Sage Pay Payments Landscape Report

Transcription

1 Sage Pay Payments Landscape Report 2015

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3 Introduction The turning tide By Sage Pay Managing Director Sean Wilson With UK GDP up by 3.4% in 2014, the UK economy is on the rise, but retail figures aren t so clear cut. Black Friday saw record sales, but Christmas saw a like-for-like fall of 0.4% in overall spending. The fortunes of retailers are similarly mixed, with some established giants struggling and others thriving. As the 2015 Sage Pay Payments Landscape Report shows, the difference between sinking and swimming is understanding that seizing opportunity demands innovative approaches that call on deep customer insight and trend foresight. This is the fifth year of our annual report into the payments landscape and we have aimed to provide an insightful portrait of the industry in 2015 from what s happening on and offline, the emerging players within the payment space and how businesses are approaching innovation. These insights are aimed at providing businesses of every size with a clear view of where they are and where they need to be within the coming year is set to be pivotal. This year will see cashless payments finally overtake cash and the technology bellwether that is Apple is also entering the payments sector, prompting rivals to up their game. The clear message is this is not the time to be treading water, yet our survey suggests that many UK businesses are doing just that. Shoppers appear to have a greater appetite for innovation than retailers and are noticing the disconnect. In 2014 more than one in five consumers thought UK businesses were leading the way on payment innovation, but in 2015 this has fallen to less than one in six. In 2015 UK businesses need to lead the way moving with the tide rather than trying to swim against it. Now is the time to use technology to better understand customers and deliver the payment choices they appreciate, thereby driving up acquisition and loyalty, while driving down costs. We hope you enjoy reading this report. If you d like to comment on the report or simply have some questions or suggestions, I d love to hear from you. You can contact me at sean.wilson@sagepay.com sagepay.co.uk 03

4 At a glance Here s what matters in 2015 Cash is on its way out make sure you re ready Integrate your channels to stay ahead of the game Innovation is key but security is paramount Ignoring fraud is a risky business Keep an eye out for emerging players Methodology To ensure a broad view of the payments industry, we surveyed 1,000 UK business decision makers and 1,000 UK shoppers. This provided an understanding of where consumers and businesses agree, and where there are diverging views. The interviews were conducted online by Redshift Research in January 2015 using an invitation and an online survey. Quotas were set to ensure reliable and accurate representation of the total populations aged 18 and older. Footnote: Results of any sample are subject to sampling variation. 04 sagepay.co.uk

5 Contents 06 Chapter 1 Play your cards right because cash is a busted flush Cash is being pushed aside by card and cashless payments. Consumers want convenience, security, ubiquity and trust factors that any business ignores at its peril 10 Chapter 2 Innovation, innovation, innovation contactless, apps and Apple A host of companies seek to excite customers with new, or a new take on existing, technologies 16 Dermacia case study Modern-day pharmacy with mobile at its heart 18 Chapter 3 Growing up fast the emerging payments players The internet giants are competing for a share of the market by leveraging social and mobile payments, while digital currencies remain on the outside looking in 26 Chapter 4 E-commerce, payments innovation and integration E-commerce is big and getting bigger, and yet many businesses have failed to create seamless omnichannel payment systems. Integration is key 30 Sanderson case study Is omnichannel right for my business? 32 Chapter 5 Ignoring fraud is a risky business Fraud costs UK businesses nearly 18 billion a year and yet a third of businesses are not using any fraud prevention tools 36 Conclusion The future is now Forward-looking companies understand that the future is now. They are driven by the knowledge that while much is new, the underlying principle is as old as commerce itself the customer is king 22 Office case study Selling shoes the smarter way sagepay.co.uk 05

6 Chapter 1 Play your cards right because cash is a busted flush Cash continues its long journey into obscurity, pushed out largely by card and cashless payments. This change is driven by consumers desire for convenience, security, ubiquity and trust factors that any business ignores at its peril. Cash s downward spiral 2015 is set to prove a pivotal year as the UK moves towards a cashless society. The UK s Payments Council is predicting 400 million fewer cash transactions this year, while cashless payments will rise by 700 million. This will bring the number of cash payments down to 19 billion by the end of 2015 and the number of cashless payments up to 19.9 billion. For the first time in history, cash isn t king. In our report last year, we uncovered the hidden costs associated with accepting cash. In our survey this year we again found that the cost to the UK is nearly 18 billion annually at an average cost to small and medium sized enterprises (SMEs) of 3,520 per year through storing, transferring and handling fees. But cash s unpopularity isn t limited to its continuing cost. It also outstrips all other payment methods when it comes to causing accounting inaccuracies. For consumers, cash is dwindling in importance. There is the continued rise of online payments and 69% have used debit/ credit cards online or PayPal in the last month. Because of their established ubiquity (the same way of paying for things in different scenarios), these two methods were also the most highly rated in terms of payment preference. Kevin Jenkins, the head of Visa in the UK, said recently that paying for goods using cash would be seen as peculiar within a 06 sagepay.co.uk

