Mobile Payments - Understand Customer Experience

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1 OMNICOMMERCE: Taking payments to the next level

2 OMNICOMMERCE: Taking payments to the next level Crossing Channels Young adults aged are more likely than average to own a smartphone or tablet (82% of young adults vs. 61% of all consumers). And they are more likely to use those devices to cross traditional channel boundaries when shopping. For example, they are more likely to: Receive coupons on their phones while in a store (21% vs. 15% overall). Use showrooming techniques to look in stores, compare via mobile devices, and purchase either online (31% vs. 20% average) or in another store (29% vs. 17% average). Have shopped online and picked the product up in a store (30% vs. 25% average). To deliver a good customer experience, merchants will need an integrated approach to working across a growing array of channels. The importance of delivering a good customer experience has become increasingly clear in recent years. Experience is a key driver of increased customer loyalty and profitability and stock market performance. From 2007 to 2012, recognized customer experience leaders generated a total return that was three times higher than the S&P 500 Index, according to a recent study by Watermark Consulting. The ability to deliver the right customer experience is important to a wide range of companies but it is especially critical to merchants, which operate in a world where customers have tremendous levels of choice and control. The advent of mobile technology and mobile payments is introducing new opportunities and challenges for merchants trying to manage the customer experience. The digital revolution has been changing the face of retailing for a long time, but mobile technology is accelerating that change dramatically. As significant as they are, however, mobile devices are just part of a larger picture. Today, mobile technology is expanding the number of channels used to interact with customers, and it is breaking down the traditional barriers between those channels. Delivering the right customer experience is not a matter of adopting this mobile app or that point-of-sale system it s a matter of doing all of it, and doing it well across channels, says Donald Boeding, president of Merchant Services at Vantiv. Merchants need to reach customers in the way they want, where and when they want and at the same time provide them with a consistent experience across the board. Consumers certainly recognize this. In a recent study conducted by Accenture, about half the surveyed consumers said that the best thing retailers can do to improve the shopping experience is to better integrate in-store, online, and mobile shopping channels. Nine out of 10 said that it is important for retailers to let them shop for products in the way that is most convenient for them, regardless of the sales channel they use. Part of the Vantiv Insight Series 2013, featuring proprietary research performed by Vantiv Inc., and Mercator Advisory Group 2013 by Vantiv LLC. All rights reserved.

3 3 Getting it right can be tremendously valuable. According to a report from Shop.org, the online retail industry organization, one major pharmacy chain has found that its customers who shop both in the store and online spend more than three times as much as the average in-store-only customer. And customers who shop in the store, through mobile apps, and via online channels spend six times as much. To create the right customer experience, merchants need to understand these trends and think holistically across channels. That is, they need to employ an omnicommerce approach that takes advantage of each individual channel while providing an appropriate customer experience across all channels seamlessly and with as little friction as possible, so the consumer experiences your brand in a positive way, says Boeding. Consumer Shopping: New Technologies, New Behaviors The 2013 Vantiv/Mercator Insight Series study sheds light on what consumers are thinking and doing in this evolving world as well as on what merchants can do to succeed. The research found that while mobile payments have garnered a great deal of attention in the industry, actual usage is still low and mobile payments are not likely to be widespread for some time. Nevertheless, mobile technologies are already having a profound impact on merchants. The Vantiv research shows that the mobile revolution is combining with the broader digital revolution to drive and accelerate change in the way consumers shop, both online and in the store. The study found that for the first time, online research before purchasing products worth more than $50 (cited by 55% of respondents) has become more common than in-store shopping and purchasing with or without online research (46%). Fifteen percent of consumers said that they have at some point purchased a product in a store using a coupon they had just received on their phone a relatively new practice that is taking root rapidly. And increasingly, the lines between the physical and virtual retailing worlds are blurring, with shopping and payment happening via a mix of on-ground and online channels. That blurring of the lines is perhaps most evident in showrooming the practice of finding a product in a store and then using a mobile phone to look online for the cheapest price and buying it online or in another store. Twenty-eight percent of consumers said that they have used this technique when shopping for higher-priced items. In a separate Roper/Vantiv study conducted during the past holiday season, 35% said they have used this technique at least once to purchase online and 38% said they used this technique while looking in one store and then ended up purchasing in another store. As these activities show, the mobile channel is not replacing traditional channels it is being added to them. HOW CONSUMERS SHOP Researched and purchased online 55% 57% Researched online before entering store, purchased it there 46% 61% Saw product and purchased in that store without online research 46% 50% Researched and purchased online; picked up in store 25% 50% Saw product, checked prices on phone, purchased online 20% 35% Saw product, checked prices on phone, bought in another store 17% 38% 0% 20% 40% 60% 80% Usually shop Have shopped CROSSING BOUNDARIES Many consumers use in-store, mobile, and online interactions as they shop, which means that merchants need to create a seamless experience across all channels.

