeaseofuseandconveniencefromasecurepaymentserviceprovider,afinancialserviceswebsiteoradedicatedsecureapplication(e.g.awalletwithtrustedpasswordmanagementfunctionality).Thesesolutionsare,inmostcases,sufficientlysecure,butoftenrequirenewinfrastructureorcanprovechallengingtorollout.NFCtechnology,forexample,isversatileandasecuretransactioncaptureinterface.Itofferssignificantopportunities,especiallyinlowvaluepaymentsandtheconvenientinterfacecanalsobeusedfornon-paymenttransactionslikeloyalty.Nevertheless,ittookNFCalongtimetoachievemarketrecognitionandanearlycriticalmass.Despitehavingbeenaconvenientpaymenttechnologyavailabletoplayersforoverfifteenyears,itisgainingtractiononlylatelyafterhavingreachedabroadsupportbytheecosystem.Thissystemdoesnotonlyincludepaymentproviders,banks,mobilenetworkoperatorsandretailersbutalsotelecommunication,internetandmobilemanufacturingcompaniessuchasapple,GoogleandSamsung.ThelattermadeconsumersawareofNFContheirdeviceswherebytheyfacilitatedanaccelerationinadoptionandusage.

Withinthecontextofmobilepaymentstheprevailingproductandtrendismobilewallets.mobilewalletsareapplicationsthatcanstoreamultitudeofcardsandaccountdetailsfromdifferentissuersandbanks.althoughconsumeradoptionisnotyetveryhigh,itisexpectedtogrowrapidlybasedonthenumberofconsumersthataremanifestinginteresttoadoptsuchaproduct.16%ofEuropeanconsumersareinterestedingettingamobilewalletintheshorttermand22%ofEuropeanconsumersseethebenefitsintheuseofamobilewalletbasedonDatamonitor´sresearch17.

Europeanearlyadoptersofmobilewalletsclaimanoverallpositiveuserexperience,71%ofrespondents.Thosewhousemobilewalletsregularly,appeartofindthem“veryhelpful”forpaymentspurposes;8%ofrespondents“feelsafe”bypayingremotelyviathewallet.Furthermore,22%ofwalletownersthinkthatwalletsdo“simplifytheirshoppingexperiences”.

17)Datamonitor2014

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Therefore,onthebasisofthesefactors,consumerpreferencesappeartobesupportiveofincreasedmobilewalletsadoptionandoftheirincreasedroleinshoppingcheck-outsinthefuture.asmobilewalletsgaintraction,thesearefactorsthatretailerswillhavetoconsiderindevelopingtheirpaymentacceptancestrategiestomaximizesalesthroughoutallchannels.

Fig 13 – Mobile wallets penetration

Fig 14 - consumer attitudes towards mobile wallets

asmentioned,consumerpreferencesatcheckoutareveryimportantforretailersasthesearenotonlyinfluencingconsumers’willingnesstoshopbuttheyalsohaveanimpactontrolleyabandonmentrates.ultimatelyconsumerpreferences,togetherwiththeleveragingofmobiledevicesforpaymentpurposesareleadingtoachangeinthewaytransactionsareinitiatedandsettledatcheckout.

“whiLE thE Majority oF consuMErs quotE sEcurity as a kEy

rEquirEMEnt, thEy tEnd to trust and sEEk EasE oF usE and

convEniEncE FroM a sEcurE payMEnt sErvicE providEr.”

15

7 - nEw ways to pay at chEckout

Oneofthemostcommoninstrumentstoinitiateanelectronictransactionistheuseofaplasticcardwithamagneticstripeand/orachipwithaPOSterminal.Withtheincreasedadoptionofsmartphones,thereareanumberofinitiativesemerging:NFC(NearFieldCommunication),Bar-/Qr-code,BluetoothLowEnergy(BLE),alpha-numericcodesand/orgeolocation.