7 The annual cost of cash to the UK decade. Our survey shows that the UK still has mixed feelings about cash s fall from favour 65% of respondents believe we will one day become a cashless society (although some believe this will take some years), while 32% think this will never happen. In the meantime, cash is clinging on, but it is on an inexorable downward trajectory. The Payments Council predicts that cash will fall to roughly one third of all financial transactions by 2023, with 12.9 billion cash payments and 27.5 billion non-cash payments in that year. 18 bn Cash remains in the top three payment types accepted by businesses overall, but debit and credit card use has grown for almost half of all businesses in the last 12 months, most notably for businesses that take payment both online and in-store. As for the future, the writing is on the wall as far as businesses are concerned. Cash is only ranked 5th by businesses in ratings of which payment type would be most popular in 2020, after debit/ credit cards, contactless payment, PayPal and mobile apps. The move away from cash is being driven in part by the big institutions. In 2015 banks will be looking to diversify and expand their reach in the payments landscape. Now that the banking sector is recovering, they are looking to invest in new technologies, infrastructure and platforms. Ovum s 2014 ICT Enterprise Insights Survey of global banking IT executives showed that 45.4% plan to increase their spending on payments over the next 18 months, with 14.8% increasing spending by over 6%. With banks investing to accelerate this drive away from cash, resisting the turn of the tide could spell trouble for businesses the number of cashless payments will In overtake cash payments for the first time The growth of plastic Consumers say they want four things when it comes to payments: convenience, security, ubiquity and a trusted partner. As credit and debit cards have been part of the system for decades, they fulfil much of the consumer wish-list to provide secure, familiar and efficient methods of payments. In our survey, security came out as a first preference over cost, convenience and speed, with 55% saying it was their top priority. 26% chose cost as their sagepay.co.uk 07

8 first preference, while only 9% chose convenience and speed. More than half chose speed as their last priority (52%). In other words, while consumers want innovation, they do not want it at the expense of putting their money at risk, or of new services costing them extra. Innovations that tie together a single customer experience across many channels and give consumers security and convenience will win. This is why credit and debit cards ubiquity is a big plus. The raft of emerging new payment options make credit and debit cards look like a rock of familiarity in a sea of innovation. For merchants in particular, plastic cards are a good bet because they know that the vast majority of the UK population are able and happy to use them. Use of credit and debit cards continues to grow there are now more than a billion card transactions a month in the UK. Overall, debit and credit cards now make up a 75.8% share of total retail sales, up from 51.6% in 2004, according to the UK Card Association. The latest figures for December 2014 show that the growth in debit card spending continued to significantly outstrip that of credit cards. Debit card spending grew by 7.2% year-onyear in December to 34.5 billion, while credit card spending grew far more slowly at 4.4% to 14.6 billion. It s hard to see a point in the near future when the increase in card use is going to slow significantly. There are long-term trends that have driven this; first the replacement of cheques, and now card use is eating into cash at the point of sale as well. Over time the average transaction value, on debit cards especially, has fallen as consumers use their cards for smaller purchases when they would have once used cash. Cards are being used more and more for everyday transactions, driven in part by the trusted connection with the consumer s bank account. Innovations that tie together a single customer experience across many channels and give consumers security and convenience will win Sage Pay says Cash comes with significant drawbacks and, while it remains practical, cards are equally convenient and nearly ubiquitous. It s been proven that offering a range of payment types drives customer loyalty, so thinking about choice is always good for business. Do your homework on your target audience. We ve seen significant differences in payment preferences between age groups. 08 sagepay.co.uk

9 Cash is ranked 5 th by businesses in ratings of which payment type would be most popular in 2020, after debit/credit cards, contactless payment, PayPal and mobile apps Debit/credit cards 4. Contactless payments 3. PayPal Mobile apps 5. Cash

10 Chapter 2 Innovation, innovation, innovation contactless, apps and Apple The 2015 payments landscape is dynamic and it needs to be, with customer expectations constantly changing and always increasing. A host of companies are seeking to excite customers with new, or a new take on existing, technologies. We are seeing some intelligent thinking on streamlining the purchasing experience, with payment options that are ready for the customer whenever they want them and wherever they are. The big story in the payments landscape is the power of digital channels. Most innovation and investment in payments can be directly tied to changes in the online and mobile space, and industry players and start-ups are launching new services and concepts. These new payment products include digital wallet services, new mobile point-ofsale technologies and front-end consumer technologies such as mobile apps. These payment channels claim a smaller share of the market than traditional card payment options for the time being. In such a dynamic landscape, it s critical to stay abreast of major developments in mobile and digital payments, and changes that may have a significant impact in the near future. Huw Davies, head of emerging payments for MasterCard in the UK, said: We need to foster an environment where digital credentials are easy to create and are stored in the preferred place that the consumer wants to use. The other part of the ecosystem is then giving the merchant the ability to access and use them in a much quicker, simpler transaction. This generates an environment where you ve got something that s pretty seamless to the consumer and merchant. That creates the foundations where you can more effectively solve problems. In every industry vertical, the opportunity will be different, but it s about identifying problems that can be solved. 10 sagepay.co.uk