4 4 ACTUAL USAGE OF MOBILE PAYMENTS Tap/wave mobile phone at checkout to pay 1% 2% Swipe credit/debit card through reader on clerk s tablet % 19% Pay for services such as landscape/plumbing by swiping card on contractor s phone 5% 6% Pay at POS using app on smartphone 2% 2% Pay at online retailer using mobile web or app on smartphone 4% 7% HANDS-ON EXPERIENCE LAGS Consumers are increasingly aware of mobile payments and more interested in using them, but relatively few have had any actual experience using them due to low merchant acceptance. The net result: a growing range of shopping, purchase, and payment channels that merchants have to understand and use. For example, m-commerce the use of mobile devices to make online purchases is now quite common. Mercator estimates that as much as $23 billion worth of payments a year are made via m-commerce. E-commerce allows you to make a purchase without leaving your home, says Dean Seifert, senior vice president of Product Strategy at Vantiv. M-commerce allows you to make a purchase without going home. You see people making purchases while watching their kids soccer practice or waiting in line at the post office. Thus, the combination of these two channels is driving new consumer behaviors. Such cross-channel activity even encompasses traditional low-tech processes. It s not at all uncommon for consumers to cut coupons or go online and print out a QR coupon, and then take that with them to the brick-andmortar store to make a purchase, says Seifert. Merchants have to support all these channels to reach consumers with different preferences and different levels of sophistication. With all these channels, Seifert continues, merchants are beginning to be in constant contact with customers. That makes the delivery of the right customer experience through an array of channels a critical necessity. And while each channel has its own nuances, the overall experience should be consistent to avoid creating effort and frustration for the customer. Consistency weighs heavily on the consumer experience, notes a 2013 report from Accenture, which found that 73% of consumers expect a retailer s online pricing to be the same as its in-store pricing and 61% expect a retailer s online promotions to be the same as its in-store promotions. When customer expectations are not met, the consequences can be serious. According to a recent study by the Temkin Group, more than 60% of consumers who had a bad experience with a fast food chain, credit card issuer, rental car agency, or hotel reduced the amount they spent with that company and many of them stopped doing business with it altogether. Understanding Consumer Expectations Delivering the omnicommerce customer experience will require new methods and new uses of technology, as well as an integrated perspective of the various components of the customer experience. Merchants will need to weave a variety of traditional and emerging payment options into those channels in-store, online, person-to-person, cloud-based mobile, card-reader attachments, and so on. And they will all need to work together seamlessly and transparently.