NFCisthemostknownoftheseemergingtechnologiesbecauseitisofteninstalledonpaymentcardsandnotonlyusedbysmartphones.NFCisashort-rangewirelesscommunicationtechnologythatenablesdatatransferbetweentwodeviceswithoutrequiringphysicalcontactbetweenthem.aconnectionisautomaticallyestablishedinlessthanonesecondandthereforethesystemenablesveryfastandconvenientcheckouts.NFCisexpectedtobethefastestgrowingoftheexistingnewtechnologiesthankstotheapple’sreleaseofiPhone6andiPhone6PlusandtheadoptionofotherhandsetmanufacturerssuchasGoogle,andSamsung.asatransactioncaptureinterfaceNFCisgoingtobepartofmobilewallets.

ItistobesaidthatNFCisn’tonlyanidealpaymentinitiationinterfaceforahandsetdevice,butitisalsothebestsuitabletechnologyanduserexperiencetobeleveragedforcashsubstitution,inparticularinsmallvaluetransactions.

Therefore,NFCisincreasinginEurope.ThetotalnumberofcontactlesscardswithintheEu29was129.6min2013with555.6mtransactionstoavalueof€5.2bn.uKandPolandarethetwocountriesleadingthisgrowth.In2013theuKmarkethad36.5millioncontactlesscards,upfrom20min2012,toapurchasevolumeof€770m.Onitsside,Polandhad20mcardsin2013andhasbecometheleadingNFCmarketinEuropeinwhichcontactlessenabled19.3%ofcardtransactionstoapurchasevolumeof€1.5bn.amongstthenewpaymenttypes,contactlessistheinterfacethathasgainedthemostconsumerawarenessandrecognition.

Fig. 15 – nFc consumer awareness, usage and interest in Europe

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aQr-codeingeneralisacomparativelysimplertechnologythatcanbeusedforonlineaswellasin-storepayments.Generally,theQr-codeisdisplayedatapaymentterminaloronawebpage.ThepayerinitiatesthepaymentbyhavingthecodereadbyhisorhermobilephoneandthanbyauthorizingthetransactionbyaPINnumberinputonthesamemobileterminal.TheadvantageofQr-codesistheirrelativelyeasyimplementationasmostscreenterminalsareabletoshowthem.aproductanditsQr-codecanbedisplayedinaposterorinacataloguewhichofferspotentialcustomerstocompleteanorderinstantlyatanytimeandtohaveitdeliveredataregisteredaddress.TheselattertypesoftransactionshavebeensubjecttoanumberofattentiongrabbingtrialsoverthelastfewyearspositioningQr-codesasperfectsolutionsforlocation-specific,self-serviced,remotesales.

Thereareafewothertechnologiesatvariousstagesoftestingandrollout–suchasBluetoothLowEnergy(BLE),Geolocation,alpha-numericcodesandsoundauthentication.amongstthese,BLEisthemostimportantfromaretailerperspectiveasitisexperiencinggrowingpopularityanditiscurrentlysupportedbyanincreasinglylargenumberofstart-upsaswellasbyestablishedcompaniessuchasapplethroughitsiBeacontechnology.retailerswouldneedtoinstallsmalldevicescalled“beacons”tobepositionedinstoretocapturetransactionsaswellastoprovidelocation-basedservicessuchascoupons.IthastobenotedthatacommonmisunderstandingaboutBLEisthatalthoughitcanbeusedasapaymentinitiationmethod,itisabettercomplementtoNFCbyenablinglocationbasedservices.Inadditiontothepossiblepayment-use,BLEcanalsobeusedforinformationtransfer.Consumersareabletopullinformationandmerchantscanpushinformationthroughthedevicetosupportaconsumerjourney,promotegoodsorprovideincentivesanddiscounts.

Summingup,amongstalloftheemergingtechnologies,retailersexpectthatNFCwillbeoneofthemostimportanttransactiontechnologiesfortheirbusinesses,basedonthePCmresearchin2013.

Fig. 16 – type of solutions and technology that merchants deemed to be best for their businesses

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Withinthiscontext,mobilewalletsarethetypicalpaymentproductsthroughwhichNFCisgoingtobeleveraged.mostknownexamplesofmobilewalletsareapplePay,GoogleWalletandwalletsfrommobilenetworkoperators.