11 Contactless The biggest change from last year s Landscape Report is the rise of contactless payments. The technology has now most definitely gone mainstream. The momentum is undeniable. People are using contactless payment systems more, and spending more when they use them. According to the UK Cards Association (latest figures are from November 2014), contactless payments accounted for million of UK spending in November 2014 alone an increase of 1.9% on the previous month and a huge 275.5% over the year. Total card spending was 48.6 billion in that month in the UK. comfortable using Oyster contactless cards for transport. There have been over 14 million journeys made using contactless on transport in London. Now major supermarkets are said to be rolling out contactless for credit and debit cards across all their stores this year and Tesco already accepts contactless in all 500 of its stores within the M25. Retailers have adopted contactless because it speeds up customer handling and reduces queues. WH Smith, Waitrose, Boots and Pret A Manger are among the retailers using the technology. Almost a quarter of consumers (22%) say they are likely to adopt contactless payments in the next year. Over a fifth of respondents, and many of them aged 18-34, believe that the rise of contactless payments means they will use traditional card payment services less. These are the future generations the people who may shape the future payment landscape. Contactless payments are on the up. MasterCard, for example, has committed to making contactless payments available at all its point-of-sale (POS) terminals across Europe by This trend is set to continue, with opportunities to use contactless cards increasing. There are now 208,578 bank-owned contactless terminals in the UK, where consumers typically spend 7.59 per transaction. Cashless payments are also likely to be boosted with news in February this year that the limit on transactions is rising from 20 to 30. Until recently contactless technology was mainly a London phenomenon, with hundreds of thousands of people in the capital According to our survey, there has been a significant increase in businesses that accept contactless payment up to almost a third (31%) compared to 26% last year. And it is not just the big retailers. Half of businesses with employees accept this type of payment and, overall, another 26% say they plan to do so in the next 12 months. Smaller businesses are much less likely to accept, or plan to accept contactless payments. 31 % The number of companies accepting contactless in 2014 Contactless payments have reached a tipping point of popularity and acceptance and are being pushed hard by major payments players. Consumers are expecting to be able to use contactless in more and more scenarios and SMEs cannot afford to ignore this growing trend. 22 % of consumers will adopt contactless next year 275 % The increase of contactless payments in % The number of companies accepting contactless in 2013 sagepay.co.uk 11

12 Apple Pay For many, the launch of Apple Pay signals that the retail payments market is now at an inflection point. According to Ovum s 2015 Trends to Watch in Payments: While Apple s payments system will realistically remain only a niche consideration in the near future in terms of transactions, it presents a clear model from a major consumer brand, which many organisations will be rapidly attempting to either partner with or defend against, particularly in regions and markets outside of the US. This, in turn, will have a knockon effect on broader payment investment strategies and lead to greater competition between providers at both an enterprise and vendor level. Apple Pay, however, does not signify a major advance in the technology behind the payments system. As it has done before, Apple is taking existing technology and deploying it in a user-friendly, attractive package. It is essentially a form of contactless payment, using the iphone handset, Near Field Communication (NFC) and fingerprint technology as authentication. Consumers hold their iphone near a contactless reader and confirm the purchase using fingerprint recognition on the phone. The technology is only available in the latest iphone 6 or 6 Plus. Liam Spence, head of innovation at Zapp, said: When Apple goes into an industry, it goes into it hard and tries to disrupt. One thing that Apple Pay has done very well is increase the usability of making a payment. If it s more convenient to make a payment and they re saying it s more secure, then it s going to do well. However, in the UK the usage of iphones and ios is less than in the US. It s not an open ecosystem, so everyone who uses Android or Windows phones will not be able to use it. Payments is all about interoperability and so if you re a closed loop system then you re not going to get the full market share and, therefore, businesses won t necessarily see the benefit of using you. This may explain why, in our survey, consumers were markedly less excited about Apple Pay than businesses. Many consumers (presumably non-ios users) said that they will not consider using Apple Pay (61%) and just 5% say they would consider using it. On the other hand, over a quarter (26%) of businesses are considering offering Apple Pay even before it is announced in the UK. For the time being, Apple has not declared any specific plans. The very fact that a brand with the power of Apple is now in the contactless payments market will increase consumer awareness around contactless functionality. Mobile spending is growing at 36% 61 % of people would not even consider using Apple Pay Only 5 % would Apple Pay, with its use of fingerprint recognition, is also set to further popularise another payment trend biometrics, retina scans and voice recognition. Biometrics offerst simplicity, convenience and security and its proponents claim it will make fraud virtually impossible. Our research showed that 45% of consumers think we ll all be using our fingerprints to make purchases within 10 years. 12 sagepay.co.uk

