HOW DO THE DUTCH PAY IN A REPORT ON TODAY S TRENDS AND FUTURE SCENARIOS Shopping December 2013

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1 HOW DO THE DUTCH PAY IN 2020 A REPORT ON TODAY S TRENDS AND FUTURE SCENARIOS Shopping December 2013

2 Table of contents Introduction and background Management Summary PHASE 1: How the Dutch pay in 2013? 1. Payment contexts 2. How do the Dutch shop anno 2013? 3. How do the Dutch pay anno 2013? 4. Trends and examples PHASE 2: How the Dutch pay in 2020? 5. Drivers for the future of payments 6. Four possible scenarios for payments in Concluding remarks and findings ANNEX Shopping 2020 Expert group Transaction 1

3 Introduction of the expert group Transaction Within the industry broad initiative of Shopping2020, the Expert Group Transaction described the current state of affairs of transactions in retail (Part 1, ShoppingToday) and explored future scenarios for retail payments (Part 2, Shopping2020). The illustrations below clarify the structure of the entire program. In ShoppingToday, the experts identified 9 trends that determine the development of transactions in retail contexts. These trends, together with the current situation, have been the starting point for part two of the study: Shopping2020. In the second part, four scenarios were created, based on two major determining forces: the public stance towards the use personal data and consolidation/fragmentation of payment brands. The expert group identified implications of the four scenarios and came up with a set of overarching conclusions. Position of expert group Transaction in total program Research questions of phase 1 and 2 Future Trends Demographic, Culture Customer Journey Orientation Transaction Customer Care Economy Selection Delivery Customer Intelligence Technology Shopping 2020 Vision Travel Actieplan Finance Actieplan Future Touchpoints Action plan S2020 Netherlan ds Action plan Retail other 19 Expert Groups Ecology Key Themes Business Models Security & Fraud Smarter Shopping Online enterpr Political / legally Omnichannel Organisation New mainstreet Supply Chain Central Research Question Shopping 2020 How does the consumer shop in 2020 and which actions should be taken on national, branch and company level so that Dutch B2C operating companies can anticipate on that, nationally and internationally? Shopping Today (2013) Shopping2020 Research Questions Expert Group Transaction 1.What is the current situation for transactions in Dutch retail practice? 2.What are current trends and examples? 1.What are most important trends, points for improvement and opportunities in transactions? 2.What are the most likely future scenarios? Shopping 2020 Expert group Transaction 2

4 Main findings: retail payments is about optimizing convenience and trust Today, the Dutch retail payment landscape is dominated by cash and Maestro ( pinnen ), offline, and ideal, online. Both contexts remain largely separated, although they converge slowly. The expert group identified nine trends that are currently shaping the future of retail payments. Among them are the emergence of digital identities, convergence of channels and, for certain consumers, a stronger desire to protect their personal data (full set of trends: Part 1). Four scenarios were described and assessed (Part 2), based on the current state of affairs and trends. The scenarios are built along the axis of privacy and control by consumers and the number of payment service (s / providers). The expert group is aware of a shift towards scenario 2 (many payment services, decreasing privacy awareness), that deviated by an incident or new regulation to arrive at the other scenarios 1 High privacy Awareness and control Many payments methods (providers) t=0 Incident + regulation! 3 4 (Consolidation) Few payments methods (providers) Four future scenarios for retail payments 2 Low privacy awareness and control 1 Because transaction services are part of two-sided markets, with sophisticated dynamics and network effects, new developments are expected to be incremental 3 Each of the scenarios will demand a different strategy from retailers and service providers. Four observations and best practices transcend the scenarios and hold for all four: The internet has become an integrated part of the total shopping experience. Payment services should be available across contexts and offer a consistent UX In all scenarios, trust is a key element for providers of transaction services. Consumers are asking for more sophisticated services but never at the expense of trust The development of digital identity services has the potential to radically change the retail and payment landscape. If we want to realize a truly seamless, omni-channel shopping experience, there is a challenge for the payment industry to come up with an infrastructure that enables the exchange of digital identities in a convenient and trusted manner and that provides the necessary reach on both sides of the ecosystem. 2 4 Shopping 2020 Expert group Transaction 3

5 Expert group Transaction : well-grounded with 21 payment experts from diverse backgrounds (1/2) Eric van Vuuren (Host) Business Developer Equens Shikko Nijland (Chairman) Managing Partner Innopay Paul Alfing Policy Adviser Thuiswinkel.org Simon Berende Senior Product Manager Consumer Payments ABN AMRO Bank Gert Blom Manager Strategic Alliances Paysquare Gijs Boudewijn Hoofd Betalingsverkeer & Veiligheid Nederlandse Vereniging van Banken Michel Drupsteen Sr. Business consultant ING Bank Wieske Ebben Policy Advisor Payment De Nederlandsche Bank Max Geerling Director Card Products & ideal Currence Rene Hodde Executive Director Chess Group Rob Hoitink Productmanager ideal Currence Rommert Jorritsma Consultant Payment Systems Intersolve Shopping 2020 Expert group Transaction 4

6 Expert group Transaction : well-grounded with 21 payment experts from diverse backgrounds (2/2) Marja van Kalveen Teamleider productmanagement Toonbankbetaalproducten Rabobank Nederland Bedrijven Gerben Klop Strategy and Business Development xxess360 Jip de Lange Consultant Innopay Okke Mönking Business Leader Acceptance Mastercard Noor Pierik Sr. Marketeer Cards Acquiring Equens Marja van Reijn Regional Manager Global Blue Michel van Westen Voorzitter VBIN Dennis Wooning Sr. Productmanager Debit- & Credit Cards ABN AMRO Bank Tom Nijenhuis Head of Strategy & Development Equens Shopping 2020 Expert group Transaction 5

7 Table of contents Introduction and background Management Summary PHASE 1: How the Dutch pay in 2013? 1. Payment contexts 2. How do the Dutch shop anno 2013? 3. How do the Dutch pay anno 2013? 4. Trends and examples PHASE 2: How the Dutch pay in 2020? 5. Drivers for the future of payments 6. Four possible scenarios for payments in Concluding remarks and findings ANNEX Shopping 2020 Expert group Transaction 6

8 Payments in NL anno 2013: cash, pinnen and ideal Offline: Maestro Online: ideal 93% (market share, # electronic transactions) 58% (Last used online payment) Remarks: In this report we refer to pinnen for what is actually a Maestro transaction Source: DNB, Currence Shopping 2020 Expert group Transaction 7

9 ShoppingToday : nine trends that will impact the role of transactions in the total retail experience (1/3): Trend 1: Digital Identity Trend 2: Mobile Shopping Trend 3: Digital Wallets Increasing electronic interaction between parties leads to demand for identification/authentication in the virtual world, thus requiring a trust framework and providing the participants with clarity on rules of engagement, risk and liabilities Since trust is a basic requirement for consumers and merchants to participate in (e-)commerce, having an online identity which is as strong as a real-world identity is the ultimate solution The share of smartphones of total mobile phone penetration in The Netherlands has well passed the 50% mark Nearly 3/4 of Dutch smartphone users browse the internet every day, and over 70% have used them to make informed shopping decisions Currently mobile shopping is held back from the lack of widely adopted payment methods that are designed for the smaller screens (although PayPal and KNAB and ING s & Rabobank s ideal mobile solution are exceptions to this rule) Digital wallets offer services for payment and loyalty, storing consumer and payment credentials. Wallets aim to: Increase speed and convenience for consumers Provide conversion and customer retention for retailers We currently see many parties trying to offer wallets to consumers and retailers, resulting in a war on the wallets Many additional and innovative services are expected as wallets try to claim the primary customer and merchant interface Shopping 2020 Expert group Transaction 8

10 ShoppingToday : nine trends that will impact the role of transactions in the total retail experience (2/3): Trend 4: Changing POS interaction Trend 5: Changing checkout Trend 6: Conversion of channels The in-store Point of Sale terminal (POS) is changing to new interfaces, the classic magstripe has been changed to the EMV chip and a next step is the contactless interface, allowing consumers to tap with either a contactless card or a contactless mobile phone supporting NFC New technologies are challenging traditional POS terminals and the way payments are initiated in-store The need for smart and secure terminals might decrease with security moving into the network and shifting to the consumers mobile device We also see the use of new forms of hardware, identification and data communication, such as mpos devices, Biometrics, NFC and QRcodes In combination with the capabilities of smart devices such as tablets and smartphones, the in-store checkout and payment flow is changing Some stores allow sales assistants to freely roam the shop floor, where checkout can be delivered from a smart device such as a tablet and payment is carried out by mpos Others allow consumers to scan products using their mobile device and pay via a wallet, thus eliminating the need for a checkout as a whole As the internet maturity of the Dutch population continues to grow, consumers are by default considering both the online and offline channel to make purchases On top of this, there is a growing possibility at merchants to go across channels during in the shopping experience, creating a true omnichannel customer experience For the consumer this means no longer distinguishing between e- Commerce, m-commerce or physical commerce, but just commerce Shopping 2020 Expert group Transaction 9

11 ShoppingToday : nine trends that will impact the role of transactions in the total retail experience (3/3): Trend 7: Consumers in control Trend 8: P2P payments Trend 9: Increased regulation The need to register yourself over and over again forced consumers to leave information across websites. Sensitive information is left scattered on the internet, which makes it vulnerable to fraudsters This is also causing many privacy risks especially when online or offline personal data is being used for big data mining As a reaction to this scattering and usage of personal data and related privacy issues an interesting trend emerged to turn the ownership of personal data around Peer to peer payments, payments with less links in the chain and less central control, will be an alternative in retail contexts, when messaging or information surrounding the transfer of funds becomes real time Such payment methods could be based on technology as used in mobile channels because it gives both sender and receiver an interactive (and real time communicating) device The European Commission (EC) has been providing the legislative directives to harmonize payments on a European level This has resulted in the initial Payment Services Directive (PSD) and the implementation of SEPA payments under the European Payments Council (EPC) Another relevant directive is the Electronic Money Directive (EMD), setting the rules on funds held in non-bank managed stored value accounts The regulations mainly aim at creating a level playing field, increasing innovation and lower costs for consumers Shopping 2020 Expert group Transaction 10

12 Shopping2020 : four payment scenarios emerge from these trends, shaping development of transactions towards 2020 Many payments methods (providers) Scenario 1 - In Control Out of the many payments methods I can choose the way I pay to fit my privacy needs Scenario 2 - Consumer Driven 1 I choose from many options those that bring me convenience and provide smooth user experiences in a given context High privacy awareness and control Scenario 3 - Back to the Trust I feel comfortable with a limited number of payment methods where I have full control over who is doing what with my data Personal data is exchanged between contexts to provide smooth customer experiences Scenario 4 - Big Brands, Big Data 1 My payment provider knows a lot about me and can therefore provide me with useful services in all contexts Payment providers serve as information brokers between services A limited set of payment methods is available across contexts Low privacy awareness and control Few payments methods (providers) Note 1 : All scenarios reflect possible extremes. They are not reflections of the actual current attitude of consumers, merchants or financial institutes with regards to confidential data, nor are they opinions of the experts Shopping 2020 Expert group Transaction 11

13 Shopping2020 : an incident can create an instant shift to another scenario Many payments methods (providers) 1 Incident + regulation! 2 High privacy awareness and control t=0 3 4 (Consolidation) Low privacy awareness and control Few payments methods (providers) I. According to the experts, scenario 2 Consumer Driven can be recognized in some of the trends that are currently happening. Therefore, scenario 2 can be regarded as an extrapolation of current developments II. For scenarios 1 In Control and 3 Back to the Trust, experts expect an incident combined with or followed by more stringent privacy regulation that will shake consumers and change their attitude towards the use of personal data. This will shift consumers to higher privacy awareness III. For scenario 4 Big Brands, Big Data to unfold, the current trend towards more payment methods / providers will have to stop. However today, there are only a limited number of commonly used payment methods today, so the current situation isn t far off from scenario 4. According to experts the number of payment methods will first still grow but will further consolidate towards 2020 Shopping 2020 Expert group Transaction 12