Theadditionalrelevantfunctionalityfromaretailingperspectiveistheoptionforuserstostoreandcontroltheironlineshoppinginformation,likeshippingaddressandpaymentcarddetails,inonecentralplace.Itprovidesatechnologicallyconvenientmethodforconsumerstoaccessaneasyconsumerexperienceandbuyservicesonlinethroughseamlesstransactions.

allofthesenewwaystopaywillchangenotonlythewayconsumersshopbutalsopotentiallythewayretailersinteractwithconsumersandtheamountandtypeofinformationthattheycanaccesstoenrichthecustomerexperience.

8 - thE addEd BEnEFit oF vaLuE addEd sErvicEs

Theconceptofvalueaddedservices(VaS)isquiteoldbutnotold-fashioned.VaSarestillpartofthecurrentconsumerbuyingexperienceatahighrateand,throughnewdeviceslikesmartphones,theywillevolvebothintermsofreachandscope.retailershaveclearexpectationsonwhattypeofVaStheywouldseektoleveragefromcardsandonlinepaymentsashighlightedbyaPCmresearchinmay2013.Producttaggingandgeo-locationservicesappeartobemostpopularamongstallpossibleVaS-options.

Fig. 17 – value added services sought by retailers from mobile devices

VaSarechangingwiththerisingbreak-throughofsmartphonesastheseofferanidealplatformtodevelopanddeliverVaSapplications.Smartphonesenablelocation-basedservicesandtheyareabletoprovideaccesstodynamicserviceswhereasaretailercan

18

Fig. 18 – value added services most likely to be used by consumers

Currentlythereisaverycrowded/competitivespacewithanumberofstart-ups,aswellasmNOs,inadditiontoincumbentretailerstryingtoplayaroleinthefieldofVaS-programs.ultimatelythiswillresultintoanincreasedsetofchoicesforretailersintermsofavailabilityoftheseprograms.

Whilethereisalotofvaluethatretailerscanderiveandaddtoconsumersthroughthenewpaymentmethodsandthroughvalueaddedservicestherearethreatsthatwillneedtobeaddressed.

9 - Fraud as a LonG tErM chaLLEnGE to thE FuturE rEtaiLinG BusinEss

“Paymentfraud”isatermthatreferstoapaymentthattakesplacethroughapaymentinstrumentthathasbeencompromisedandthathasnotbeeninitiatedbyitsrightfulowner.Thismayhappenthroughallretailchannels,whengoodsarepaidforinashopataPOSterminalaswellasonlineorthroughamobilecommerceinterface.Paymentfraudmayoccurasaresultofanaccounttake-overaswellasbytheuseofacounterfeitorstolenandcompromisedcard.Theaffectedpartiesarenotonlyconsumersandthefinancialinstitutionwhoseproducthasbeencompromised–theconsequencesextendalsototheretailers.Thedirecteffectsincludestolenconsumermoney,lossesthataretypicallycoveredbythefinancialinstitution,andtheviolationofpersonaldata.Indirecteffectsarepotentialdamagetothereputationofmostoftheinvolvedpartiesandthedamagedconsumertrustthatmayleadtothechangeofpurchasingpatterns.

Eventhoughalloftheplayersinvolvedinthepaymentvaluechaininvestsignificantlytoprevent,containandreducefraud,itisstillarelevantissueaffectingconsumers.

19

14.2%ofallEuropeanconsumers18and17.5%ofconsumersgloballyexperiencedatleastonefraudincidentduring2013.Eventhoughthenumberofaffectedconsumersappearstobesignificant,thetotalfraudlossesshowthatfraudonlyaccountsfor0.04%19ofalltransactionvaluesinthecaseofpaymentcards.

analyzingformerfraudincidencerates,onecanseethatfraudaffectingtheretailerinfrastructurerepresentsthegreatestriskfortheaffectedconsumers.ThesefraudincidenttypesincludecarddetailsstolenandPINcompromisedinaphysicalenvironment,orstolencreditcardcredentialsfromonlinepaymentgateways.