13 Apps in the ascendancy Recent research that we conducted with Ipsos has revealed that mobile shopping is growing at nearly four times the rate of overall online spending in the UK The phenomenal rise of e-commerce and m-commerce has led to a big increase in the number of mobile apps that include some form of payment system. For the first time, half of businesses surveyed have optimised their web presence for mobile browsing, showing an increase of 10% on last year s figures. Research by the Centre for Economics and Business Research (CEBR) shows that 20 million adults will use their mobiles to pay for goods and services by the end of the decade, with the value of purchases tripling from current levels to 14.2 billion in By 2020, mobile payments will represent 1.4% of total consumer spending. This means that a wide range of retailers have been launching mobile apps to find consumers where they are on their mobile phones. Starbucks, Debenhams and Greggs are just three examples that have gained traction with consumers. Rob Harper, director, Mobile Commerce at PayPal UK, said: We know that mobile payments are on the rise. Recent research that we conducted with Ipsos has revealed that mobile shopping is growing at nearly four times the rate of overall online spending in the UK. From 2013 to 2016, the UK average compound annual growth rate for mobile spend is projected at 36% vs. 10% for overall online spend. At PayPal we are seeing this growth too. We processed $46 billion in mobile payments in 2014 globally, up 68% from Our survey of SMEs shows that businesses are seeing the benefits and reacting to the rise of mobile searching and shopping. Significantly more respondents have a website optimised for mobile browsing this year than last year, as well as more having a mobile app (although this is still the minority). Of SME respondents, 50% have a website which is optimised for mobile browsing, and 28% have a mobile app. The number of SMEs planning to invest in mobile apps is up significantly from a quarter in 2014 to a third in PayPal, for example, has been trying to tap into this and has added further features to its mobile offering, allowing customers to order ahead at restaurants or takeaway outlets, order drinks through their phone without having to queue at the bar and even pay at the table with their phone without the need to ask for the bill. As we ve progressed with mobile payments, we ve become conscious that it s not just about payment it s about solving some of the pain points that our customers have told us about and making their experience more convenient, Rob Harper said. Businesses should benefit in multiple ways from the adoption by consumers of mobile payments. It allows them to access customer spending that would otherwise have gone elsewhere. Kieran Hines, analyst with Ovum IT, said: Payments are always the means to the rather than an end in themselves. The lesson for anyone looking at payments in terms of developing new services has to be around what would the incentive be for a consumer to use it? Or a merchant to adopt? And when merchants are getting involved in apps, it s to make the shopping process better, and payments just drop out at the end. That s the thing. Another payment system launching in the coming months is Zapp. It enables realtime payments on people s mobile phones through their existing mobile banking application, allowing secure payments to happen between consumers and merchants. In order to use Zapp, consumers will need a bank account, a smartphone and a mobile banking app. It promises to cut the number of drop-outs significantly and to cover a large proportion of the population. Research the company commissioned from the Centre for Economics and Business Research (Cebr) found that retailers would benefit quicker checkout times from mobile shoppers. Cebr estimated that these reduced checkout times could have boosted internet retail sales by 1 billion last year. sagepay.co.uk 13

14 Sage Pay says Be prepared how to handle innovations within the payments industry Don t be apprehensive many new payment methods are just an adaptation of things that have been around for a little while now and won t be brand new to you. Embrace the new all new payment methods are and will be defined by approved industry standards, so there s no need to fear them. Don t rush to buy NFC, the technology behind both contactless and Apple Pay, can be used in conjunction with most of the latest card payment terminals in the market, so won t require new and expensive technology. Check with your payments provider on whether your technology needs updating or not. Listen to feedback. If you ve been getting lots of requests for a certain payment type that you don t offer, then act. Be aware one major difference between today s contactless debit cards and the future is the value of transactions that can be processed. Currently capped at around 20, this is set to increase. This change will demand new technology as suppliers bring in additional ways to verify whether a transaction is legitimate; for example, with biometrics. Be ready make sure you look to your provider to give you guidance on when and how they will support you in providing these new payments methods. 14 sagepay.co.uk

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16 Case Study Dermacia Modern-day pharmacy with mobile at its heart Dermacia is a family run health and beauty business with a shop in north London and a website run on the Magento ecommerce Platform. It was set up by husband and wife team Angelo and Elena Alexandrou, and they ve used mobile technology to provide an omnichannel shopping experience for their customers, and build a slick multichannel stock management system. Angelo Alexandrou co-owner and IT Manager, Dermacia How did you set up your business? We took over an old pharmacy in Islington in early It was in a great location, but the existing technology was extremely out of date and unsecure. It relied on old tills that were costly and inefficient to run. Products often went mysteriously missing from the stocklists, and the tills themselves actually ceased to work after a while. Why did you choose to adopt a portable point of sale solution? In addition to (POS) finding something that looked better and was easier for customers to use, I also wanted to make sure we found an omnichannel solution that integrated with our stock system and website, so I ended up contacting my web developers to get their perspective on what was possible. While that was obviously not ideal, it was something of a blessing in disguise as I m a bit of a techie, so it gave me the opportunity to find a slicker, more technically advanced solution for taking our payments. They suggested the portable POS solution by ebizmarts and Sage Pay that we now have, which uses an ipad and wireless card machine to take in-store payments and is fully integrated with our back-office through Magento. That means all updates to products, prices, promotions, customers and stock can be handled remotely through the ipads. 16 sagepay.co.uk

