London Calling
The UK economy is threatened by a “triple-dip ” recession, after the government reported a virtually zero-growth GDP output in January, the country received a credit downgrade, and the pound declined in international money markets. Economists estimate a mere 0.7% growth rate in 2013 and 1.5% in 2014. Subsequently, there is tremendous pressure on the Cameron government to abandon its “austerity ” program and instead take actions to stimulate near term growth. On top of all of this, the weather has not been cooperative. A display of Nature’s fury in the form of snow, rain, floods, and gale force winds, has hammered the country all winter long.
The result of all of this on retail sales is predictable. On February 13, the BBC reported that, “UK retail sales fell unexpectedly in January, confounding economists’ expectations for a rise. Volumes fell 0.6% from December 2012… Volumes also fell 0.6% from a year ago, the first annual fall in 17 months. The ONS (Office for National Statistics) highlighted weak sales in the food sector, which dropped 2.6% year-on-year to the lowest level since April 2004… small stores had fared worse than large stores. ” There are some glimmers of light, however. The BBC also reported in February that “larger retailers suggested that some of the increase they saw came from a rise in online sales. ” And in another article, the UK Guardian reported that, “… the number of shoppers on the high street rose by 2.7% last month compared with February 2012, while shoppers in out-of-town locations dropped by 1.5% and in shopping centers by 1.6% “.
It was with a general sense of all of this that I headed for London last week to attend the Retail Business Technology (RBTE) conference, where I was invited to speak about our recent study results on the state of payments in retail. The RBTE conference is in its 3rd year and despite the continuing troubled economic climate has seen steadily growing participation (subsequent to the event, the organizers reported that traffic was up by 16.5% over the prior year, in spite of some really awful weather that prevented many – especially those coming from the European continent- from attending).
This year (lucky for me), the buzz was all about payments technology. Although there were other technology solutions on display in the Expo (for example, omni-channel marketing and selling platforms were also prevalent), the floor was dominated by payments technology vendors – most prominently Paypal.
A Different Set of Concerns
While virtually every retailer we talk to has expressed concerns about the rapid changes in payments resulting from consumer adoption of mobile technologies, the UK market has a different perspective, based on what they now have in place on the sales floor. Whereas Visa has not mandated a U.S. conversion to EMV “chip and pin ” cards (replacing mag-striped debit and credit cards) until 2015, the UK has already achieved an 81% adoption of the cards by consumers and a 94% adoption of the reader technologies by retailers (according to 2012 data from Visa, MasterCard, JCB, and American Express). The conversion occurred in the 2005-07 timeframe, following announcements from big payment networks that they would shift additional risk to non-compliant retailers in all of Europe.
What this means to proponents of new payment form factors such as NFC ( “near field communications “) enabled smart phones, is that many UK retailers don’t necessarily want to hear about yet another potentially expensive change. Like retailers everywhere, they’d like to get the full benefit of the last round of technologies before considering the latest-and-greatest thing. At the RBTE, there was a lot of discussion (but nothing in the way of a solid resolution) about whether or not NFC would take off in Europe any time soon. While a similar discussion is going on in the U.S., it comes from a different angle. UK retailers just went through a cathartic technology change just a few years ago; in the U.S., the concern is that Apple hasn’t announced NFC support yet, and the retail payment consortium headed by Walmart says it doesn’t have a plan to support the technology. But like EMV itself, it’s all future tense for U.S. retailers. For the Europeans, it’s all here and now. Sensibly, payment terminal vendors like Ingenico and Verifone have made NFC an option that can be added to the EMV terminals now in place.
Omni Concerns
On the other hand, UK retailers at the event indicated that they share with their US counterparts concerns about their ability to engage in “omni-channel ” payment handling. Being able to take a digital payment from one channel for a transaction being completed in another is top of mind. And because of that, the need for an enterprise-wide payment process (that can serve any selling channel) is foremost, regardless of how a digital payment is presented.
For all the focus on payment technologies at the RBTE, the bottom line was that the fundamental challenge is in the need to physically separate presentation of the payment from the exchange of a product or service. That already happens in the “pure play ” digital space, but it should be possible in the store too. So synergizing how a payment “in a store ” and “in the digital world ” are handled is the biggest opportunity. There’s plenty to do right now to be able to handle a payment authorization whenever and however it happens in a consumer’s path to purchase.
As for payment form – that is, credit, debit, cash, “ACH-like “, or some kind of loyalty incentive – it really doesn’t seem like much of an issue, either to those retailers who responded to our study or the people I talked to in London. As far as payment form factor is concerned, it’s clearly the point of current conflict, and as of now, still up in the air. But one thing is also clear: consumers will dictate that outcome.
Home Again
So, after several days of interesting discussions about retail technologies and unusually cold London weather, I headed home to warmer, gentler San Francisco Bay Area micro-climates. But as for RBTE – I really enjoyed the event, and found a lot of value in a trans-Atlantic discussion of the issues that all retailers face. So I hope it continues to grow. I’ll certainly want to attend again.