Fig. 19 – Frequency of fraud incidence by type of organisation/ location type

Butwhataretheconsequencesofpaymentfraudtoretailers?assumingthataretailerhassatisfiedallrequirementsandthattheinfrastructurehasnotbeenbreached:none.However,whileatleastthereisnodirectfinancialimpact,theconsequencesfromaconsumerperspectivearerelevant,evenifnotoftenappreciatedintheirmagnitudeandgravity.

Onesevereconsequenceistheconsumers’reactiontothefraud.asthefollowinggraphicshows,44%ofvictimsavoidonlineretailerswherefraudincidentshavetakenplace,hencedamagingfuturesalesandpotentiallyaffectingbrandandreputationthroughnegativeword-of-mouth.Therefore,fromaretailer’sperspective,preventingandavoidingfraudmeanssecuringrevenuesandpreservingbrandvalue.

18)Source:Datamonitor2014,regardingEu1019)Source:ECB–Thirdreportoncardfraud(Feb.2014);usingcardsissuedwithinSEPa8allreportingschemes

20

Fig. 20 – proportion of data breach victims that avoid the organization where the breach occurred

Itisimportanttomention,thatevenifthefraudaccidentisnotaretailer’sfault,consumerperceptionislikelytobemisledandthefraudaccidentislikelytobeassociatedtotheretaileritself20.Thisriskisinlinewiththepost-payment-fraudbehaviourofconsumersas67.2%ofconsumers/victimsgloballyweremorecautiousinmakingpaymentsandcompletingsales21.

Consequently,retailershavedevelopedfraudpreventionstrategiesoftheirown.Oftenthesearegenerallyadaptedfromthefinancialservicesindustryascompliancetopaymentacceptancerequirements.Thisisareductiveapproachasretailerspotentiallyneedtomakeabiggercontributioninthiscontext,inparticularinregardstochannelsinwhichtheofferingofpaymenttechnologiesandconsumerpreferencesaremorefragmented.Thepreferencetomoresecureonlinepaymentmethods(e.g.walletssuchasmasterPass)orthesupportoftokenisation,whichcanbeusedonlineaswellasinmobilepaymentapplications,donotonlyprotecttheretailerbutalsotheconsumeranditpreventsunnecessaryrisks.Overall,fraudisasbadforthepaymentsindustryingeneralasitisforretailersandcustomers.adoptingareductiveapproachtotackletheissueisnotthemostadvisablecourseofaction.

Thechallengeissuchthatregulatorsaretakingstepsto,intheirviewandapproach;addressfraudbymandating“strongcustomerauthentication”inarangeofpaymentscenarios22.ultimatelytheEu'sPaymentServicesdirective2(PSD2)willimpactpaymentsprovidersaswellasthemethodsofpaymentsavailableatbrick-and-mortarandonlinecheckouts.

Withinthiscontextitisimportantthattheretailindustryunderstands,andaddress,allthepossiblepointsofcompromisethroughoutthepaymentlifecyclebeyondthetransactioncaptureandauthorizationsteps.

20)Source:JavelinStrategy&research,2014Databreachfraudimpactreport21)Source:Datamonitor201422)http://www.out-law.com/en/articles/2014/september/psd2-eu-ministers-move-to-tighten-payment-authorisation-requirements-for-

mobile-app-payments/

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10 - the implications of payment credential storage for retailers

Whilethemethodofinitiatingatransactionisrelevanttotheretailersastheywouldhavetoensurethattheircheckoutsareabletoacceptthosepayments,thestorageofthesensitivepaymentcredentialsisevenmoreimportantasitconstitutestheweakerlinkofapaymentdeviceanditisoneofthelikelytargetsoffraudsters.Thedatabeachcompromisingover40milliondebitandcreditcardsinDecember2013atTargetCorporation23isonlyoneofthehighprofilecasesthathitthenewsrecently.

ase-commercepaymenttypeskeepgrowinginnumbersandtypesandasmobilecommercegrowswithsimilarimplications,thevulnerabilitiesofdeviceswillcreaterisksforallpartiesinvolvedincludingretailers,inadditiontobanksandpaymentorganisations.