14 Impact Shopping2020 : scenario 4 Big Brands, Big Data is most likely 2 Consumer Driven 4 IV 1 In Control 3 Back to the Trust III II Big Brands, Big Data likelihood I Likelihood I. Big Brands, Big Data is considered by the experts as the most likely scenario. The current dominant position of a relatively small group of financial institutes and big brands, combined with the high investments involved with the embrace of new technologies might prove difficult for newcomers to step in. When the experts extend the current movement towards more convenience and wider use of personal data in retail contexts, this scenario is quite likely to occur II. The second most likely scenario is Back to the Trust. In addition to what is said above, the experts see the risk of a large scale incident involving personal data as eminent. Such an incident could spark a movement contrary to the current trend of more data becoming available and could further enforce more stringent regulation: people may become more aware of their privacy and put their trust with only a small set of service providers III. A development towards the In Control scenario is conceivable, but only after an incident (like with scenario 3). Even in this case, it remains to be seen whether consumers are prepared to give away the convenience they have grown used to IV. An important inhibitor for scenario 2 ( Consumer Driven ) is the absorption capacity of users: there is doubt whether users are capable of understanding many different payment methods and appreciate a wild variety of check-out experiences. Although choice is good, things might get too confusing (as is already today the case in the abundant choice of phone subscriptions, energy contracts and healthcare insurances) Shopping 2020 Expert group Transaction 13

15 Impact Shopping2020 : scenario 2 Consumer Driven has highest impact Impact The impact of the various scenarios was determined by the experts taking the current situation as a starting point, including the trends that we witness 2 Consumer Driven 4 1 In Control 3 Back to the Trust Big Brands, Big Data likelihood I II III IV I. According to the experts, scenario 2, Consumer Driven is the scenario with the highest impact on the position of payments in the total retail chain. Although it is commonly felt that most trends currently push in the direction of this, the possibilities of Consumer Driven are endless. Currently, the number of payment methods that is commonly used is still relatively limited and consumers and businesses are still beginning to discover the possibilities of putting personal data to work in retail. It is therefore hard to underestimate the impact of this scenario II. The second biggest impact is from Big Brands, Big Data : the application of large quantities of personal data in retail context is regarded as a stronger impact than the number of payment methods III. In Control would halt the trend of applying more and more personal data in retail contexts IV. The impact of the Back to the Trust -scenario is coming from the fact that it would reverse trends that we are currently seeing: it would push retail in the opposite direction of where it is heading now. However, both movements ( right and up in the graphic) have only just started. Therefore the impact on the current payment experience is limited Shopping 2020 Expert group Transaction 14

16 Observations & conclusions 1. When it comes to shopping and paying consumers seem to want both reliability/security and convenience at the same time 2. Furthermore, Dutch consumers are not used to pay directly for this category of services and merchants are used to low costs for accepting electronic payments 3. Consumers seem to consider reliability/security more like a qualifier/hygiene factor while convenience is being considered as a differentiator/added value 4. Payment is most likely to become increasingly a seamless part of the shopping experience whether there are many or few payment methods and/or providers 5. Consequently, in any scenario some sort of digital or financial identity will be a key enabler to progress the market and as a means to more seamlessly embed payments in the shopping experience 6. The current movement seems to be that consumers find privacy important but seem to be willing to trade it for convenience, even though we see some momentum developing in favor of more privacy control by the consumer. Especially major privacy incidents can turn the situation around and increase regulation, awareness and a demand for control of personal data 7. Developing (international) rules & regulation, frameworks, infrastructures, services and products regarding digital identity and personal data management is considered almost conditional for any scenario since this has high potential for improving the shopping experience depending on how it will be implemented 8. Developing more seamless shopping experiences based on new infrastructures towards 2020 in parallel with improving the existing shopping and payment process and infrastructure seems the most logical approach for migration towards shopping in 2020 Note: The observations presented on this page were made during the process of detailing the Shopping2020 scenarios and thinking ahead about retail experiences in 7 years. They can be regarded as remarks by the expert group across the scenarios Shopping 2020 Expert group Transaction 15

17 Table of contents Introduction and background Management Summary PHASE 1: How the Dutch pay in 2013? 1. Payment contexts 2. How do the Dutch shop anno 2013? 3. How do the Dutch pay anno 2013? 4. Trends and examples PHASE 2: How the Dutch pay in 2020? 5. Drivers for the future of payments 6. Four possible scenarios for payments in Concluding remarks and findings ANNEX Shopping 2020 Expert group Transaction 16

18 PHASE 1 HOW DO THE DUTCH PAY IN 2013? DON T BELIEVE THE HYPE...YET ShoppingToday - September 2013

19 Phase 1: ShoppingToday Central Research Question to be addressed in this report: How does the consumer shop in 2020 and which actions should be taken on national, branch and company level so that Dutch B2C operating companies can anticipate on that, nationally and internationally? Phase 1: ShoppingToday (2013) Phase 2: Shopping2020 Research Questions expert group Transaction 1. What is the current situation for transactions in Dutch retail practice? 2. What are current trends and examples? 1. What are the most important trends. points for improvement and opportunities in transactions? 2. What are the most likely future scenarios? Shopping 2020 Expert group Transaction 18

20 Payments in NL anno 2013: cash, pinnen and ideal Offline: Maestro Online: ideal 93% (market share, # electronic transactions) 58% (Last used online payment) Remarks: In this report we refer to pinnen for what is actually a Maestro transaction Source: DNB, Currence Shopping 2020 Expert group Transaction 19

21 Table of contents Introduction and background Management Summary PHASE 1: How the Dutch pay in 2013? 1. Payment contexts 2. How do the Dutch shop anno 2013? 3. How do the Dutch pay anno 2013? 4. Trends and examples PHASE 2: How the Dutch pay in 2020? 5. Drivers for the future of payments 6. Four possible scenarios for payments in Concluding remarks and findings ANNEX Shopping 2020 Expert group Transaction 20

22 How consumers and merchants are related: a two-sided market Purpose of the chapter: This chapter illustrates the factors determining how merchants and consumers choose their preferred payment method. Furthermore, this chapter shows how shopping and payments are related. Two-sided markets: Two distinct user groups with different needs that are interdependent Network effects: benefits of usage are experienced across sides Challenges: Reach is a chicken-and-egg phenomenon Winner takes all dynamics Pricing of services across both sides: often one side is subsidized by the other side. In payments, the payer is subsidized by the payee Source: Innopay Shopping 2020 Expert group Transaction 21

23 Transactions consist of three processes: agreement, payment and delivery Transactions are determined by contexts The transaction context is the total of situational circumstances in which three processes of the transaction take place: agreement, payment and delivery A successful transaction typically consists of two actors: buyer and seller Risk is at the heart of every transaction, for buyer and seller Source: Innopay Shopping 2020 Expert group Transaction 22

24 e-commerce changed the relative timing of the three processes, resulting in unbalanced risks A Agree R Risk D Deliver P Pay Point of Sale transaction A Agree R Risk D Deliver P Pay Internet transaction A Agree R A R Risk R D D Deliver R P P Pay Context: Relation (r) Product (p) Location (l) Timing (t) In traditional commerce, three processes are executed at one time, in one place: agreement, payment, delivery. The Risk is balanced. The introduction of new channels such as internet changed the dynamics of transactions. Transaction processes are now disconnected in time and place, introducing unbalanced Risks. These risks can be characterized by four risk factors: Relation (r) Do buyer and seller know or even trust each other? Product (p) What is the value and substance of the product involved? Location (l) Where does the transaction take place? Timing (t) In what order are Agreement, Payment and Delivery executed? Source: Understanding buyer and seller behaviour for improved payment product development, C. Liezenberg, D. Lycklama, H. Smorenberg. Journal of Payment Strategy & Systems, April 2007 Shopping 2020 Expert group Transaction 23

25 Timing determines whether Buyer or Seller bares the risks 1 time A Agree P Pay D Deliver Pay in advance Risk with buyer 2 time A Agree D Deliver P Pay Pay afterwards Risk with seller 3a time A Agree P Pay D Deliver Pay and delivery at same time Risk equally divided 3b time A Agree P Pay D Deliver Timing (t): The timeline and order in which the processes are executed. Processes can be executed simultaneously or disconnected. In the latter case the order of Payment and Delivery can be swapped. This leads to three generic types of timing. Source: Innopay Shopping 2020 Expert group Transaction 24

26 leading to endless payment methods to match all contexts Shopping 2020 Expert group Transaction 25

27 Remote Proximity Every context has its own payment methods Person-to-Person Consumer-to-Business Cash Debit and Credit Cards Prepaid Wallets Giftcard Cash 1 2 ewallet Credit transfer Online Banking epayments ewallet Credit transfer Debit and Credit Cards PayPal Gift Cards 3 4 Source: Innopay 2010 Shopping 2020 Expert group Transaction 26

28 Payment and Loyalty and related fee structures are mainly based on three or four corner models in corner payment model 3-corner payment model 3-corner gift card/loyalty model 1.Consumer Good/ Servicess 2.Merchant 1.Consumer Goods/ Services 2.Merchant 1.Consument Goods/ Services 2.Merchant Periodic Fee Authorisation 3.Issuer (Clearing & settlement) (C&S) Paymen t 4.Acquirer PSP TRX Fee Periodic Fee Authorisati on 3.Service provider/ Bank Payment PSP TRX Fee 3.Brandowner Giftcard (C&S) EGI autorisatie CPSP Most payment methods and fee structures in The Netherlands are based on a four corner model (f.i. debit card, Maestro, Mastercard, Visa, ideal) Interchange fees are relatively low in The Netherlands compared to EU Most gift/loyalty methods are based on a three corner model 1.2B euro is paid in gift cards and vouchers in NL in 2012 Source: Intersolve, Innopay Shopping 2020 Expert group Transaction 27

29 Since the beginning of e-commerce, we ve seen continuous evolution of the payment landscape 3-party based challengers 4-party based challengers New 3-party based challengers 3-party model 5. New contexts demand new functionality. A new wave of 3-party models aims to fulfill these needs Volume 4. In reaction, the 4-party paradigm was translated to the web Online Banking based epayment 4-party model 3-party model 1. In the beginning, there were cards 3. New payment methods were designed specifically for use on the web 2. Making traditional payment products suitable for use on the internet (...cards were never designed for the web ) 4-party model Both three and four party models have adapted for usage on the internet Ever more niches demand new functionality and therefore new payment methods Source: Innopay Shopping 2020 Expert group Transaction 28

30 but only a few new payment methods make it through their infancy Payment products on the Dutch market (non exhaustive) Cash PIN Maestro / V Pay Chipknip MasterCard / Visa Acceptgiro Wallie card MiniTix ewallet ideal Bill empayment! Payter Travik Mobiel betalen NL As new payment methods will need reach to become successful, many do not survive for long As the uptake of the payment method takes too much time, merchants and consumers will loose faith and abandon the novelty Source: Innopay, Equens Shopping 2020 Expert group Transaction 29

31 Successful payment solutions provide Reach and Conversion against fair Cost Consumers: 1. REACH: Consumers choose payment methods that are widely accepted by merchants reach 2. CONVERSION: From those payment methods that merchants accept, consumers will choose those that they trust, that are fast and easy to use conversion (ease-ofuse) 3. COST: Although consumers might not be very aware of the cost of the payment mix they use, they do acknowledge cost factors like risk cost Conversion Reach 1. Cost Merchants: 1. REACH: Merchants are looking for those payment methods that their target audience uses: this makes a visitor an potential customer reach 2. CONVERSION: Payment methods that consumers trust, that are fast and easy to use increase the number of potential customers that actually buys conversion 3. COST: The cost of payment methods are primarily born by merchants. Therefore, merchants will offer those payment methods that are most economical for them. Fraud can also be regarded as a cost factor cost Source: Thuiswinkel, Innopay Shopping 2020 Expert group Transaction 30

32 Summary: new payment contexts demand constant development of payment methods The choice of a payment method depends on the context Many factors determine the context of a payment, which leads to many different contexts This could lead to many different payment methods to cater for all these contexts Risk (or perceived risk: trust) is a determining factor in the choice for a payment method by consumers and merchants The rise of the internet introduced a totally new context in which new risks were introduced The challenge is to balance fit-for-purpose (a payment method should meet the requirements of the specific context) with simplicity (fragmentation leads to complexity for merchants and consumers) Successful payment methods balance reach, conversion and cost The added value of payments is to create loyalty (enable the building of client shopping profiles and provide relevant merchant offers) Shopping 2020 Expert group Transaction 31