5 5 What s more, omnicommerce will require merchants to look beyond payments to provide a variety of tools and functions, such as coupons, budgeting applications, and loyalty programs and again, do it all seamlessly across channels. In the Vantiv research, consumers made it clear that they value these additional features and see them as important to the overall value proposition for emerging payment platforms. Merchants will need to understand consumer attitudes and expectations on a number of payment-related fronts and apply that understanding to create the omnicommerce customer experience. The Vantiv research explored several of these key areas: Mobile payments. In spite of today s relatively low usage, consumers expect mobile payments to be part of their lives in the near future. Two-thirds expect mobile payments to be common in five years, and 39% see themselves using such payment methods in that time frame with both figures representing an increase over last year s study. A fair number 19% have already used retailers in-store tablets to make payments. Looking ahead, 27% said they are interested in using tablets to pay at restaurants, and many expect to use mobile payments for everything from small in-store purchases to household services. Mobile wallets. In a world of constant contact, the wallet is the point through which the merchant is connected to the consumer, says Elizabeth Rector, senior vice president and general manager of Mobile and ecommerce at Vantiv. However, many consumers are overwhelmed and confused by the array of wallet options in the marketplace. The industry needs to make the value of mobile wallets clear to consumers and provide them with the capabilities they want, such as the ability to handle a variety of payment options at a broad range of retailers. Consumers are also looking for other wallet features such as coupons, promotions, loyalty programs, and budgeting tools that complement payment capabilities. Consumers feel that if they can carry and track electronic coupons in a wallet, that s a real value-add to them, says Rector. When you think of a physical wallet, a lot of the space is taken up by disparate pieces of paper that are unrelated to payments. Consumers like the idea of making all that more convenient and usable. Security. Consumers expect security in all channels, including mobile and online because it is a source of deep worry for them. The Vantiv research found that consumers today feel slightly less secure with most payment methods, compared to last year. In general, they consider emerging payment forms to be less secure than traditional methods. Many consumers have experienced some type of payment fraud, and 46% of those said that MOTIVATION FOR CHANGING PAYMENT METHODS Discount on a purchase for using another payment type Earning added rewards for another payment type Merchant charges a fee for current payment type If my card had a breach/unauthorized charges 24% 44% 42% 42% OPEN TO CHANGE The lure of discounts and rewards would be enough to get many consumers to switch payment methods more than would leave because of a data breach.

6 6 Oversight: More to Come they now think about security with every transaction. In the age of omnicommerce, says Rector, people need to know that if they put their credentials in that mobile wallet, they re not going to be compromised. And if they lose their phone, that doesn t mean that all of their card data is compromised. Security is a complex topic that is often misunderstood by consumers. The industry can help them better understand the realities of security such as the fact that encryption, tokenization, Like merchants, financial institutions are now interacting with customers through a growing range of channels. And as consumers become more familiar with the retail omnicommerce customer experience, says Ed O Brien, director, Banking Channels, at Mercator Advisory Group, many will soon expect more from their banking providers in the form of instantaneous and coordinated information and higher levels of customer service. To deliver, financial institutions will need to take an omnichannel approach that mirrors merchants omnicommerce models. Whether it s the branch, the ATM, the Web, the call center, or the mobile banking platform, they ll need to give customers a consistent experience and the same levels of services and capabilities across channels, says Royal Cole, president of Financial Institution Services at Vantiv. Many banks are working to do just that by having all their systems tied in across channels in real time. This interoperability of systems can help the institution increase its knowledge of customer-interaction preferences and enable it to engage the customer on the customer s terms, Cole says. All of this contributes to a superior overall customer experience. So for financial institutions today, moving beyond a view of channels as silos of information is key, says O Brien. multifactor authentication, and device fingerprinting have the potential to make mobile devices more secure than traditional cards, or that cloud-based mobile payments mean that they won t have to keep sensitive payment information on the phone. The industry will also need to align policies with their customers attitudes, because 69% percent of consumers expect that the zero liability that comes with their credit cards will be offered in mobile channels as well. Rewards. Consumers have long liked and expected discounts, promotions, and other rewards, and they are carrying that attitude into the omnicommerce world. From the merchant s perspective, rewards can be effective in modifying consumer purchasing behavior. About 4 out of 10 respondents in the Vantiv research said they would switch from their current preferred payment type to another type if it meant getting a discount. But the research puts a caveat on these rewards. While consumers appreciate them, they also have reservations about the collection and usage of the consumer data that is used to drive rewards programs. When looking at mobile payments, for example, 76% said that they worry about getting too many inappropriate or irrelevant offers or messages via or text, while 53% worry about not receiving coupons that they have signed up for. All of this underscores the need to use customer data and geoloca- What s more, as merchants pursue omnicommerce and mobile payments, financial institutions are in a good position to play a key role in that trend. When Vantiv researchers asked consumers what type of mobile wallet provider they would prefer, 50% said banks and credit unions, putting these financial institutions at the top of the list well ahead of organizations such as Google and Apple, as well as retailers and card networks. The trust and relationships that financial institutions have with customers can set them apart in the evolving payments space, says Cole. That s something they can really leverage as they extend themselves into more mobile capabilities.