Inaugust2014,almosteightmonthsafterthedatabreachatTargetCorporationwasfirstrevealed,theestimatedcostitsshareholderswasvalueto$148million24.Whilethecostofdamagesandfinesisquantifiablethereisanevenhigherbranddamagecostthatisrarelyquantified.Consumersrelyonafeelingofsecuritywhendecidingwhetherornottoshopatcertainonlinestores.While“actualsecurity”ispracticallyfactualandcanbemeasuredinnumberslikethepercentageofcompromisecases,fraudfigures,etc.,“perceivedsecurity”isarelativefactorandisitbasedonthefeelingsthatarebasedonpastexperiences,expectationsandword-of-mouthaswellastheinfluencers’viewsaboutthelikely“actualsecurity”ofusingacertainpaymentmethodorenteringacertainstore.asthegraphbelowillustrates,consumershavetheirownperceptionsofsecurityofauthenticationmethods.

Fig. 21 – consumers’ preferred security authentication methods for mobile devices

“44% oF victiMs avoid onLinE rEtaiLErs whErE Fraud incidEnts

havE takEn pLacE, hEncE daMaGinG FuturE saLEs and potEntiaLLy

aFFEctinG Brand and rEputation throuGh nEGativE word-oF-

Mouth.”

23)"Targetsecuritybreachaffectsupto40mcards".associatedPressviamilwaukeeJournalSentinel.19December201324)"TargetSharesTumbleasretailersrevealsCostOfDataBreach”,Forbes,5august2014

22

“Perceivedsecurity”isahugefactorinthesuccessofonlineretailstores–especiallyforthosewhofallintothesmalltomediumcategory.It’scrucialtoemploytherightsecuritymeasures,and,inordertoguaranteethatabusinessisactuallysecure,retailersneedtostartwithbackendslikeFirewallsandwebapplicationprotection.additionally,retailersneedtotakeafurtherstepandactivelyscanforthreatsand/orvulnerabilitieswithintheirwebsites.

Sensitivepaymentdataistypicallystoredonachipormagneticstripofaplasticcard;itcanbeequallystoredonamobilephoneoronanyotherelectronicdevicelikeawatch,anentrypassorinitemsofwearabletechnologies.Onsmartphones,thepaymentcredentialsaregenerallyeitherstoredonthedeviceitself,asa“secureelement”ortheyareaccessedfromthecloudanddownloadedasrequired(asinthecaseofHostCardEmulationotherwisereferredasHCE).ahardware-basedsecureelement(SE)isatamper-resistantcontainer–e.g.theEmVchip–capableofsecurelyhostingpaymentcredentialsandsensitiveapplicationsordata.Thepaymentcredentialscanbeheldinthreeways:

1. as a siM-based secure element(integrationofpaymentfunctionalityintothetelecomSIm);

2. as an embedded sE (throughtheintegrationofanadditional,securechipintoamobilephonecircuitry);

3. as other small devices,forexampleamicroSDcard.

allofthethreewayshaveadvantagesanddisadvantagesandtheyarepreferredbydifferentplayers.mobilenetworkoperatorstypicallyoptforSIm-basedsecureelements;handsetmanufacturerslikeappleandSamsungtypicallypreferembeddedsecureelementsonsmartphoneswhilemicroSDcardshavebeenusedbybanks.

Thechoiceregardingthemostsuitablepaymentsolutiondoesnotchallengebanks,butretailersarealsoresponsiblefortheacceptanceandendorsementofthesafestpaymentmethodsaswellasfortheencouragementofconsumerstowardsthesafestpaymentmethods.

“consuMErs rELy on a FEELinG oF sEcurity whEn dEcidinG

whEthEr or not to shop at cErtain onLinE storEs.”