17 What benefits have you seen since introducing it? It s a very cost-effective and flexible solution. We can use multiple ipads on one till system, and we don t have to pay maintenance contracts or high hardware installation fees. The ipads themselves only take five minutes to set up, and our less technically savvy staff members have found it easy to use. The automation of processes has made everything much more straightforward. Stock checks are now more accurate and allow for better stock management generally. We can check what products we ve sold, the amount we ve made from them, and even find the busiest times for certain types of stock, all in real time. The ease of use has allowed us to be much more self-sufficient as a business. We can make all the changes we require ourselves, without needing to call in a third- party technician or spend lots of time adjusting things on the back end. More importantly, our customers love it. The ipads consume hardly any physical space, they look very slick and they do wonders for our high-tech credentials! They also still allow us to provide a diverse range of payments options to them we accept cash, credit and debit cards, and we re working on introducing contactless at the moment. We can use multiple ipads on one till system, and we don t have to pay maintenance contracts or high hardware installation fees sagepay.co.uk 17

18 Chapter 3 Growing up fast - the emerging payments players As cash bows out of the payments scene there are plenty of alternatives above and beyond cards that are competing for the vacant crown. Players include the internet giants who are keen on leveraging social networks to facilitate payments as well as digital currencies. These alternative ecosystems are far from mature, but they are growing up fast. The internet giants are keen on making their mark in the payments arena. The idea of leveraging social networks to facilitate payments has been explored, with several peer-to-peer systems using social contacts. 18 sagepay.co.uk

19 Google Google launched Google Wallet in 2011 with reportedly limited success. In 2015, however, it is refreshing its efforts. It has agreed a distribution deal with the biggest wireless carriers in the US to get the Google Wallet payments app pre-installed on their phones. At the same time, Google is buying technology from Softcard, the mobile payments app backed by the same carriers. Google recently integrated Google Wallet with Gmail, the most popular service, allowing users to quickly and securely send money to friends and family directly within Gmail even if they don t have a Gmail address. There are also reports that Google will launch new Android Pay APIs this year to encourage developers to create more apps using Google s payments services. 19 % of companies offer payment via social media in up from % in 2014 Facebook The biggest social network Facebook has kept out of the payments space to a greater or lesser degree. The company conducts some forms of money transfer that allow payments within apps. It facilitated $2.1 billion ( 1.3 billion) in transactions across Facebook in 2013, primarily to games publishers. But the game might be about to change with rumours that it is planning a mobile payments system using its Facebook Messenger app. Last year Facebook sought regulatory approval in Ireland for e-money status, with mounting speculation that it will launch a service this year enabling users to hit a Buy button on the social network. This would effectively allow consumers to buy goods from online shops on Facebook, not in apps or in the stores own digital properties. With a reported 24 million Britons logging on to Facebook every day, such a service could be expected to provide a significant new digital channel for e-commerce. Our survey shows that there has been an increase in businesses offering payments via social networks, up to 19% from 14% in Most of the innovation in this sector is in the area of peer-to-peer payments, which are typically smaller payments sent from one person to another. Individuals could use such payments, for example, when they are splitting a bill or wiring money. But there is little evidence that consumers are really aware of the possibilities yet. A full 46% of consumers in our survey said they did not know whether they would consider using social media payments. It is to be expected that this number will fall quickly once the case for using social payments is made more widely, probably when Facebook launches its services to its millions of users. Meanwhile, businesses appear to be thinking ahead 41% of businesses said they would consider offering social payments. It will be interesting to see what impact these payment systems have on subsequent surveys once they are implemented in the UK. sagepay.co.uk 19

20 Bitcoin and cryptocurrencies One payment system that has remained in the news is Bitcoin, the most well-known of the cryptocurrencies. At the moment, few consumers and businesses appear to be interested in Bitcoin, but it is slowly gaining traction. Recently Coinbase, a software company that allows people to buy Bitcoins and enables businesses to accept it as payment, closed a $75 million investment, easily the biggest investment in a Bitcoin company to date. What s more, the funding partners include heavyweights such as the New York Stock Exchange, USAA Bank, and BBVA, a multinational bank with a large presence in Spain and Mexico. But there are still doubts about the viability of the Bitcoin ecosystem. The value of Bitcoins has dropped sharply in the last year and there are over 400 different cryptocurrencies, all used at different places and times. Kieran Hines, analyst with Ovum IT, said: Bitcoin is an incredibly complex and smart piece of coding. It has arguably got much more potential in transferring assets and the like than as a currency. Bitcoin itself, in its current state, is never going to be used as money. Its value is too variable. Let s just say you wouldn t want to be paid in Bitcoin. Supporters think that the value of Bitcoin could lie in its role as a decentralised payment network, carrying much smaller transaction fees than normal currency and some merchants are attracted to Bitcoin s lower fees. This may explain why our survey reports that 3% of businesses said they would be investing in Bitcoins. Consumers were firmly against cryptocurrencies, with Bitcoins being rated as the least popular method of payment. Sage Pay says A year ago Bitcoin was the talk of the town, but while it remains the king of the cryptocurrencies, there is no real indication that it is ever going to be mainstream. For now, it is best left to one side; there are more important payment innovations to focus on. Facebook payments could evolve along a number of lines, including social payments and in-app payment for goods/services. Only the latter is relevant to businesses and even then only if they offer a service that can effectively be sold through Facebook. Google s moves in payments will probably mirror what Apple is trying to do. This will balance the efforts between ios and Android and mean that even more shoppers can use their phones to pay for goods and services without needing to use their physical cards. 20 sagepay.co.uk