33 Table of contents Introduction and background Management Summary PHASE 1: How the Dutch pay in 2013? 1. Payment contexts 2. How do the Dutch shop anno 2013? 3. How do the Dutch pay anno 2013? 4. Trends and examples PHASE 2: How the Dutch pay in 2020? 5. Drivers for the future of payments 6. Four possible scenarios for payments in Concluding remarks and findings ANNEX Shopping 2020 Expert group Transaction 32

34 NL Shopping landscape: small supermarkets, historic city centers and domestic e-commerce Purpose of the chapter: This chapter illustrates the factors determining where and how consumers shop anno 2013 The Dutch shopping landscape is characterized by: Small distances and therefore relatively strong regional shopping areas, located in old city centers Shopping areas often restricted to (historic) city centres Absence of hyper markets and relatively small number of big-box retailers A relatively strong domestic e-commerce sector Source: Van der Gijp 2013, Innopay analysis Shopping 2020 Expert group Transaction 33

35 Turnover in Billion Percentage Online shopping is growing, while offline retail is declining Development online vs. offline retail (NL) +14% % online retail / total retail Online retail turnover Percentage 2013 Offline retail turnover Growth compared to the previous year Retail Total Online Retail The Dutch online market is one of the most developed e-commerce markets in EU (after UK ~96 Bn, DE ~50 Bn, FR ~45 Bn online sales of goods & services [2012]) In NL online retail will account for 12% of total retail turnover in 2013 The double digit e-commerce growth in NL is stabilizing at ~ 10% per year since 2013 The vast increase of online retail until 2030 is for nearly 30% at the expense of offline retail The prices in offline retail have increased, as the amount of goods sold (i.e. volume) have decreased substantially since 2009, while recovery is not expected in the short term (> 2015) Source: Thuiswinkel.org, ING Economisch Bureau, Internet World Stats, Emerce, E-commerce Europe, Roland Berger, CBS, Innopay analysis Shopping 2020 Expert group Transaction 34

36 # companies in thousands Stable retail landscape, in spite of declining turnover Division of verticals in Dutch retail Gas station Shops in consumer electronics Supermarkets and department stores Shops in recreational items % Street trading '(no shop or market) Market trade Shops in food products Shops in other household goods Shops in other articles % growth y/y retail Declining turnover of total retail sector is not (yet) reflected in the number of businesses Number of shops over verticals is relatively stable, except for alternative (micro) retailers, ~16% yoy Top 10 largest retailers all active in Food ((top 10 retailer (# shops): Ahold (759), Jumbo (685), Aldi (480), Emté (Sligro) (130), Plus (270), Lidl (270), Super de Boer(20), Makro (17), Dirk vd Broek (99)) Source: CBS, Innopay analysis Shopping 2020 Expert group Transaction 35

37 e-commerce in the Netherlands compared to Europe: high internet penetration and uptake of online shopping % 100 % of online shoppers / total population % Internet penetration (2012) 80 NL UK Mn NL NL UK UK FR Number of online shoppers FR DE DE EU Source: ANVED, Datamonitor, Euromonitor, Ecommerce Europe, Innopay analysis EU FR 80 DE 83 EU 73 0% 20% 40% 60% 80% 100% % Online shoppers in NL as part of total population well above EU average and leading e-commerce countries High internet penetration in NL contributes to high share of Dutch population shopping online Although a modestly sized market, the Netherlands is seen as one of the frontrunners in e-commerce Shopping 2020 Expert group Transaction 36

38 although average spending per user is relatively low 140 Average transaction value ( 10 12) 3,500 Average yearly online spending per user ( 10 12) 120 3, , , , , NL UK FR DE EU 0 NL UK FR DE EU Average yearly spending is relatively low, even lagging behind EU average Relative success of the Dutch online market is due to the high percentage of people shopping online Next wave of growth to be expected from increased spending of experienced users An average spending per user in line with other EU markets would result in a growth of 35%! Source: ANVED, Datamonitor, Euromonitor, Ecommerce Europe, Innopay analysis Shopping 2020 Expert group Transaction 37

39 Revenue in Billion e-commerce in the Netherlands highly concentrated in small number of large retailers Distribution of (B2C) online retail revenue (NL) Note: total online turnover amounted to 9 Bn in % 30% 3,2 Travel Top 10 online retailers (NL) RFS Holland Holding (e.g. wehkamp.nl) 469 Bol.com 358 Ahold 200 KPN 130 BAS Group (e.g. MyCom) Coolblue H&M HEMA 106 Amsterdamgold.com Thuisbezorgd.nl Online retail revenue in Million Top 10 Top Outside Top 100 In 2011 the top 100 online retailers represented 3.8 Billion revenue (an increase of 700 Million compared to 2010), this exludes the large Travel websites (e.g. KLM), that accounted for 3.2 Billion revenue The top 100 online retailers account for ~70% of online retail turnover and growth in online retail is primarily claimed by larger online retailers The trend that large webshops will grow further and smaller players will either be acquired, remain small or drop out, is likely to continue in the future Although 5 of the top-10 e-commerce players have offline operations, channels still seem strictly separated Source: Twinkle, Innopay analysis Shopping 2020 Expert group Transaction 38

40 Summary: Dutch consumers are embracing online, although in 2013, online and offline still seem separated channels Offline retail is dominant, but growth is centered in e-commerce There is a trend of retail shifting towards larger businesses. This trend is strengthened by the growth of online, where large, professional players are dominant Top 10 retailers are all supermarkets with (very) limited online activity Small group of businesses sets the standard for the way people shop and pay in the Netherlands Offline and online channel still seem to be strictly separated Shopping 2020 Expert group Transaction 39

41 Table of contents Introduction and background Management Summary PHASE 1: How the Dutch pay in 2013? 1. Payment contexts 2. How do the Dutch shop anno 2013? 3. How do the Dutch pay anno 2013? 4. Trends and examples PHASE 2: How the Dutch pay in 2020? 5. Drivers for the future of payments 6. Four possible scenarios for payments in Concluding remarks and findings ANNEX Shopping 2020 Expert group Transaction 40

42 Offline and Online can still be considered as two different payment channels in 2013 Purpose of the chapter: In this chapter the most important payment methods for the Dutch market are described Offline Online + Remarks: Payments can be initiated in the real world; Offline or in the digital world; Online This context determines the choice of payment method In our research m-commerce is considered a type of e-commerce and thus online In this report we refer to pinnen what is actually a Maestro/V Pay transaction Shopping 2020 Expert group Transaction 41

43 If the consumer is not already registered, online payments are typically more complex than offline payments Offline 1. Choice of Products 3. Cash 4. Choosing 5. Paymentproces/ 6. Validation + 2. n/a Register/ Order Payment Order 7. n/a intake Method Authorisation Referention Online 2. Filling in Contact/ Delivery Details 1. Choice of Products 2. Log In 3. Order Check 4. Choosing Payment Method 5. Paymentproces/ Authorisation 6. Validation + Order Referention 7. Order Tracking 2. Accountregistration 2a. Filling in Contact/ Delivery Details 2b. Log In Shopping 2020 Expert group Transaction 42

44 Main differences in the Transaction flow are in Checkout, Delivery details and Payment Flow Orientation Selection Transaction Delivery Customer Care Basket Checkout Delivery details Payment flow Receipt Service Policies Payment method Device Offline Physical Loyalty card NA Pay now Paper On site Phone Law: Verkoop en garanties voor consumenten goederen Cash D/C Cards Giftcards Kassa Terminal Dongle Mobile Online Virtual Log-in Input prefs Input prefs Stored prefs Virtual register PSP Website Phone Law: Kopen op afstand PSD ideal Credit card Paypal Acceptgiro DD/CT Cash on delivery Giftcards PC, Laptop Tablet Mobile Virtual Log-in Input prefs Input prefs Stored prefs Virtual register PSP Website Phone Law: Kopen op afstand PSD DD/CT Paypal Acceptgiro Cash on delivery Smartphone Tablet Shopping 2020 Expert group Transaction 43

45 Current Account is the core funding source of basically all payment methods Context Offline Online Wallet Channel/ Paymentproduct Cash Debit Card Credit Card Prepaid Card Gift Card Loyalty Card SEPA Direct Debit ideal SEPA Credit Transfer Internet Banking Funding Cash Current Account Credit Account Stored Value Virtual Currency Loyalty/ Points Shopping 2020 Expert group Transaction 44

46 A broad variety of loyalty schemes and gift cards exist as alternative currencies Types of loyalty programs and examples Brand Retailchain Brand combinations Savings Card Branch combination Temporary Savings Program Shoppingstreet/ -mall Gift Cards Closed-loop Semi-open-loop Open-loop Legal supervision for consumer protection (e.g. In case of bankruptcy) differs among the products: FRS, Cadeaubox and the paper VVV bon lack legal supervision, while the consumers enjoy protection with the electronic boekenbon Source: Intersolve Shopping 2020 Expert group Transaction 45

47 # transactions (millions) Offline - Dutch still like to pay with PIN (Maestro) Number of electronic payments in NL % Split of electronic payment methods relatively stable 2% 2% 2% 2% 2% 1% 2% 1% 100% 10% 90% 10% 10% 9% 8% 8% 7% 6% 80% 70% 60% 50% 40% 30% 20% 10% 0% 88% % % % % % % % 2012 Creditcard Chipknip PIN In this report Maestro (or V-Pay) transaction are called PIN transactions since this is the commonly used term by Merchants and Consumers Chipknip was introduced in 96 as a payment scheme to facilitate low value payments, i.e. payments under 10 Credit cards are in NL mainly used for high(er) value payments (travel, clothing, catering) rather than everyday purchases, thereby explaining their limited share of total transactions in the offline context Source: DNB, Innopay analysis Shopping 2020 Expert group Transaction 46

48 # of trx in Millions # of trx in Millions Offline # Debit card transactions is increasing considerably Development # of debit card trx and avg. trx value at POS (NL) Trx value in Development # of credit card trx and avg. trx value at POS (NL) Trx value in Total # of Debit Card trx NL Avg. Debit Card trx value Total # of Credit Card trx NL Avg. Credit Card trx value NL Convenience, speed and (lower) costs (for merchants) have driven the increase in debit card transactions Phasing out Chipknip in 2015, the intended Dutch payment method for low value payments, and campaigns such as Pinnen, ja graag! and Klein bedrag? Pinnen mag! has also contributed to the increase in debit card transactions and a decreasing value per transaction Low value payments represented ~ 30% of total offline debit card transactions in 2012 Average transaction value of credit cards has been rather stable for several years at ~ 120,- Source: BVN, Currence, Panteia, Innopay analysis Shopping 2020 Expert group Transaction 47

49 Online - ideal by far most used for internet payments Top 10 payment methods used last purchase Prefered online payment method ideal Acceptgiro (Online) 13% 14% 13% 58% 54% 58% Acceptgiro (Online) 10% Credit Card Online bank credit transfer 6% 8% 8% 5% 7% 4% Credit Card 7% PayPal Acceptgiro (paper) Recurring Mandate 5% 4% 4% 4% 3% 3% 1% 1% 2% ideal One-off Mandate 4% 74% 1% PIN Buyers (n=1296) 1% 1% Buyers (n=1440) 1% Cash 1% 1% Buyers (n=1453) 1% One-off Mandate 1% 1% 0% 10% 20% 30% 40% 50% 60% 70% PayPal Other 4% 2% 20% 40% 60% Note: the percentages indicate market shares based on surveys ideal is the most used (58%) and preferred (74%) payment method online in 2012 Pay later payment methods are also popular in 2012 (21%) The Accept giro will be phased out in 2019, leaving an opportunity for other payment methods to fill the gap Source: Blaauw, GfK 2013 Shopping 2020 Expert group Transaction 48

50 Number of transactions Number of ideal transactions is growing rapidly Number of ideal Transactions (1,000) Why do consumers prefer ideal Habit % Fast Convenient Familiar Safe % 10% 15% 20% 25% 117M transactions with a total value of 8.8B EUR in 2012 Number of ideal transactions has increased with a CAGR of 51% between 2007 and 2012 Number of ideal transactions is growing faster than e-commerce Consumers state that they prefer ideal because of high trust and convenience Source: DNB, GfK, Innopay analysis Shopping 2020 Expert group Transaction 49