23

11 - thE soLution to thE sEcurity chaLLEnGE: host card EMuLation and tokEnisation

HostCardEmulation(HCE)andCloudStorageenablemobilephonestoperformtransactionswhilethepaymentcredentialsarestoredsomewhereotherthanthehandsetitself.Wheneverrequired,thepaymentcredentialsaredownloadedfromthecloudtoatrustedexecutionenvironmentonthemobiledevice,orinavirtual,software-basedinfrastructureonthemobiledeviceandthendeletedoncethetransactionhasbeencompleted.HCEisoftenusedbyfinancialservicesorganisationsasawaytoofferserviceswhentheylackaccesstoasecureelementanditisasecurityoptionopentoallpaymentproviders.

ThedisadvantageofHCEisinfactthelackofahardware-basedsecureelement.However,thiscaneasilybeaddressedbypairingHCEwiththegenerationofone-timecardnumbers,otherwisecalledTokens(inaprocesscalled“tokenisation”).Tokenisationisawell-establishedtechnologythathasbeenavailableandinusewithniceenvironmentsforalongtimeonlythat,nowadayswithgrowthofe-andm-commerce,itisgainingmorepublicvisibility.

arecentaiteGroupsurveypublishedinmay2014ontheeffectivenessofsecuritytechnologieshighlightedthattheoptimalsecuritysolutionisnotonlyprovidedbytheanti-fraudsystemsprovidedbythepaymentprovidersidebutalsobycomprehensiveapproachesincludingEmVcards,point-to-pointencryptionandtokenisation.

Fig. 22 – Effectiveness of security technologies

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Tokenisationisarelativelynewconceptthatisgainingacceptanceamongsttheretailercommunityonthebasisofitsadvantagesandofitslevelofsecurity.Itcompletelyremovescreditcarddatafromretailer´sinternalpaymentprocessingandroutingsystemsandreplacesitwithaunique,one-offgeneratedplaceholder,or“token”.retailersneedonlythetokentoauthorizeatransactionandtheydon’trequiretheactualcarddatafromtheconsumer.Thetokenisthenmatchedwiththecustomer’scardcredentialsthatarestoredatahighlysecure,offsitelocationwiththefinancialinstitution.

Becauseoftheabilityofremovingsensitivecustomercreditcarddatafromthecriticalstepsofacheckout,Tokensaregainingpopularityasapreferredoptionwithinthewiderindustry.appleandGooglearealreadyrelyingonthissecuretechnologytoenablepaymentsontheirdevices.Inthefuture,tokenswillbeusednotonlyforonlinepayments,butalsoatthepointofsaleviapaymentsinitiatedbymobiles,forexamplebyapplePay,GoogleHCE,etc..

retailersarenoexceptiontothisandtokenisationisgainingattractionasapreferredsolutiontoenableatransaction.

Fig. 23 – tokenisation deployment by merchants

Overalltokenisationoffersretailerstheopportunitytoenablepaymentsthatareperceivedassecureandthatareofferingahighdegreeofactualsecuritytotheirconsumers.

Tokenisationhasevolvedfromconcealingthecredentialsbyproducingatokentoasignificantdrivertoanimprovementoftheuserexperiencebyenablingsecurityonaverysimpleuserinterface,notaffectingtheconsumers,similartoaone-clickexperience.

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TokenisationsolutionssuchasmasterCard’sDigitalEnablementService(mDES)tokenplatformformobilepayments,isanexampleofhowtheleadingmarketcompaniesareshapingthemarketthroughintelligentintegrationoftokensolutionwithapplications.mDESsupportscontactlesspaymentsandDigitalSecureremotePayments(DSrP).Thelatterisatransactionmethodwhereaconsumerisabletomakein-apppurchasesusingatoken.WhilecontactlesspaymentsleverageNFCtechnologyforpoint-of-sale(POS)transactions,DSrPdeliversEmV-liketransactionsforin-apppayments.