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22 Case Study Office Selling shoes the smarter way Founded in 1981, Office is a specialist high-street footwear retailer. Born out of the Kings Road, Office has earned the reputation of being a leader of high-street footwear fashion. Office has over 150 sites globally, including 99 standalone stores, six Offspring stores and 48 concessions in Selfridges, Topshop and House of Fraser. The retailer also offers multiple channels for customers to buy, including its core website (office.co.uk) a mobile site, apps for iphone and ipad, marketplaces such as ebay and Amazon, as well as a number of online concessions. Office manages its online business through the Hybris e-commerce platform, with payment processing provided by Sage Pay. Thanks to an integration developed by Envoy, Sage Pay s Platinum Partner, Office is now using Sage Pay s Cloud Connect solution, which enables them to arm employees with an InStore Tablet (IST) and card machine through which they take payments. 22 sagepay.co.uk

23 Rob Worthington Multichannel Director, Office What was the challenge that you were trying to overcome? Whilst we have a range of stores, big and small, none of them can carry the product range that we have online. With many customers browsing our web and mobile sites before visiting stores, it became essential that we offer them access to everything available online from within the store itself to prevent them leaving empty handed. The solution was the Office In-store Tablet (IST), which launched in October The objective was to let customers buy from our huge range of products not available in-store, with free next day delivery so they could get the items as soon as possible. All sales are placed by our staff, who are credited with the sale, which was an important part of increasing store management buy in, as well as driving up revenue. Whilst setting up the content for the IST was relatively straightforward, the challenge was around payment. We needed to give customers the simplicity and security of a hand-held chip and PIN device, but wanted a solution that was quick to implement and integrated with our existing order processing and payment systems. Sage Pay was already providing the payment gateway for our e-commerce sites, and suggested its Cloud solution through Envoy. Technology is changing the way we shop. Customers are now using digital in all aspects of their lives, and expect a consistent shopping experience across channels Rob Worthington, multichannel director, Office What was the challenge that you were trying to overcome? Whilst we have a range of stores, big and small, none of them can carry the product range that we have online. With many customers browsing our web and mobile sites before visiting stores, it became essential that we offer them access to everything available online from within the store itself to prevent them leaving empty handed. The solution was the Office In-store Tablet (IST), which launched in October The objective was to let customers buy from our huge range of products not available in-store, with free next day delivery so they could get the items as soon as possible. All sales are placed by our staff, who are credited with the sale, which was an important part of increasing store management buy in, as well as driving up revenue. Whilst setting up the content for the IST was relatively straightforward, the challenge was around payment. We needed to give customers the simplicity and security of a hand-held chip and PIN device, but wanted a solution that was quick to implement and integrated with our existing order processing and payment systems. Sage Pay was already providing the payment gateway for our e-commerce sites, and suggested its Cloud solution through Envoy. sagepay.co.uk 23

24 Case Study How does it work? The IST site is a separate website on the Hybris platform that is customised to use the Sage Pay Cloud solution as a payment method rather than the standard online credit card or PayPal process. It shares the same content catalogue as the main Office website and all of our updates to products, prices and stock can be handled remotely. When a member of staff places an order on the IST, the site calls the Cloud payment service and creates a payment token. A member of staff can then find that payment on a specially configured chip and PIN device on which the user can pay with their card. Once the card is authorised, it is transmitted back to the Cloud service. During this time, the website has been constantly polling the Cloud service to check whether the payment has been authorised. Once it has, the order is then completed, and passed through to our fulfilment and dispatch teams. As it is essentially a website with a customised payment method, all orders are pushed into the order workflow as if they were placed on the main website. The user gets order confirmation and despatch s as normal and everything can then be monitored by our customer service team. What are the results? Because we used existing technology, the whole process was set up and launched in a number of weeks, rather than months, and it has already returned on the original investment. Customers are loving the extra choice it gives them in-store, and staff are benefiting from added sales, as well as access to more detailed product information and imagery than they ever had before. The IST is an example of how Office is adapting to the demands of this new generation of connected customers with a truly omnichannel approach designed to make shopping more convenient, more inspirational and more personal, whether online, in-store or through mobile. We are already working on new payment methods for the IST, and also developing a Euro version for use in our International stores. There is also a great deal of interest in mobile payments, which we are also following closely. We re now working to further integrate our channels into one seamless omnichannel experience, giving customers greater choice and convenience about how and when they shop. We needed to give customers the simplicity and security of a hand-held chip and PIN device, but wanted a solution that was quick to implement 24 sagepay.co.uk

