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For retailers, the moment of truth comes at that exact second in time when the customer gives the clerk money in exchange for merchandise. Retailers know that tendering the transaction is the last impression that the customer has of the shopping experience, and a poorly handled ring-out can undo all the goodwill created with beautiful displays and friendly staff. For this reason, retailers’ payment processing capabilities tend to be the most reliable, albeit inflexible, systems in the application portfolio.

But retail payment systems are undergoing a revolution. Alternative forms of payment are emerging, offering new flexibility to consumers both inside the store and in new shopping channels, and causing a shift from cash and checks as the primary tender in favor of credit and debit, stored value and gift cards, and even innovative payment structures like PayPal and eBillMe. This revolution is driven by consumers’ increasingly omni-channel shopping behaviors — when a customer uses more than one channel to complete a single transaction. For example, a customer may investigate a product on the web, select a product using a smart mobile app while she’s out shopping, go to the store to pick up the product based on promised availability — and increasingly, use her mobile phone to trigger a debit or credit payment at the POS, perhaps even claiming a digital coupon as a loyalty reward.

One important aspect about the challenges and opportunities posed by omni-channel shopping is that payment processing isn’t necessarily tied to the actual point of fulfillment. For example, instead of a customer picking up her purchase at the store, she might request a home delivery option. But for the retailer, it’s still the moment of truth, and it has to be fast and flawless. This poses a big challenge for retailers, because prior to the emergence of omni-channel shopping, retailers’ processes and supporting systems were built on the assumption that all the activities associated with shopping happened in one channel or another — and most predominately, they happened in the store. While in the past payment processing was store-centric, in the future it must be enterprise-wide. This means that the same business rules and data to accurately handle a payment must be available instantly, no matter where and how the consumer chooses to transact with the retailer.

Listening to the Consumer

 Retailers across all verticals clearly understand what the omni-channel challenge generally means to them. In a recent study^[1],RSR found that for 74% of retailers queried, the top business challenge is that “consumers expect retailers to provide a more seamless omni-channel experience “.But that challenge, at least as it relates to payments, is complicated by the different speed of adoption coming from consumers in different channels.RSR recently conducted interviews with retail executives to understand the impact of consumers’ cultural differences on retailers’ payment offerings. Here’sa sampling of what we heard:

• “The payment world [in any channel] is driven to some level by what the consumer expects. They’re not evolving very quickly in the store environment. But they are [evolving quickly] online. “ — Director of IT
• “Our demographic expects us to keep up with them and they move very quickly. While I don’t expect many in-store customers to use PayPal [mobile] in the short term, we get tons of positive feedback for being so forward thinking and customer friendly. “ — CEO
• “That 90% of our in-store customers opt for an email receipt shows that customers are more than ready to embrace eCommerce functionality in a retail setting. “ — CEO

The Bigger Question

While the industry is focused on omni-channel payment processing and new form factors (for example smart mobile phones equipped with near-field-communications for contactless payments), a larger question looms: what is the future of Point-of-Sale? POS, as we have known it (that expensive, stationery collection of gear physically attached to a LAN and back-office redundant controllers), is there to do two things: 1) decrement inventory, and 2) take money. Consumers who shop at the Apple Store have experienced where the physical and digital worlds meet — mobile POS. Apple’s iPod touch POS system enables store employees to quickly check inventory, accept a credit card transaction, and issue a digital receipt, right on the sales floor. That functionality is fundamentally no different than a good web-based customer order process. Since late 2009 rumors have circulated that Apple will sell its POS system to other retailers. In the meantime, other technology companies have emerged that want to enable Apple-like capabilities.

Retailers should ask themselves, “Why not mobile POS? “ Payment systems are traditionally the most over-engineered part of a POS system, because retailers never want a piece of technology to get in the way of taking customers’ money when it is offered. But the truth is that mobility works, and better every day. That’s 50% of the traditional POS system’s functionality. For the other 50% (decrementing inventory) to go mobile, solutions providers and retailers need to deliver scalable, fast, and cost effective alternatives to stationery scanning. When that happens, POS will give way to customer order management across all the channels — and omni-channel payment processing will have led the way.    

 

[1] Omni-Channel Fulfillment and the Future of Retail Supply Chain, Benchmark Report , Nikki Baird and Brian Kilcourse, March 2011, © RSR Research LLC