51 Roughly the same preferences for mobile payments as for online payments Payment method last mobile order 2012 ideal 54% 70% Acceptgiro (Online) Credit Card Online Bank credit transfer PayPal 6% 8% 8% 6% 7% 5% 4% 7% Tablet(n=225) Smartphone (n=196) Cash One-off Mandate 1% 2% 2% 5% Other Do not know 2% 0% 1% 11% 0% 10% 20% 30% 40% 50% 60% 70% 80% Source: Blauw 2013 Shopping 2020 Expert group Transaction 50

52 Though electronic transactions score relatively good compared to other EU markets, cash is still popular Cash s share of total transactions NL 2011 (%) Greece 97 Poland Italy Spain 80 Ireland 75 Germany 69 Switzerland 66 Austria 64 UK 57 Belgium 54 Netherlands 52 France 50 Nordics 46 % Compared to other EU countries NL has a lower % of cash transactions Merchants value cash payments due to its ubiquitous acceptance and the direct income of revenue streams, while consumers experience cash payments as easy and common Despite the fact that average costs for a debit card trx are lower (~ 0.21 ) compared to cash payments (~ 0.24), > 50% of transactions are cash based For certain contexts, alternatives for cash are not considered valid However, the higher costs, safety risks, counterfeit money and the administrative handling are reasons for merchants to revert to debit card payments Cashless checkouts continue to grow in NL Cash will also remain the number one fall-back option in case the electronic payment system encounters technical problems Source: McKinsey, Innopay analysis Shopping 2020 Expert group Transaction 51

53 Summary: Dutch like to pay with Cash, pinnen and ideal Offline and online can still be considered as two different and not yet integrated payment channels In spite of all the fuzz around new payment methods, Dutch still like to pay offline and electronic with Pin: 93% (2012) and online with ideal: 58% (2012) Pay later payment methods are also popular online since it decreases the (delivery) risk for the consumer Current account is still the core funding source of almost all payment methods Cash is still king Shopping 2020 Expert group Transaction 52

54 Table of contents Introduction and background Management Summary PHASE 1: How the Dutch pay in 2013? 1. Payment contexts 2. How do the Dutch shop anno 2013? 3. How do the Dutch pay anno 2013? 4. Trends and examples PHASE 2: How the Dutch pay in 2013? 5. Drivers for the future of payments 6. Four possible scenarios for payments in Concluding remarks and findings ANNEX Shopping 2020 Expert group Transaction 53

55 Many trends have been identified of which nine have been selected as most likely to change the way Dutch pay Technology 2. Mobile shopping and payments 3. Digital wallets 1. Digital identity 7. Consumer in control Transaction 4. Changing POS interaction 5. Changing checkout 6. Convergence of channels 8. P2P payment Legislation & Regulation 9. Increasing regulation Economy & Society Shopping 2020 Expert group Transaction 54

56 Trend 1: Digital identity Using a single digital identity throughout the shopping experience can enable seamless payments Description Increasing electronic interaction between parties leads to demand for identification/authentication in the virtual world, thus requiring a trust framework and providing the participants with clarity on rules of engagement, risk and liabilities Since trust is a basic requirement for consumers and merchants to participate in (e-)commerce, having an online identity which is as strong as a real-world identity is the ultimate solution Impact on shopping During current e-commerce shopping experience, consumer identifies multiple times; towards the shop, payment provider and delivery service provider Having a single digital identity decreases customers effort of multiple identification and minimizes effort of maintaining identification credentials Impact on payments Making payments between parties identified and authenticated early in the shopping experience can enable a true seamless payments Providing payments as an invisible step in the shopping experience will increase consumer demand for budget control and insight in payments carried out Seamless payments may affect the sense of safeness negatively. The actual act of pushing a button or entering a code creates awareness of the expense It's wrong to say IRL means offline: Facebook is real life. Nathan Jurgenson (2012) The IRL fetish "Easy access, via a single digital identity, to reliable information about the person with whom you do business is crucial for the continued growth of online shopping. It may also be interesting for retailers and customers to learn more of each other for 'tailored' services. Paul Alfing Thuiswinkel.org Shopping 2020 Expert group Transaction 55

57 Trend 1: Digital identity Examples Signicat: To reuse existing strong authentication mechanisms for various purposes Based on trusted banking technologies Benefits: Bilateral agreements between banks and businesses Five assurance levels, tailored to set of needs One solution to fit various needs IDchecker: Multichannel solution to verify ID documents Automated checks based on various large databases Benefits: Effective, cross channel solution Extensive database for accurate checks DigiD: Secure online identification with the Dutch government Benefits: One gateway for all online services of the Dutch government Shopping 2020 Expert group Transaction 56

58 Trend 2: Mobile shopping and payments Smart mobile devices have quickly changed the way we shop, both in-store and on the go Description The share of smartphones of total mobile phone penetration in The Netherlands has well passed the 50% mark. Nearly 3/4 of Dutch smartphone users browse the internet every day, and more than 70% have used them to make informed shopping decisions. Mobile devices are increasingly being used in different contexts: In store: to look up product information and to compare prices at competitors webshops On the go: mobile commerce enables users to visualize products and offers while not in front of a computer screen. Localized offers are also available thanks to GPS functionalities Currently mobile shopping is held back from the lack of widely adopted payment methods that are designed for the smaller screens (although PayPal and KNAB and ING s ideal implementation are exceptions to this rule) Impact on shopping Mobile devices are increasingly being used in store to access product information and to find cheaper offers (also known as showrooming ) According to Thuiswinkel.org, in 2012, 1,2 M Dutch consumers made at least one purchase with their phone Mobile based services often share the same user profile as online counterparts. This makes possible to continue researches and manage lists both on the go or behind a bigger screen Mobile internet glues together the traditionally separated, worlds of online and offline shopping Impact on payments Existing payment methods should be adapted for use with mobile Mobile devices require different user interactions, due to the smaller screens and different input methods Users are asking for familiar online payment methods to be redesigned for the mobile screens Future expected developments will allow deeper integration between mobile phones and POS terminals, with solutions that close the loop of advertising, payment and loyalty points. This will increase the need for payment methods that are able to seamlessly integrate in the integral shopping value chain Mobile devices will provide new opportunities for cheaper PoS payment terminals for acceptance of online and offline payment methods Mobile phones as successors of cards are one part of the mobile revolution, but more profound is the idea of smart devices bringing internet into all contexts Innopay Shopping 2020 Expert group Transaction 57

59 Trend 2: Mobile shopping and payments Examples ebay: Scan any barcode and see the available listings and offers Exploits the link between online and mobile profiles Payments carried through digital wallet profiles Benefits: Users can access competitors prices in store easily No need to manually type, Frictionless interaction OKit: Single brand covering market needs over multiple contexts Multi-channel experience, both online and offline Benefits: Underlying payments via credit cards and direct debits Future direct connection to bank account available Reusability for other purposes than payments (eg: mandates) Integration with merchant terminals with no dedicated hardware Shopping 2020 Expert group Transaction 58

60 Trend 3: Digital wallets and in-app payments Payments are initiated from digital wallets, making payment means less relevant Description Digital wallets offer services for payment and loyalty, storing consumer and payment credentials. Wallets aim to: Increase speed and convenience for consumers Provide conversion and customer retention for retailers We currently see many parties are trying to offer wallets to consumers and retailers, resulting in a war on the wallets. The current market shows diversified reach & acceptance and channels supported. There are Internet- and POS-only wallets as well as omni-channel wallets. Wallets can be used in a variety of contexts and from a variety of consumer devices (PC, Tablet, mobiles). Many additional and innovative services are expected as wallets try to claim the primary customer and merchant interface Impact on shopping Digital wallets providing loyalty influence consumer shopping behavior in the orientation and selection phase. Wallets steer consumers in where to buy and what to buy by providing relevant offers and financial benefits to consumers Digital wallets are increasingly used as quickcheckout method in web shops as alternative for traditional PSP-checkout Upon checkout digital wallets disclose consumer and payment credentials Impact on payments Consumer s bank account is still the preferred location to store funds Digital wallets offer initiation of different types of payments (cards, direct debit) resulting in charging the current account, credit account and/or stored-value By providing a seamless payment initiation and additional services from a Digital Wallet, the relevance of the payment means (and it s provider) decreases and shifts to the provider of the Digital Wallet The increasing number of parties offering digital wallets asks for a stronger supervision of the e-money institutions from the Central Banks to protect the stored-funds of the consumer. Source: Rommert Jorritsma - Intersolve Shopping 2020 Expert group Transaction 59

61 Trend 3: Digital wallets and in-app payments Examples Minitix: Cash-replacement app, allows for various services to be paid through mobile phones Funded with traditional payment methods (ideal, CT) Benefits: Integration with third party platforms Mobile user experience adapted to users needs PayPal: Single brand covering market needs over multiple contexts Multi-channel experience, both online and offline Arguably the largest online 3-party model Benefits: Integration of different channels One single user experience, brand trust Capability to support future payment innovations Targeted offers by merchants Enable relevant merchant offers (which will benefit customers and merchants) Shopping 2020 Expert group Transaction 60

62 Trend 4: Changing POS interaction Contactless payments provide convenience and new technologies challenge the classic POS terminal Description The in-store Point of Sale terminal (POS) is changing to new interfaces, the classic magstripe has been changed to the EMV chip and a next step is the contactless interface, allowing consumers to tap with either a contactless card or a contactless mobile phone supporting Near Field Communication (NFC). New technologies are challenging the traditional POS terminals and the way payments are initiated in-store. The need for smart and secure terminals might decrease with security moving into the network and shifting to the consumers mobile device. Here we also see the use of new forms of hardware, identification and data communication, such as mpos devices, Biometrics, NFC and QRcodes. Impact on shopping In the current Dutch market, consumers can walk into a store without considering acceptance of payment cards Consumer and merchant interact in a two-sided market Both sides need to be enabled for the new types of interaction to complete the shopping with the preferred means of payment. All developments aim for a smooth and hassle free checkout Goal is taking the pain* out of the shopping experience Impact on payments Contactless payments NFC contactless payments provide consumer with new interaction with a POS Using NFC enabled card or mobile phone. Contactless payments allow for PIN-less low value payments In-store alternative payments New technologies, enables use of non-card alternatives This brings e-commerce payment experiences, into the physical store Examples; Digital Wallets and Card-not-present (CNP) transactions Increased use of loyalty, in combination with contactless mobile phones will require multi-read capabilities at the checkout, where not only payment credentials need to be exchanged but also coupons, vouchers, tickets, loyalty points and so on. Providing consumers with a uniform user experience is the challenge here There is a positive correlation between pain of paying and the amount spend on the purchase. More surprisingly, research indicates that the payment method used influences the level of pain of paying experienced. Source: The irrationality of payment behavior A DNB Occasional study, describing the pain of paying Shopping 2020 Expert group Transaction 61

63 Trend 4: Changing POS interaction Examples Mobile NFC Leiden: Collaboration between banks and one mobile operator Banks and mobile operators to subsidize the issuing of capable devices Contactless NFC retail payments from mobile phone Benefits: Collaboration between different types of players Mobile operators providing hosting of secure banking application Octopus, Hong Kong: One of the world s leading smart card payment systems Enables payment for transport systems as well as at retail outlets and online transactions Benefits: One single card to enable different payment services Reloads automatically by connecting to users bank accounts, solving the loading problems Snel en simpel betalen, The Netherlands: Enables caterers to speed up checkout Supports biometrics and contactless initiated payments Benefits: Increasing the speed at checkout Providing an alternative for e-purse (Chipknip) Automatic reloading of stored value by connecting to users bank accounts & Shopping 2020 Expert group Transaction 62

64 Trend 5: Changing checkout New shop floor experiences with evolving cash registers and payment terminals Description In combination with the capabilities of smart devices such as tablets and smartphones, the instore checkout and payment flow is changing. Some stores allow sales assistants to freely roam the shop floor, where checkout can be delivered from a smart device such as a tablet and payment is carried out by mpos. Others allow consumers to scan products using their mobile device and pay via a wallet, thus eliminating the need for a checkout as a whole. Where electronic payments used to be made based on POS terminals, the capabilities of smart devices allow for the customer to pay with a digital wallet in the store Impact on shopping Shop floor experiences are evolving from new technologies Location based services (geo-location, in-storewifi, etc) allow for direct recognition and identification of the consumer Using CRM services to determine customer preferences and sales history over all channels maximizes cross and upselling Impact on payments If user is identified and authenticated sufficiently, the payment can be carried out as seamless part of checkout Using CRM to linking customer s payment history to checkout, decreases the merchant s need for a guaranteed payment New technologies are used to initiate payments; e.g. NFC, QR-code and biometrics Shopping 2020 Expert group Transaction 63