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26 Chapter 4 E-commerce, payments innovation and integration While e-commerce is big and getting bigger, there is a huge opportunity for businesses to create seamless omnichannel payment systems that stay with customers as they move across channels. With a quarter of all spending already made online, the companies that integrate their dispersed channels are those that will thrive. The latest figures from the IMRG Capgemini e-retail Sales Index confirm, if there was any doubt, that the UK is in the grip of an e-commerce boom. 104 billion was spent online in Almost 1 in every 4 is now spent online. And with a large proportion of the other 3 influenced by some form of digital interaction, it is obvious that merchants need to adapt and embrace e-commerce. The rise of mobile shopping and online and offline integration drives this trend. The Index revealed that 37% of online sales are made on a mobile device; an estimated 8.9% of total retail sales. The shift towards online retail suggests consumers are increasingly keen to make purchases quickly and efficiently, and have come to expect that functionality even when making off-line purchases. It is clear that secure, faster payment methods could enable shops to pick up substantial extra revenues. Consumers want the best and most convenient experience when it comes to payments, both online and offline. More than one in four (28%) say that they would be more likely to shop somewhere that offers a greater range of, or more innovative, payment methods. Unfortunately, a third of businesses do not believe that offering a greater range of payment methods would encourage customer loyalty and nearly half of businesses said payment innovation was not a priority (45%). 26 sagepay.co.uk

27 104 bn The amount spent online in 2014 (and the first time online payments broke the 100bn barrier) This is leading to customer frustration. Significantly few respondents believe that UK businesses are leading the way with innovations in payment methods (21% for 2014, compared to 16% in 2015). There is also a significant increase in 2015 of those who believe that UK businesses are lagging behind other countries. It is worth noting that those consumers aged between 25 and 34 are more likely to say that they would shop at a business that offers a greater range or innovative payment methods these are retailers future customers. Innovation is a key attraction for consumers. In short, this is not the moment to be treading water, and yet our survey suggests that many businesses are doing just that. This is counter-intuitive: innovative businesses enjoy the rewards of economic recovery. Store-only payment retailers, for example, were more likely than their multi-channel counterparts to report no increase in revenue in the last financial year and be more pessimistic about growth next. All of this is in contrast to findings in the survey that showed businesses understand that knowing the customer is key to success. Having a single view of the customer and all their purchasing trends is crucial here. As much as 59% of busniesses say that it is very important to their business to have a customer-centric attitude and 70% say that technology is improving the customer experience when it comes to payment systems. Almost half of respondents (46%) say that providing a personalised or tailored experience for customers is an important consideration when considering payment systems. The tailoring of the payments process is very or extremely important for 44% of consumers, while location-based payments services are very or extremely important to 33%. It s a picture that suggests an increasingly sophisticated approach to payments will pay off for businesses that embrace it. sagepay.co.uk 27

28 Integration We ve long known that having a range of channels through which customers can buy has huge benefits, with customers demanding the convenience and choice to shop anytime, anywhere and using any device. Consumers now seek out a consistent shopping experience and they want to buy in a way that suits them, online or offline. If retailers can t offer that, the competition is just a click away. However, while providing this choice for consumers has proven to increase sales, profit and loyalty, businesses need to go further. Orders coming in from the web or mobile, over the phone or face-to-face all need to be processed, recorded, distributed and paid for. Having a consolidated view of what is happening is extremely important. Integrating your online and offline channels is a key enabler of this. A substantial 84% of businesses who have integrated their back-office systems expect an increase in revenue, while 79% experienced an increase in the previous year. And as offline payments are being driven by e-commerce trends (click and collect, immediate payment, mobility, etc), businesses can get even more benefits from integration of payments with an integrated electronic point of sale (epos) technology. This level of sophistication is now available to smaller businesses where once only larger companies took advantage of the technology. For example, bringing a mobile epos enabled till into a store front and integrating online channels enables all business data from products, stock, customer details, coupons and offers and refunds to be held in one place. With a Cloud-based epos integration, a tablet-based front-end can communicate with multiple payment terminals which can be used at any place to take payment. There is also a reduced need for manual data entry, reducing errors and saving time. Because the payment system is integrated into a till system, paper-based processes are reduced and manual tracking of things like stock management will get a working capital boost, as well as improvements in revenue and offer cost performance. This sort of innovation will also help reduce queues and make services like personal shopping much easier to offer. A good example of this is if a customer wants to collect loyalty points online to spend in-store, or use click-and-collect functionality to buy online and pick up in their local store. Equally, if orders are coming through simultaneously online and in-store, businesses need a good integrated stock control system to avoid disappointing customers. Processing refunds, consolidated reporting and visibility into shopper trends to improve the customer experience all that data needs to be synchronised and pulled into one back-end system. Since 2014 the number of businesses that say their channels are integrated has grown, indicating that this is the way forward. In 2015, 43% of businesses say their online and offline channels are integrated. A fifth of those who have not integrated their offline and online channels say they are planning to do so in the next six months. 33 % of consumers that say locationbased payments are important 28 sagepay.co.uk