Withinthiscontext,retailersshouldleveragetheexpertiseandexperienceofpaymentcompanieswhopossessawealthofexperiencethatisleveragedfromorganisationswhosefocusistoenableandsecurethetransactionsunderlyingoureconomies.ultimatelyitisnotamatterofcompetingorduplicatingbuttojoinforcesinshapingthedirectionofdigitalconvergenceintheretailingindustryinadirectionthatbenefitsconsumersandretailersalike.

12 - concLusion

Overallphysical-digitalconvergenceistransformingtheretailexperience.althoughthetraditionalstoreformatisnotchangingsignificantly,theconsumeris:thepervasiveinnovationshavechangedtheirshoppinghabitsandneeds.Thequestionis“whatdoesconvergencemeanforretailers”and,withinthiscontext,“whyisitimportanttounderstandthenewpaymenttypes?”Fromtheconsumerperspective,technologyislargelyirrelevant,butintheend,itistechnologythatprovidesthebestbalancebetweentheuserexperienceandsecuritythatisnecessarytofacilitateconsumerscompletingasalethroughasecurecheckout.

Withintheincreaseofchannelsandpaymentmethods,retailersarealsofacingrisksandthreats.Nottakingactionmeanspotentiallylosingcustomersandrevenuesasthenewpaymenttypesareincreasingthepotentialpointsofweaknessforfraud.Thisdoesnotonlycauseshorttermfinanciallossesbutitalsoaffectstheretailer´swholebusinessrelationshipwiththecustomer-basis.Consequentlyitisimportantforretailerstounderstandthenewpaymentmethods:ontheonehand,toavoiddirectfraudlossesandpotentialbranddamageandontheotherhand,toprotecttheirvaluablecustomersby

“tokEns arE GaininG popuLarity as a prEFErrEd option within

thE widEr industry. appLE and GooGLE arE aLrEady rELyinG on

this sEcurE tEchnoLoGy to EnaBLE payMEnts on thEir dEvicEs. in

thE FuturE, tokEns wiLL BE usEd not onLy For onLinE payMEnts,

But aLso at thE point oF saLE via payMEnts initiatEd By MoBiLEs.”

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pushingthem,throughpreferentialacceptance,tooptforthesaferpaymenttechnologyand,wherepossible,avoidvulnerabilities.

NFCandmobilewalletshavethepotentialtoprovidenewbusinessopportunitiesasapaymentinstrumentaswellasanenablerofvalueaddedservices.WithinthiscontextHostCardEmulationandTokenisationoffertheidealcombinationoftechnologiestoenableasecuremultichannelenvironmentforretailerswithabrowseraswellasamobileinterfaceinonlineaswellasofflineenvironments.

anticipatingconsumers´purchasingbehaviour,understandingthenewpaymenttypesandselectingwhichtechnologyisnotonlymoresuitabletoaseamlessbutalsoasafercheckoutwillhelpretailersmaximisesalesintheshorttermaswellastosafe-guardtheirrelationshipwiththeircustomersinthelongterm.

masterCardhaslaunchedproductslikemasterPassandmasterCardDigitalEnablementServices(mDES),enablingin-storeandonlinetransactionsthroughNFC,Qr-codes,tags,HCEandtokens.ThisisatypicalexampleofservicesandsolutionsdesignedforasecureandsimplecustomerexperiencewiththeabilityofprovidingalsoVaS,includingaccountbalances,real-timealerts,loyaltyprograms,andmasterCardspecialoffersandexperiencesthatmaximizethebenefitstoretailersandthevaluetoconsumersalike.

ultimatelythepaymentisonlythefinalsteptoapurchasecustomerjourneythatshouldbeanenablerandnotabarriertothecompletionofapurchase.Bothconsumersandretailersdemandsimplicity,seamlessness,andsafetybutitisuptothepaymentindustrytoprovidesuchfeaturesandtotheretailertoensurethatthesimpler,seamlessandsaferoptionismadeavailabletoconsumersbothonlineandoff-line.