65 Trend 5: Changing checkout Examples LevelUP: Platform to enable payments and loyalty solutions together Closing the loop of commerce by issuing consumer app and providing merchants with new terminals Benefits: One solution for merchants advertising & payments needs Hiding the payment interaction behind a pleasant user experience Apple Store checkout: Dematerialisation of the counter: mobile POS solutions allow for payment interaction anywhere in store Counters can be reused for customer service purposes Benefits: Better use of store space Customers do not have to wait in line to pay anymore Mobile POS terminals are less expensive than traditional Shopping 2020 Expert group Transaction 64

66 Trend 6: Convergence of channels Customers are not distinguishing e-, m- or physical commerce; the future will be commerce Description As the internet maturity of the Dutch population continues to grow, consumers are by default considering both the online and offline channel to make purchases. On top of this, there is a growing possibility at merchants to go across channels during in the shopping experience, creating a true omni-channel customer experience. For the consumer this means no longer distinguishing between e-commerce, m-commerce or physical commerce, but just commerce Impact on shopping Omni-channel integrates e-commerce platforms into the physical stores Enabling sales personnel to sell products even when they are not in stock Delivery of goods in an e-commerce manner. Increasingly online orders can be picked up at physical store or pick-up-point Impact on payments Payment is specific to the context, resulting in separate payment user experiences for the virtual world and for the physical world Digital wallets try to provide a generic payment user experience across channels Other payment means are adapting to the variety of channels, e.g ideal growing to mobile ideal Mobile goes beyond channels and offers payments everywhere. Source: Max Geerling Shopping 2020 Expert group Transaction 65

67 Trend 6: Convergence of channels Examples Tesco Virtual Store, South Korea: Pilot for window shopping through QR codes in metros Users can scan selected products, pay in-app and get groceries delivered conveniently at home Benefits: Extension of grocery shopping spaces in creative locations Online shopping enables better stock management, while payments are carried forward in-app Clicks-in-Bricks: Extending online commerce experiences in-store Tablets are connected to terminals that allow users to self service checkouts Benefits: Merchants can still sell goods when not in stock Buyers can browse through merchants catalogs in store and purchase directly Shopping 2020 Expert group Transaction 66

68 Trend 6: Convergence of channels Examples xxess360. Scan & Shop Around, The Netherlands: Online multi-channel, loyalty and e-commerce platform. Providing consumers a real shopping experience through innovative ways of product discovery (360 shopping) Benefits: Turns real shopping malls into mobile and personalized shopping environments for consumers Transforms smart phones into personal point of transaction devices allowing consumers to discover, scan & buy products Retailers expand their stores with mobile shops allowing personal interaction with their customers and increasing loyalty. MyOrder SideKick: Cookies for the physical world Know who s in the shop Reach the customer on the smartphone and the tablet with attractive offers Geo fencing technology, customer gets a reminder when in a certain radius of the store Consumer gets a reward when he checks in the shop Benefits: Learning to know your customer Cross sell possibilities Push offers over the air Instant rewards and offers Shopping 2020 Expert group Transaction 67

69 Trend 7: Consumer in control Increasing need to be in control of personal (payment) data Description The need to register yourself over and over again forced consumers to leave information across websites. Sensitive information is left scattered on the internet, which makes it vulnerable for fraudsters. This is also causing many privacy risks especially when online or offline personal data is being used for big data mining As a reaction to this scattering and usage of personal data and related privacy issues an interesting trend emerged to turn the ownership of personal data around Life Management Platforms or Personal Data Ecosystems provide users the possibility to retain full control over their own personal data and can basically determine what data to share with which company Impact on shopping Consumers want to know if merchants respect their privacy (transparency) both online and offline Increasing attention towards merchant and third party behavior by consumers and privacy interest groups Need to balance shopping experience improvement versus privacy Impact on payments Increasing need for transparency and security Rising need for anonymous and less centrally controlled payments method such as Bitcoin Consumers may have to be protected or made aware of risks when payments are being pushed to the background or further integrated into the seamless shopping experience The Age of Privacy is Over. Mark Zuckerberg Shopping 2020 Expert group Transaction 68

70 Trend 7: Consumer in control Examples Qiy: Platform for users to control their data and privacy levels The Qiy Foundation is an independent organisation that developed an infrastructure of which your personal Qiy domain is part. This infrastructure is called the Qiy Trust Framework Benefits: Qiy gives you a personal domain to manage your personal data. That way, you decide who and when others may access your personal data and for what purpose Personal Data Ecosystem Consortium: Community: face-to-face events in Europe and North America Education: white papers and hold seminars explaining the personal data economy to enterprises, investors, and entrepreneurs. Advocacy: engagements with government US and European initiatives like NSTIC to promote user-centric identity and personal control of personal data. Research: research and share findings about personal data technology, business models, ecosystems, and social impact for our members and the public Benefits: Credible organization that can provide access to global best practices Shopping 2020 Expert group Transaction 69

71 Trend 8: P2P payments Why would only merchants be able to accept payments? Description Peer to peer payments, payments with less links in the chain and less central control, will be an alternative in retail contexts, when messaging surrounding the transfer of funds becomes real time. Such payment methods could be based on mobile technology because it gives both sender and receiver an interactive (and real time communicating) device. Impact on shopping The distinction between a merchant and just any economic actor might become less obvious as shopping contexts become more fluid. The acceptance of a payment by just any economic actor would enable also less formal shopping contexts and, in the same time, embrace System D : the informal economy The informal economy is currently responsible for about $ 10 trillion and completely dependent on P2P payment methods. Because of the lack of alternatives, this part of the economy is 100% cash based Impact on payments The development of a P2P payment method would create a payment method that is applicable to a wide variety of contexts Card schemes add value because they enable real time trade between actors that do not know each other, in a world where funds travel at less than real time speed. Real time messaging around a P2P payment method would challenge this functionality The business case in most retail payment contexts is based on fees paid by the receiver. A P2P payment method is likely to find its business case more equally distributed between payer and payee This could result in fragmentation of payment methods and thus additional complexity for regulators and end users The ultimate payment method is ap2p payment method The experts from the Transaction working group discussed about this statement and found that there may be some truth in it as any economic actor might be wanting to accept payments. Shopping 2020 Expert group Transaction 70

72 Trend 8: P2P payments Examples Bitcoin: First ever decentralised virtual currency Monetary policies do not exist, an algorithm keeps the system in balance Funds are stored decentralised in enduser s bitcoin wallets Benefits: Immediate, worldwide transfers between users and businesses Zero or low-cost payment processing Added benefits of anonymity and limited traceability Mobile Payments, UK: Coordinated by the Payments Council, allows users to send money between bank accounts Using mobile phone number as alias to the bank account, providing high ease of use Benefits: Instant payments, via trusted provider (bank) Payments carried through Faster Payments for quick settlement mpesa: Mobile money remittance service. Launched by Vodafone in 2007 Became most successful domestic P2P payment service, forced merchants to accept it as well Benefits: Money messages sent through mobile devices, via Telco operators Instant transfers, with immediate notification that helped uptake with businesses Shopping 2020 Expert group Transaction 71

73 Trend 9: Increasing regulation A clear direction towards a digital economy, increased competition and innovation in payments Description The European Commission (EC) has been providing the legislative directives to harmonize payments on a European level. This has resulted in the initial Payment Services Directive (PSD) and the implementation of SEPA payments under the European Payments Council (EPC). Another relevant directive is the Electronic Money Directive (EMD), setting the rules on funds held in non-bank managed stored value accounts. Parallel to this the EC is working on the Digital Agenda for Europe (DAE) to help European citizens and businesses to get the most out of digital technologies. In general, the EC is focusing on increased competition and innovation in payments as well as safeguarding the trust and reducing fraud and cybercrime. Impact on shopping Banks will implement XS2A in the payments portfolio offered to the account holders XS2A is expected to trigger a broad range on new and innovative payment user experiences The PSD2 only drafted legislation on XS2A, it is now up to the market players to continue to come to a mutual understanding and further detailing of the framework. Depending on the speed generated, the ultimate date of implementing the legislation into national laws of EU member states is There is a risk of diversification, leading to confused consumers and a lack of trust in XS2A payment solutions. A clear understanding on consumer dispute handling and related liabilities is crucial for the trust in and adoption of XS2A services. Impact on payments XS2A payments will use SEPA Credit Transfers for settling funds between payers and payees Consumers will be able to initiate payments with greater convenience Increasing complexity and possibly the cost structure of commerce and payments Mid July 2013 a new legislative pack has been released with regards to payments; PSD2. This drafted legislation sets out new rules on Access-tothe-Account (XS2A). As a result of this Third-party Payment Providers (TPPs) can get access to the consumer s payment account for informational services and payment initiation. This will lead to merchants seeing new providers of payment services. XS2A is a clear example of opening up of the payments industry. Banks can either see this as a threat or an opportunity, but when done properly, linking the innovation capacity of new entrants to the reliable and trusted payment capabilities of banks can be a tremendous boost for Commerce. Eric van Vuuren - Equens Shopping 2020 Expert group Transaction 72

74 Trend 9: Increasing regulation Examples SEPA: 2014 will be the end date for the SEPA migration Trough unified standards, Europe is making payment systems effective and reducing their costs Benefits: Common standards across the region Cost effective solutions for maintenance of systems PSD2: Opening up access to the payment account for informational and transactional services Linking innovation to standardized payments Benefits: New services to become available using bank accounts Payment account s access will develop in services including cash management and investment advisory Shopping 2020 Expert group Transaction 73

75 Table of contents Introduction and background Management Summary PHASE 1: How the Dutch pay in 2013? 1. Payment contexts 2. How do the Dutch shop anno 2013? 3. How do the Dutch pay anno 2013? 4. Trends and examples PHASE 2: How the Dutch pay in 2020? 5. Drivers for the future of payments 6. Four possible scenarios for payments in Concluding remarks and findings ANNEX Shopping 2020 Expert group Transaction 74

76 PHASE 2 HOW DO THE DUTCH PAY IN 2020 A STORY ON CONTROL, CONSUMERS, TRUST AND BRANDS ShoppingToday - September 2013

77 Phase 2: Shopping2020 Central Research Question to be addressed in this report: How does the consumer shop in 2020 and which actions should be taken on national, branch and company level so that Dutch B2C operating companies can anticipate on that, nationally and internationally? Phase 1: ShoppingToday (2013) Phase 2: Shopping2020 Research Questions expert group Transaction 1. What is the current situation for transactions in Dutch retail practice? 2. What are current trends and examples? 1. What are the most important trends. points for improvement and opportunities in transactions? 2. What are the most likely future scenarios? Shopping 2020 Expert group Transaction 76

78 Table of contents Introduction and background Management Summary PHASE 1: How the Dutch pay in 2013? 1. Payment contexts 2. How do the Dutch shop anno 2013? 3. How do the Dutch pay anno 2013? 4. Trends and examples PHASE 2: How the Dutch pay in 2020? 5. Drivers for the future of payments 6. Four possible scenarios for payments in Concluding remarks and findings ANNEX Shopping 2020 Expert group Transaction 77

79 Certain effect Scenario planning: working from uncertainties Two uncertainties create four possible futures Scenario planning is intended to prepare organizations on future developments that are (1) uncertain and that (2) have large impact (see illustration below, left) The approach to create scenarios for possible futures has been to determine two uncertainties that are independent from each other and both are of high impact on the position of payments in retail contexts Based on an assessment of trends, developments and risks the following two main uncertainties have bee selected: 1. Consumers attitude towards privacy 2. The number of payment methods consumers can choose for as the second uncertainty (see next slides) The four possible combinations of two alternative outcomes for these uncertainties create four possible futures: scenarios Subsequently, the expert groups described these scenarios reasoning both from 2013 towards 2020 and from further in the future, backwards to 2020 (see illustration below, right) Large impact Plan for Develop tactics and policies for Develop scenarios on Keep an eye on Uncertain effect Small impact Different categories of uncertainties demand different preparation Scenarios can be approached directly (from our current position) or indirectly (from a future perspective) Shopping 2020 Expert group Transaction 78

