A digital revolution in retail shopping
The most fundamental shift facing retailers is the digitisation of commerce. Over the past 30 years, consumers have shifted their payment method from cash and checks to credit and debit cards. It is estimated that cash and checks will be used for just 15% of total personal spending in the U.S. in 2018, down from 30% in 2013, with credit cards, debit cards, and other electronic payment methods making up the remaining 85%. Though this shift to electronic payments has been evolutionary, the expansion from digital payments to digital commerce — in which a consumer engages digitally before, during, and after a retail transaction — has been revolutionary. The rapid and broad adoption of digital commerce is forcing merchants to adapt and adjust.
Merchants are well aware of the opportunities they can derive from digital shopping technology, but the shift to digital commerce also brings new challenges that they may not yet be equipped to handle. These challenges include more consumer touch points in an increasingly omnichannel shopping environment; more data-generated insight on consumer shopping behaviour; more communication options to engage with the consumer; and more privacy and security concerns.
Similarly, payment providers have been caught flat-footed by the shift to digital commerce — they still focus too much on payment facilitation, which has become a commodity. The Strategy& Consumer Payments Survey, conducted with the Electronic Transactions Association (a consortium of payment providers, technology vendors, and others in the payments ecosystem), analyses the impact of this shift on both merchants and payment providers. To conduct the survey, they contacted consumers, merchants, and payments executives to assess their attitudes on payment trends. The results indicate a clear shift in consumer behaviour thanks to the digitisation of commerce — that is, the ability of consumers to shop anywhere, anytime, whether using a home computer or a mobile device.
Your customers fall into 3 categories
The consumer shopping experience has undergone historic changes in the last few years. A 2014 report by Forrester Research estimates that online sales will increase from US$294 billion in 2014 to $414 billion in 2018. During that same period, offline sales are projected to decrease. Even more telling, consumers are increasingly using digital tools to shop. Forrester estimates that Web-influenced offline sales will increase by $392 billion. That’s a shift for e-commerce — online and Web-influenced offline sales combined — from about 52 per cent of total sales in 2014 to 59 per cent in 2018, meaning that it is growing in both absolute terms and as a percentage of all retail sales. Despite this significant growth in digital and mobile shopping, many customers still do not use digital tools when they shop.
To understand the differences among customers, they asked consumer respondents to indicate an approximate percentage of their total electronic payments — whether using a credit card, a service such as PayPal, or a mobile wallet or app — over the past three months. Using this categorisation — particularly the mobile percentage — they were able to define three consumer profiles (see Exhibit 1):
- Connected: Those who used a mobile device for 20 per cent or more of total electronic payments over the past three months
- Digital: Those who used a mobile device for less than 20 per cent of total electronic payments over the past three months
- Traditional: Those who did not use mobile devices over the past three months
Several distinctions among these three groups were immediately apparent from the survey results. For example, traditional customers highly value savings and security; fear of potential vulnerability from digital makes them hesitant to use mobile devices. Conversely, connected and digital customers are aware of the perceived security risks but value convenience and saving time enough that they’re willing to set aside any concerns they might have.
The disparate groups present a challenge for merchants, which must satisfy more than 40% of consumers who use digital tools to shop – across multiple channels – while still accommodating non-digital, traditional customers. Another challenge for merchants is that they must navigate a more complex payment environment, with multiple, confusing options from a range of players including technology giants Ant Financial and Tencent as well as start-ups like Grab and Go-Jek. The survey findings indicate that overall customer satisfaction with digital is mixed. Customers are satisfied with the convenience of digital payments, and they appreciate the fact that merchants accept multiple payment solutions. Yet there is considerable room for improvement in areas such as privacy, rewards and savings, and security.
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