29 Tokenisation One clear path to success is the use of tokenised payments in online payments systems. A quarter of businesses currently use tokenised payments and, of these, over a third (39%) have seen an improvement in their conversion rates (on average up by 78%). By using tokens electronic security keys that let payment systems generate a one-time, random digital code during transactions instead of transmitting card details businesses have also saved money by decreasing their need for PCI requirements. Over a quarter of businesses using tokenised payments have seen savings of between 5,001 and 10,000, with a median saving of 5, Almost 1 in every 4 is spent online Sage Pay says The customer is king. To meet consumers needs: Make it simple and easy to use Payments methods that rely on a siloed approach will not cut it with consumers and retailers who want payments to be a simple seamless conclusion to the purchasing process. Use tokenisation and keep security top of mind. Focus on the customer. And integrate Successful businesses are those that offer a choice to consumers when it comes to payment methods. That is what consumers also tell us. Focus on what the customer wants, know the customer s needs and serve them in the digital and mobile channels where they increasingly live and shop. That means integrating your online and offline services. Consumers expect seamless, consistent experiences in payments and if they don t get them, they go elsewhere. sagepay.co.uk 29

30 Opinion Sanderson Is omnichannel right for my business? Sanderson is a leading multichannel retail software provider with over 250 customers using it s solutions for e-commerce, m-commerce, retail, marketplace and mail order, with integrated back-office operations, offering complete customer and business visibility. The company provides multichannel retailers with the capability to improve sales, stock management, fulfilment and supply chain operations, so they can deliver an outstanding omnichannel shopping experience for their customers. Stephen McGee New Business Sales, Sanderson Multi-ChannelSolutions E-commerce trends Gone are the silo methods of retailing. Everything now has to be integrated, seamless and cohesive. The internet and the development of mobile devices has revolutionised the retail sector, which means that consumers research before they buy and shop at their convenience, anytime, anywhere. Retailers have to respond. Product availability, information access, promotional relevancy, ease of checkout and convenience are now key components of a differentiated retail strategy. Knowing your customer, their shopping habits, their buying patterns, their budget, their product preferences, are paramount to retaining them as a loyal customer to your brand. Retailers need to offer a greater product portfolio through every sales channel; they have to focus on customer retention via a good CRM (Customer Relationship Management) system and they have to offer great customer service levels from initial purchase through to delivery and management of return. Both the traditional retailer and the new breed of e-tailers face similar demands and issues in adopting a multichannel or omnichannel strategies. Multichannel strategy is where a retailer adopts two or more sales channels to engage with consumers, but where they are not focused on driving a consistent message across each sales channel. Multi-channel 30 sagepay.co.uk

31 retailers are more focused on simply selling to their customers across multiple touch points. Omnichannel strategy is where a retailer delivers a consistent brand experience across all sales channels to make the consumer engagement and shopping journey with the retailer completely seamless irrespective of the sales channel and/or device they use. And that includes payment systems. How do these strategies help to grow your business? Multichannel gives you greater penetration to more consumers and it allows you the ability to offer a greater product portfolio. The omnichannel approach demands a seamless integration of systems at both the front end and behind the scenes. The hallmark of a successful omnichannel retail strategy should be that customers are afforded a consistent shopping experience, no matter what the touch point. Here a few questions you need to ask yourself if you want to know if omnichannel is right for your business: Can we leverage our current technology platform to enable a seamless experience for our customers? Can we adopt a clear brand message across all sales channels? Do we want to and can we change the dynamics of our business to adopt a more encompassing customer service approach to our customers? Can we remain agile by adopting these new strategies or do they restrict us? Omnichannel strategy In practical terms, this means customers must be able to engage with the retailer through a variety of channels during a single purchase cycle. This could mean browsing the product on your website, in your shop or in your catalogue. It could also mean allowing customers to ask your team questions about the product and your service in-store, via Twitter or on the phone. An enhanced omnichannel retail strategy also demands integration behind the scenes too. A single view of the customer journey across all channels supports informed decision making for merchandising, stock management, pricing and marketing campaigns. The use of CRM systems to capture and store vital customer data, in a single location, is essential to omnichannel decision making. Omnichannel integration then allows businesses to optimise how the order is fulfilled or delivered, all based on a variety of strategic planning and daily operational variables. Omnichannel can grow your business You increase your customer retention and brand loyalty. It can boost sales with upsells and repeat purchases. It improves the profitability of your products as you do not always have to sell on price alone. It allows you to profile your customers so your promotional activity can become more targeted and personal to your customers. It allows you to provide improved customer service levels for your consumers. sagepay.co.uk 31