80 Uncertainty 1: Consumer attitude towards Privacy HIGH privacy awareness and control LOW privacy awareness and control HIGH privacy awareness and control: People are conscious and want to control about what happens with their personal data and who makes use of it. This does not mean that everybody always wants to be anonymous, but people want to remain in control Dedicated services can be developed to support people in making themselves known in the way they want to: Digital Identity A move into this direction can be sparked with an incident or examples of data breaches that harm peoples trust in the institutions (both public and private) that gather data about them More or less privacy awareness This axis is about the degree to which the general public is concerned with their personal data. Less privacy awareness does not imply that there are no boundaries to what one can do with personal data, but only that people are less concerned in this respect LOW privacy awareness and control: Currently, experts observe a trend of decreasing privacy awareness: people are less and less hesitant about sharing their personal data: they are willing to share a lot when this leads to increased convenience or brings additional benefits The adagio I don t have anything to hide is still strong in the public opinion towards public authorities gathering data and towards private businesses, people are willing to trade their data for additional benefits like a smoother user experience or promotions Shopping 2020 Expert group Transaction 79

81 Uncertainty 2: Number of payment methods (providers) MANY payment methods (providers) FEW payment methods (providers) MANY payment methods: With the maturing online channel, dedicated payment methods have arisen This may grow even further when user experiences of various channels are more and more optimized and provide payment methods that are developed specifically for that context The wallets we see currently arising may well develop into payment methods in their own right in order to provide a uniform customer experience, trust and security within the mass of different payment methods Consolidation and fragmentation Experts see the variety of payment methods as important uncertainty. Currently, two trends are showing: Large schemes consolidate and replace smaller (local) brands (local credit transfers & direct debit SEPA and PIN Maestro) More and more payment methods are developed on top of existing ones, to cater for specific contexts. Although it is not likely that many more global schemes ( infrastructures ) appear, from the consumer perspective the number of service providers or separate products ( payment methods ) can grow FEW payment methods: With different channels converging, demand for a omnipresent payment method (and brand) increases From various initiatives, a few will eventually gain the traction that is needed to cater for all contexts and provide universal reach and a consistent user experience This scenario will be supported by the limit on a consumer s absorption level (how much different methods can I handle?) and stakeholder s ability to manage change on their infrastructures A force that may support this, are schemes that restrict the use of their brand to support other payment services (for reasons of uniform customer experience, trust and security) Shopping 2020 Expert group Transaction 80

82 Based on two selected uncertainties four payment scenarios have been worked out from the perspective of the consumer Many payments methods (providers) Scenario 1 - In Control Out of the many payments methods I can choose the way I pay to fit my privacy needs Scenario 2 - Consumer Driven 1 I choose from many options those that bring me convenience and provide smooth user experiences in a given context High privacy awareness and control Scenario 3 - Back to the Trust I feel comfortable with a limited number of payment methods where I have full control over who is doing what with my data Personal data is exchanged between contexts to provide smooth customer experiences Scenario 4 - Big Brands, Big Data 1 My payment provider knows a lot about me and can therefore provide me with useful services in all contexts Payment providers serve as information brokers between services A limited set of payment methods is available across contexts Low privacy awareness and control Few payments methods (providers) Note 1 : All scenarios reflect possible extremes. They are not reflections of the actual current attitude of consumers, merchants or financial institutes with regards to confidential data, nor are they opinions of the experts Shopping 2020 Expert group Transaction 81

83 Table of contents Introduction and background Management Summary PHASE 1: How the Dutch pay in 2013? 1. Payment contexts 2. How do the Dutch shop anno 2013? 3. How do the Dutch pay anno 2013? 4. Trends and examples PHASE 2: How the Dutch pay in 2020? 5. Drivers for the future of payments 6. Four possible scenarios for payments in Concluding remarks and findings ANNEX Shopping 2020 Expert group Transaction 82

84 Experts evaluated the four scenarios on related trends, implications for stakeholders and enablers/barriers General description of the scenario Current trends shaping the scenario Which of the trends from ShoppingToday are applicable to this scenario and how? Highlights show the trend most relevant. Expected path for this scenario What are the early warning indicators? How do we arrive to this scenario? What stages can we pass? Stage 1 Stage 2 Etc. Enablers and barriers for the scenario ENABLERS BARRIERS Implications of the scenario for various stakeholders Merchants Consumers In each scenario, the consumer perspective will be presented by a different character and presented in blue boxes PSPs Regulators Banks Shopping 2020 Expert group Transaction 83

85 SCENARIO 1 In Control Shopping 2020 Expert group Transaction

86 In Control : self-conscious consumers In Control Consumers are aware of their privacy and want to maintain control over who knows what, who uses what and who shares what Consumers understand and appreciate various choices of payment methods and providers There is a growing market for supporting consumers in managing the complexity that comes with this scenario. Dedicated e-identity services or personal data stores where personal data is securely stored and made available for reliant parties are examples of such services Lots of choice, but the consumer decides what he wants High privacy awareness and control Many payments methods (providers) 1 In Control 3 Back to the Trust 2 Consumer Driven 4 Big Brands, Big Data Low privacy awareness and control Out of the many payment methods I can choose the way I pay to fit my privacy needs I want to be able to control my personal data; who uses it, how and when it is used and who shares it with others Few payments methods (providers) I want to be able to separate different parts of my identity Shopping 2020 Expert group Transaction 85

87 Trends related to In Control scenario # Trend Relevance for Scenario: 1 Digital identity Crucial for identification and controlling privacy 2 Mobile Shopping Applicable in all scenarios 3 Digital wallets The wallet will combine payments products, added value services and (big) data collection 4 Changing POS interaction Less personal data will lead to less services, no optimal shopping experience available 5 Changing Check-out Check out can be seamless only with use of a consumer ID (or more guest accounts which will lead to less conversion) 6 Convergence of channels Cross and omni-channeling will gives extra pressure on a central identity 7 Consumers in control Consumers want in our scenario control of payment method and privacy 8 P2P payment Is one of the payment methods in the scenario and will become more used and relevant 9 Increasing regulation Regulation on privacy and data use is in this scenario starting point In my daily shopping, I use many different payment methods without leaving my credentials behind My e-id service provider supports me to control the complexity that comes with this They help me to manage what attributes are being disclosed to which service providers Shopping 2020 Expert group Transaction 86

88 2013 Possible path to In Control scenario Gaps with current situation The expert group identified gaps between the scenario and the current situation. Also a possible staged development towards the scenario was outlined. During the different stages, more and more of the gaps with 2013 are closed. These events can function as early warning indicators : signals that one particular scenario is unfolding. Strategists should be watchful for these signals and adjust their operations accordingly Wallets not yet adopted and unavailable with trusted banks Mobile not yet trusted device The Omni channel and Big Data trend is not beneficial to privacy and control 1. Jungle of wallets and payment options No identity framework available (eid) 2. Privacy incident involving Big Data resulting in more privacy awareness Access to the account not yet there 3. Trusted framework with identity authentication and management Privacy legislation outdated 4. Access to the bank account is regulated After we heard of what could go wrong when you no longer have control over you personal data, me and my friends changed radically our online behavior We started to look differently at merchants that wanted to know details about me and I began to appreciate anonymity 5. Evolving privacy legislation Shopping 2020 Expert group Transaction 87

89 Enablers and barriers for In Control scenario ENABLERS Wallet availability will increase and this gives more control and payment options if issued by a trusted party Mobile (app) development enables control Identity framework for authentication (regulation) Privacy demand of society and legislation of privacy Shopping without having to create an account (guest account) A big incident really served as a wake-up call for many people. This did not only change my internet behavior, but also how I shop I trust my mobile device and my e-id provider to arrange my things and use lot s of payment methods to separate between different contexts: I don t want to mix the different parts of my persona BARRIERS Unsuccessful business models and unclear propositions by many providers Big players dominating the marketplace, no Dutch wallets available with debit card / ideal Advantages of Commercial Wallets for merchants are the building of shopping profiles and targeted merchant offers, which conflicts with control of privacy (all in one hand) One Digital Identity not available It is not always convenient though: abroad, I don t know who or what to trust and I am largely dependent on the brands I know Shopping 2020 Expert group Transaction 88

90 Implications of In Control for various stakeholders Regulators Are confronted with huge demand for privacy regulation Are sponsor and stakeholder for a trusted identity framework Consumers In first 2 phases will be puzzled with choices of wallets and lots of incidents, who to trust Slowly but gradually will adopt the options and control services Will make use of various wallets for travelling, pleasure & ticketing and payment transactions Smart phones can provide and store personal data easily ; precondition that a consumer is able to manage his level of control/privacy Merchants Will first go only for major payment methods Later will see the advantages of accepting wallets because of the merchant-consumer interaction; value added services. Privacy and control is not beneficial for development of shopping profiles (store and analyze big data) Banks Are able to leverage their trusted imaged and will therefore have the opportunity to offer wallets or other payment methods that are easily adopted Must invent new business models with value added services because competition will grow from new players making use of opening up the bank account Are forced to invest in advanced and dynamic security models PSPs Have limited consumer access Need a mobile strategy Uncertain position unless invest in new ecosystem between mobile and wallets Other stakeholders Identity Service Providers enter into the market (can be public and Private organizations) Shopping 2020 Expert group Transaction 89

91 SCENARIO 2 Consumer Driven Shopping 2020 Expert group Transaction

92 Consumer Driven scenario Description of the scenario Many payment methods (e.g. many different customer experiences for different devices and channels on top of a limited number of payment schemes and infrastructures) More seamless shopping experience: the consumer accepts less privacy over his personal data in return for more convenience, perks or promotions. This is a possible extreme scenario and thus not a reflection of the actual attitude of consumers, merchants or financial institutes with regards to confidential data High privacy awareness and control Many payments methods (providers) 1 In Control 3 Back to the Trust 2 Consumer Driven 4 Big Brands, Big Data Low privacy awareness and control Merchants now recognize me both offline and online and optimize my shopping experience accordingly I feel like I have much more choice of how I want to pay; some payment solutions reward me with considerable loyalty points Paying has become even more easy and fun and is now a seamless part of my shopping experience Few payments methods (providers) I probably have to share personal data but I don t mind as long as I get convenience in return Note 1: As with all scenarios, this description reflects a possible extreme and thus not a reflection of the actual current attitude of consumers, merchants or financial institutes with regards to confidential data Shopping 2020 Expert group Transaction 91

93 Trends related to Consumer Driven scenario # Trend Relevance for Scenario: 1 Digital identity i.e. decentralized identity scheme or management of identities per merchant (group). Two types of identities, one for profiling providing benefits and ease of use and one (financial ID) for linking it to the payment transactions Interoperable/trusted framework 2 Mobile Shopping Applicable in all scenarios 3 Digital wallets Manifestations of the different user experiences 4 Changing POS interaction Towards a more harmonized user experience for online and offline shopping 5 Changing Check-out Idem: when consumers IDs are known by the merchant, check out can change considerably 6 Convergence of channels Channels will converge: when merchants are offered more/better tools to recognize their customers across channels, UX will converge 7 Consumers in control Apparently less important in this scenario: merchants will be more in the driver seat It is okay to provide my personal data since I get convenience in return I can choose how and when I want to pay and I even get loyalty points Finally a true seamless shopping experience 8 P2P payment n/a 9 Increasing regulation A large number of payment methods can be the result of increased regulation from a competition point-of-view. More transparent control for the consumer over his privacy / personal data will be the result from less stringent regulation Shopping 2020 Expert group Transaction 92

94 2013 Possible path to the Consumer Driven scenario Gaps with current situation The expert group identified various gaps between the current situation in 2013 and the scenario. Three stages can be distinguished to arrive at the eventual scenario. The scenario describes a situation in which data is used by all kinds of service providers, to offer consumers more convenience and services that are matched with their preferences. An important gap with this scenario is a comprehensive legal framework around personal data and the usage of it in commercial contexts Limited transparency regarding the type, usage and storage of personal data No clear/too traditional role of banks, banks are currently not acting to play a role in this scenario Merchant conscious of providing relevant (dynamic) content to consumers 2. Definition of business models (value definition of personal data) Regulation and public opinion are not in sync with technology, e.g. geo-fencing No unified financial ID (including personal data) 3. Definition and use of transaction models (revenue, exchange) Regulation brought in line with technological possibilities 1. Consumers have limited awareness towards property, usage and storage of personal data I am relieved merchants now personalize my shopping experience based on my on- and offline behavior and making the payment a seamless part of my shopping experience Although at first I was afraid of missing out on relevant information, this has proven not to be the case Shopping 2020 Expert group Transaction 93

95 Enablers and barriers for Consumer Driven scenario ENABLERS BARRIERS Technology will clearly be an enabler for more user experiences as it will make it possible for merchants to accept a wider array of payment instruments, e.g. XS2A As a consumer, I want the best services. I don t want the government to tell what companies can do with my data and what not: it slows innovation and as a consumer, I can decide for myself The suite of regulation that drives SEPA clearly encourages consolidation of payment instruments and brands (although it has not proven conditional) Also the absorption level of consumers and merchants results in a consolidation effect on the number of payment experiences and infrastructures Regulation about consumer protection is currently a barrier for this scenario, especially for dynamic profiling not necessary for inquired profiling (simply ask the consumer) Public opinion about the use of personal information - albeit in the advance of the consumer - is currently hindering further progression Shopping 2020 Expert group Transaction 94

96 Consumer Driven: Implications for stakeholders Regulators Better understanding of the needs/desires (e.g. insights of data) of their target groups (Consumers, Merchants, Banks) Regulators will have to develop a more bottom up approach rather than the current top down Develop a stronger relationship with their target groups Get more engaged with technological developments Consumers Have to take more responsibility of their financial ID (who, what and where) Are more aware of the financial gain when sharing their financial ID Consumers are only willing to share their financial ID when there is a clear up front defined benefit Merchants Increase customer service and value Engage with the new technical possibilities to put information services at work for customers Merchants should educate themselves to fully benefit from enhanced possibilities Banks Develop additional business/value models (e.g. insights in data/ financial ids) Develop a better understanding of the needs and desires of their target groups (consumers/ merchants) integrated with the different merchant shopping processes PSPs PSPs have an important positions in this scenario as the fragmentation in terms of payment methods presents complexity for merchants PSPs can also make use of their position as aggregators with a position at groups of merchants: they can claim a role in exchange of data between these merchants and enrich customer profiles Other stakeholders Public authorities versus privacy advocates: To enable the kind of services in this scenario, lots of data will be available in various shapes or forms Current debate among the public in various countries is whether the use of such data increases global safety and whether this is worth trading privacy for safety Outcome of this public debate will clearly have its effect on this scenario Shopping 2020 Expert group Transaction 95

97 SCENARIO 3 Back to the Trust Shopping 2020 Expert group Transaction

98 Back to the Trust scenario Description of the scenario Consumer has full control over his data as well as how, by whom and when this data is used A limited number of payment methods that built trust over the past years will be used Consumer becomes manager of his own big data ( customer data value management ) After a wave of new possibilities and divergence of channels and contexts, consumers will favor simplicity/transparency and control over ease of use and integrated services that they do not fully understand High privacy awareness and control Many payments methods (providers) 1 In Control 3 Back to the Trust 2 Consumer Driven 4 Big Brands, Big Data Low privacy awareness and control I got a wake up call after a series of incidents with personal data It made me think about how many different businesses have our data; all serving very particular contexts. I did a good clean up and now only use a handful of service providers I trust, especially when it comes to payments Few payments methods (providers) Shopping 2020 Expert group Transaction 97

99 Trends related to Back to the Trust scenario # Trend Relevance for Scenario: 1 Digital identity Digital identity has to be provided by a trusted third party (banks?) 2 Mobile Shopping Applicable in all scenarios 3 Digital wallets Applicable if provided by trusted party, i.e. banks. For success, the wallet has to provide all services the consumer wants to use 4 Changing POS interaction Not applicable; its not really about the way we pay, more about how many options we select for ourselves 5 Changing Check-out No primary focus. Data logging and the reuse of data for other purposes is unwanted 6 Convergence of channels Less payment methods will have to be accepted across all channels 7 Consumers in control More control on privacy and identity, finally brings back trust 8 P2P payment Maybe: will not have huge impact on this scenario 9 Increasing regulation In this scenario the call for more trust will be answered by regulators through implementation of more requirements for merchants and PSPs I m glad that I no longer have to differentiate between online, offline, mobile or whatever: I know that I have a payment method that I can use almost everywhere. This is convenient and makes me feel safe and in control Shopping 2020 Expert group Transaction 98

100 Possible path to the Back to the Trust scenario Gaps with current situation Three phases towards the scenario: first an incident that will halt current development and initiate a movement in the opposite direction: more privacy awareness. Consumers will show this in their demands towards service providers. As a result of this, a shake out will take place where newcomers will loose ground to established players Consumer wants to have control over his payment data instead of settling for general conditions of the merchant and the PSP The hype around convenience has calmed down and there is more attention for transparency and security The use of social media decreases: people share less personal data through social media 1. Data breach causes wake up call / consumers feel like they loose control over data b/c of large number of providers ( what is my password?, why do they know my birthday?, etc.) 2. Consumers want visible control over their privacy and only trust parties with solid reputation ( trusted in payments since 1985 ) Innovators are struggling to get traction with consumers as traditional (and trusted) players are being favored above novelties Citizen (driven by ideals) and consumer (driven by utility ) are united 3. Shake out of innovators and smaller providers: big players survive When I look back at how things were arranged back in 2013, I find it hard to believe that we accepted all those Terms & Conditions of internet businesses and embraced new things so easily and without asking questions. I know those days are over: I only do business with respected organizations and want to remain confident that my personal data is safe Shopping 2020 Expert group Transaction 99

101 Enablers and barriers for Back to the Trust scenario ENABLERS BARRIERS Consumers are cautious towards data usage by third parties ( the endless memory of the internet ) Merchants demand reliable source of digital identity Regulation will be intensified Decreasing trust caused by extensive data breach and incidents of identity theft (event) Increasing fraud at web merchants : for merchants security becomes even more important Consumers grow increasingly aware of their (online) privacy through education campaigns by government Consumers remain confident with banks Increased transparency and demand by consumers to understand business model of service providers: this will lead to simplified value chains Current trend of increasing convenience will have to be reversed to arrive at Back to Trust Response time of regulator limited: it takes time for regulation to be implemented Introduction of XS2A might lead to a movement in the other direction: towards more payment methods and more diversity It was really only after consumers and merchants demanded action from the large financial institutions that a solution was found for all those different payment methods, endless credentials and unreliable services that were tracking my identity! Shopping 2020 Expert group Transaction 100

102 Back to the Trust: Implications for stakeholders Regulators High expectations of consumers regarding rules and regulations Regulator will face little opposition when proposing boundaries to the use of personal data Banks Chances for banks when they will maintain their position as trusted party towards consumers Will have to step up on technological capabilities to provide adequate services across all channels Have an opportunity to become service providers in the e-identity space Consumers Consumers face increased dependency from a small number of providers for handling their deposits and servicing their payment needs Consumers have chosen to compromise on choice and tailor made solutions in favor of trust and security Consumers take responsibility for managing their own online identity PSPs Facing reduced complexity for merchants, PSP s will have to expand their service to stay relevant and add value Merchants It will become harder for companies to get free access to peoples data for marketing purposes A limited number of payment options that have traction at the consumer side will save merchants in cost and complexity Will have the responsibility to formulate a clear policy on the use of their consumers data Other stakeholders Innovators will have a hard time competing with incumbents Digital Identity Service Providers: Opportunities for service providers that support consumers with managing their online identity Shopping 2020 Expert group Transaction 101

103 SCENARIO 4 Big Brands, Big Data Shopping 2020 Expert group Transaction

104 Big Brands, Big Data scenario Description of the scenario Large financial institutions, with their integrated financial service offering, have established themselves as the go to providers of payment and identity related service; they are the Big brands Because of their central position in the middle of payment and related transaction data, large financial institutions are ideally positioned to combine information into insights and use these for services towards consumers and merchants As consumers trust their financial institution with their personal data, services can be developed to ease transaction flow (for consumers) and to provide rich data parallel to the payment (for merchants). Prices of payment services can be offered for free or a low prize towards merchants as merchants are paying with their data Because consumers trust a limited set of financial institutions, also a limited set of payment methods suits all imaginable contexts and will offer ease of use This is a possible extreme scenario and thus not a reflection of the actual attitude of consumers, merchants or financial institutes with regards to confidential data High privacy awareness and control Many payments methods (providers) 1 In Control 3 Back to the Trust 2 Consumer Driven 4 Big Brands, Big Data Low privacy awareness and control 1 2 As long as my payment provider is handling my personal data, I feel save and don t spend to much time worrying about where this data is going and who has insight in it It is a small price to pay as I benefit from low prices and an extremely smooth transaction flow On top of that, I appreciate merchants approaching me with offerings that are relevant for me as long as I have the feeling I control it 3 4 Few payments methods (providers) Shopping 2020 Expert group Transaction 103

105 Trends related to Big Brands, Big Data scenario # Trend Relevance for Scenario: 1 Digital identity Regarded as very important for the scenario, although privacy plays a limited role Payment convenient above privacy Trust the big brands 2 Mobile Shopping Applicable in all scenarios 3 Digital wallets Fits well with scenario: the product is trusted Wallets enable many options related to loyalty Container with data that enables (e.g.) personalized offers Pre-fill user-friendliness which increases conversion Everything becomes linked, but info stays with one party 4 Changing POS interaction Easy payment interaction; well structured: walk past the checkout/or simply check-in. Authentication systems recognize consumer and enable consumer to enjoy seamless UX 5 Changing Check-out n/a 6 Convergence of channels Can be catered for with one integrated service 7 Consumers in control Consumer has choice but no control Consumer is loyal to one of the big brands, not as it is currently spread across all brands 8 P2P payment Brands want to control the float; no P2P 9 Increasing regulation Increasing financial regulation; trust No growth in social regulation; liberalization on privacy Strong regulation on financial areas, little on a societal areas As a result of the big brands working together and offering a limited set of payment/ authentication methods that cater for channels and contexts, I enjoy a comprehensive online identity. Although you might argue that I m not completely in control, at least I know who to turn to in case of trouble! Shopping 2020 Expert group Transaction 104

106 2013 Possible path to the Big Brands, Big Data scenario Gaps with current situation Competition between traditional financial institutions (or payment providers) and corporates will become killing but they will all make use of the same infrastructure and backbone PSD2 enables banks to consolidate and increase power in the market 1. Implementation of the technology, transition phase New technology becomes available: e.g. face recognition, easy contactless device, smartphone as consumer identifier in the air (wireless) Marketing effort by incumbents to emphasize the importance of trust in service providers dealing with personal data 2. Societal mindset changed: Consumers want to benefit from increased ease of use, but are reluctant to move away from the service providers they know and trust Introduction of new regulation Payment institutions and big data processors cooperate to enable integrated services to consumers 3. In 2020 the regulation is set, the mindset of the consumer is changed accordingly big brands want to differentiate, not necessarily cooperate, although cooperation for the infrastructure is still required A wave of new technologies made payments more and more seamless. For services where payments are seamlessly integrated in the shopping process, I turn to the institutions that I have known for a long time and that has proven to be trustworthy. I get by with only a limited set of payment methods that is available across channels: why would I want to use others? Shopping 2020 Expert group Transaction 105

107 Enablers and barriers for Big Brands, Big Data ENABLERS BARRIERS Increasing financial regulation stops innovation for smaller parties to develop new payment products Idem as barrier for small parties to enter the market; protects current parties Young people are less interested in privacy People will accept that big brands gather data Technology: possibility to recognize/identify the customer in the shop Technology is an important enabler in this scenario. The big institutions are not recognized as the most effective players to apply new technology Privacy is a never-ending battle, Payment should be differentiated from all scandals/leaks by making the security and regulation fool-proof There was a time when payments and related services became very confusing. I m glad that measures were implemented to curb the number of new players in the market Shopping 2020 Expert group Transaction 106

108 Big Brands, Big Data : Implications for stakeholders Regulators (DNB as a derivative of the EC but also MasterCard/VISA) Stronger role in the financial market; less in the social world; Legislator and regulator Regulation leads to trust. Far more central role, less flexibility Innovations are hard to keep up with Consumers Pro: easy way to pay; loyalty is rewarded; Con: they know everything about me; no choice; but I trust my bank Payment as such is still secure; Awareness of sharing and the value of data must grow, if it does the urge for control will also grow Banks Consolidation: banks become more than only financial service providers as they will be the keeper of consumers identity online Be more innovative to keep current position; cooperate with 3 rd parties to develop tools to integrate payment methods in the shopping value chain, e.g. for big data and loyalty Transparency; social involvement Banks will get a far more central role. Can they perform this role? It is not their core business, if they do this will take time PSPs Shake out because of strong financial regulation; only the large PSP s will remain PSD2 reduced the minimum of 3 million to 1 million. Which forces small players to go through the certification process of the DNB Merchants Know my customer; loyalty is key for growth; large investments are required Omni channel approach requires investments and knowledge Fraud possibilities decreasing Build a relation with individual customers, founded on unique personal information Other stakeholders Important role for technology providers: Big Data requires competences and capabilities not all players have in-house e-commerce enablers will claim a linking role between the big brands and merchants Integrators will provide the know-how for players that have to adapt Shopping 2020 Expert group Transaction 107

109 Table of contents Introduction and background Management Summary PHASE 1: How the Dutch pay in 2013? 1. Payment contexts 2. How do the Dutch shop anno 2013? 3. How do the Dutch pay anno 2013? 4. Trends and examples PHASE 2: How the Dutch pay in 2020? 5. Drivers for the future of payments 6. Four possible scenarios for payments in Concluding remarks and findings ANNEX Shopping 2020 Expert group Transaction 108

110 An incident can create an instant shift to another scenario Many payments methods (providers) 1 Incident + regulation! 2 High privacy awareness and control t=0 3 4 (Consolidation) Low privacy awareness and control Few payments methods (providers) I. According to the experts, scenario 2 Consumer Driven can be recognized in some of the trends that are currently happening. Therefore, scenario 2 can be regarded as an extrapolation of current developments II. For scenarios 1 In Control and 3 Back to the Trust, experts expect an incident combined with or followed by more stringent privacy regulation that will shake consumers and change their attitude towards the use of personal data. This will shift consumers to higher privacy awareness III. For scenario 4 Big Brands, Big Data to unfold, the current trend towards more payment methods / providers will have to stop. However today, there are only a limited number of commonly used payment methods today, so the current situation isn t far off from scenario 4. According to experts the number of payment methods will first still grow but will further consolidate towards 2020 Shopping 2020 Expert group Transaction 109

111 Impact Assessment of impact and likelihood of scenarios Impact and likelihood Although scenario planning is meant to prepare for unknown futures and there is no way of forecasting which way shopping and payments will develop towards 2020, the experts have formulated four possible futures. Based on qualitative assessment of all the scenarios during a workshops, the experts assessed impact and likelihood of the scenarios. The following slides are a reflection of this assessment 2 Consumer Driven 4 1 In Control 3 Back to the Trust Big Brands, Big Data likelihood Many payment methods for consumers and merchants to choose from Consumers are aware of their privacy and don t appreciate their data being used without them knowing Merchants embrace new technological possibilities and consumers enjoy ease of use Lots of payment methods Personal data shared across services Consumers choose a limited number of institutions to service their payments and personal data People are aware of their privacy and do not appreciate data being shared Limited number of payment methods available Low privacy awareness among consumers Shopping 2020 Expert group Transaction 110

112 Impact Most likely: Scenario 4 Big Brands, Big Data 2 Consumer Driven 4 IV 1 In Control Back to the Trust III 3 II Big Brands, Big Data likelihood I Likelihood I. Big Brands, Big Data is considered by the experts as the most likely scenario. The current dominant position of a relatively small group of financial institutes and big brands, combined with the high investments involved with the embrace of new technologies might prove difficult for newcomers to step in. When the experts extend the current movement towards more convenience and wider use of personal data in retail contexts, this scenario is quite likely to occur II. The second most likely scenario is Back to the Trust. In addition to what is said above, the experts see the risk of a large scale incident involving personal data as eminent. Such an incident could spark a movement contrary to the current trend of more data becoming available and could further enforce more stringent regulation: people may become more aware of their privacy and put their trust with only a small set of service providers III. A development towards the In Control scenario is conceivable, but only after an incident (like with scenario 3). Even in this case, it remains to be seen whether consumers are prepared to give away the convenience they have grown used to IV. An important inhibitor for scenario 2 ( Consumer Driven ) is the absorption capacity of users: there is doubt whether users are capable of understanding many different payment methods and appreciate a wild variety of check-out experiences. Although choice is good, things might get too confusing (as is already today the case in the abundant choice of phone subscriptions, energy contracts and healthcare insurances) Shopping 2020 Expert group Transaction 111

113 Impact Highest impact: Scenario 2 Consumer Driven Impact The impact of the various scenarios was determined by the experts taking the current situation as a starting point, including the trends that we witness 2 Consumer Driven 4 1 In Control 3 Back to the Trust Big Brands, Big Data likelihood I II III IV I. According to the experts, scenario 2, Consumer Driven is the scenario with the highest impact on the position of payments in the total retail chain. Although it is commonly felt that most trends currently push in the direction of this, the possibilities of Consumer Driven are endless. Currently, the number of payment methods that is commonly used is still relatively limited and consumers and businesses are still beginning to discover the possibilities of putting personal data to work in retail. It is therefore hard to underestimate the impact of this scenario II. The second biggest impact is from Big Brands, Big Data : the application of large quantities of personal data in retail context is regarded as a stronger impact than the number of payment methods III. In Control would halt the trend of applying more and more personal data in retail contexts IV. The impact of the Back to the Trust -scenario is coming from the fact that it would reverse trends that we are currently seeing: it would push retail in the opposite direction of where it is heading now. However, both movements ( right and up in the graphic) have only just started. Therefore the impact on the current payment experience is limited Shopping 2020 Expert group Transaction 112

114 Other Flexibility across channels Trust/ reputation Important success factors across all scenarios SCENARIO 1 SCENARIO 2 SCENARIO 3 SCENARIO 4 Trusted parties! 1 2 Availability of support apps and wallets with options to control privacy Mobility and mobile devices 3 4 Transparent communication with consumers and merchants regarding the use of personal data and its related advantages Flexible infrastructures for payments and ID To win and maintain consumer trust (consumers choose for an established and trusted brand ) Trust is more important than convenience All payment services should serve all channels Trust is key in this scenario. But not all environmental factors are within control. Cross-border influences on a technological and societal level will have influence Be big; be financial stable; be the big brand Marketing/branding is key for trust & financial expertise All payment services should serve all channels, more infrastructure flexibility is required to embed payment services in the shopping value chain 3 4 Trusted technology The adaption rate by merchants of a diffuse landscape Quality and relevance of merchants offering The absorptive power of consumers will be a for the number of payment methods (or UXs) being offered privacy Incidents that make people more privacy aware Level of control for the consumer in the shopping process Quality and relevance of merchants offering It is clear that in all scenarios, trust, brands, reputation and transparent communication are considered by consumers as the most important success factor Although all different stakeholders will have to determine their strategy to win, trust is something all consumer facing players in the value chain cannot do without Shopping 2020 Expert group Transaction 113

115 Convenience / ease of use Service providers have to choose a position between ease of use and data security The shift from one curve to another takes place when boundary conditions change: regulation, technological advance, etc. Players can determine where to position their services on the curve Positioning A way of visualizing the choices all players have to make is by drawing lines that represent combinations of ease of use and privacy. The space between these lines can be crossed only when a change in boundary conditions takes place Recommendation for players is to assess their position on the curve, based on the scenario that is unfolding and watch closely where the need of their customers lies Disruptive events like technological developments or the introduction of regulation can cause a shift onto a new curve on which players will have to determine their position towards ease of use and data security Trust / Privacy Shopping 2020 Expert group Transaction 114

116 Concluding remarks 1. When it comes to shopping and paying consumers seem to want both reliability/security and convenience at the same time 2. Furthermore, Dutch consumers are not used to pay directly for this category of services and merchants are used to low costs for accepting electronic payments 3. Consumers seem to consider reliability/security more like a qualifier/hygiene factor while convenience is being considered as a differentiator/added value 4. Payment is most likely to become increasingly a seamless part of the shopping experience whether there are many or few payment methods and/or providers 5. Consequently, in any scenario some sort of digital or financial identity will be a key enabler to progress the market and as a means to more seamlessly embed payments in the shopping experience 6. The current movement seems to be that consumers find privacy important but seem to be willing to trade it for convenience, even though we see some momentum developing in favor of more privacy control by the consumer. Especially major privacy incidents can turn the situation around and increase regulation, awareness and a demand for control of personal data 7. Developing (international) rules & regulation, frameworks, infrastructures, services and products regarding digital identity and personal data management is considered almost conditional for any scenario since this has high potential for improving the shopping experience depending on how it will be implemented 8. Developing more seamless shopping experiences based on new infrastructures towards 2020 in parallel with improving the existing shopping and payment process and infrastructure seems the most logical approach for migration towards shopping in 2020 Note: The observations presented on this page were made during the process of detailing the Shopping2020 scenarios and thinking ahead about retail experiences in 7 years. They can be regarded as remarks by the expert group across the scenarios Shopping 2020 Expert group Transaction 115

117 Table of contents Introduction and background Management Summary PHASE 1: How the Dutch pay in 2013? 1. Payment contexts 2. How do the Dutch shop anno 2013? 3. How do the Dutch pay anno 2013? 4. Trends and examples PHASE 2: How the Dutch pay in 2020? 5. Drivers for the future of payments 6. Four possible scenarios for payments in Concluding remarks and findings ANNEX Shopping 2020 Expert group Transaction 116

118 ANNEX

119 Glossary Banks: Entities regulated under the deposit insurance and banking regulations Big Brand: Trusted consumer brands (not necessarily finance related) Big Data: Big data is the term for a collection of data sets so large and complex that it becomes difficult to process using on-hand database management tools or traditional data processing applications network architecture in which individual nodes in the network (called "peers") act as both suppliers and consumers of resources CAPS / XS2A: Controlled Access to Payment Services / Access to the Account: under the new European directive, third parties are allowed to operate payment methods that directly connect to (bank) accounts to fund the transaction Card: generic description of all payment cards including credit, debit and cheque guarantee is the sale of goods and services from individuals or businesses to the end-user Checkout: a point at which goods are paid for in a supermarket or other store. Also see POS Conversion: likelihood of an user becoming a customer Debit Card: a card issued by a bank allowing the holder to transfer money electronically to another bank account when making a purchase. is the sale of goods and services from individuals or businesses to the end-user Digital Identity: Digital identity can be defined as all the online information and data specifically about an individual Digital Wallet: An encrypted storage medium holding credit card and other financial information that can be used to complete electronic transactions without re-entering the stored data at the time of the transaction DNB: Dutch Central Bank EC: European Commission eid: See Digital Identity ideal: ideal is a Dutch OBeP method for online purchases. See OBeP Financial Institution: Licensed provider of payment services to consumers or merchants Mobile payment: Also referred to as mobile money, mobile money transfer, and mobile wallet generally refer to payment services operated under financial regulation and performed from or via a mobile device OBeP: Online Banking epayments (OBeP) is a type of payments network, developed by the banking industry in conjunction with technology providers, specifically designed to address the unique requirements of payments made via the Internet OTT-players: Over The Top players, as in non regulated parties P2P: A peer-to-peer (P2P) network is a type of decentralized and distributed network architecture in which individual nodes in the network (called "peers") act as both suppliers and consumers of resources POS: Point of sale is the place where a retail transaction is completed. It is the point at which a customer makes a payment to the merchant in exchange for goods or services PSD2: Payment service directive. The PSD establishes the necessary legal framework for SEPA payments and also applies to existing national payment products PSP: A payment service provider (PSP) offers (web) shops online services for accepting electronic payments by a variety of payment methods including credit card, bank-based payments such as direct debit, bank transfer, and real-time bank transfer based on online banking Retail / Retail payments: Retail is the sale of goods and services from individuals or businesses to the end-user Scenario Planning: Scenario planning, also called scenario thinking or scenario analysis, is a strategic planning method that some organizations use to make flexible long-term plans SEPA: The Single Euro Payments Area (SEPA) is a payment-integration initiative of the European Union for simplification of bank transfers denominated in euro Transaction: An exchange or interaction between two parties Shopping 2020 Expert group Transaction 118

120 Contact information expert group Transaction Eric van Vuuren (Host) Business Developer Equens Shikko Nijland (Chairman) Managing Partner Innopay Shopping 2020 Expert group Transaction 119

121 Shopping 2020 Expert group Transaction 120

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