7 7 tion capabilities to target relevant offers to customers and to do so accurately and consistently across channels, in support of the right customer experience. Developing the Omnicommerce Strategy Merchants need to formulate strategies for omnicommerce and delivering the right customer experience in all channels. There are short-term actions that they can consider. For example, as consumers bring more mobile devices into stores, merchants can essentially do the same. In-store point-of-sale tablets can enable salespeople to perform payment transactions out on the floor and cut down on checkout lines. Just as important, they can let salespeople work more effectively to engage customers, find products, check inventory, compare product features, and so forth and then quickly conclude the sale by taking a payment. The result: increased efficiency and a richer, better customer experience. That kind of approach could help counter the tendency toward showrooming. The concept is to have store associates armed with mobile devices to keep customers from having to look at their own devices and shop around. This can help keep their purchase in the store, says Seifert. The tabletequipped employee can help a customer locate items quickly, provide recommendations tailored to the customer, and, if a desired item is not in the store, quickly find it at the merchant s site online. The associate can capture the sale and perhaps waive shipping costs or do something similar in order to keep that purchase within the organization, says Seifert. You can even swipe the card in-store to cut out a little bit of the e-commerce cost for the retailer. On a more strategic level, the fact that merchants are in constant contact with consumers opens up new avenues for interaction. You can be in touch through the whole shopping lifecycle, before, during, and after the sale, says Seifert. Before, that opportunity came primarily when a customer came into the store and started looking at products. But with omnicommerce, you can communicate when they re doing research online, when they re in the store using their mobile device, when they make the purchase, and when they post something on Twitter or Facebook about what they ve bought. It creates extraordinary opportunities for interactions to take place across a broad range of time and locations. The merchant s brand can become more interwoven into the lifestyle of the consumer. At the same time, omnicommerce will mean that merchants have more information about consumer behavior a fuller view of the customer that can be used to target marketing efforts, provide tailored interactions, and ultimately, drive a good customer experience while encouraging more sales. If I buy a flat-screen TV with a Blu-ray player, Executive Views: Channel Challenges We are seeing more people coming into our stores after using our website, qualifying their purchases. We re seeing more crossover between our website and retail shops. Apparel retailer Consumers are buying mobile devices and using smartphones in more ways. There are applications that enable them to scan the SKU code on the merchandise and search the Web for the best price. Discount retailer We would also like fixed-place kiosks with tablets to connect to our e-commerce website so that if customers are in our store but can t find the color or size in stock, they won t have to leave without buying it. Footwear retailer We are replacing our POS system with new hardware and software with far more digital and mobile capabilities. Once we have the new system, we will have more mobile apps and can evaluate digital couponing, etc. Apparel retailer

8 8 the merchant can send me a mobile advertisement for a Blu-ray disk set, so that as I m setting up the TV, I m motivated to go back and buy that set, says Boeding. The merchant can deliver messages that are relevant to that customer based on the purchases that they ve made, and keep evolving the experience for that customer. Merchants will need to create strategies for gathering and mining this data, determining how they will strike a balance between understanding their customers and being too intrusive in data collection and usage. They will also need to think about how they will maintain control of purchase data and avoid being disintermediated by nonbank wallet providers such as Google and Apple interested in using POS data for their own marketing efforts. A key challenge with the fast-moving world of omnicommerce is remaining innovative, rather than waiting for competitors to do something and then following suit, says Ken Paterson, vice president, Research Operations, at Mercator Advisory Group. There is a real opportunity for retailers to establish new, competitive differentiators with mobile and other technologies. Indeed, the industry is already seeing numerous examples of mobile-based innovations. These include letting consumers enter their shopping lists on their phones and then guiding them to the appropriate aisles in the store to find their items quickly and efficiently; enabling customers to renew prescriptions by scanning bottle labels at home; and letting customers scan and bag items while shopping. In this and many other scenarios, the scanned or geolocated items can be automatically added to virtual shopping bags, with payment made seamlessly as the shopper exits. To keep pace with such innovations, merchants can take incremental steps testing mobile applications, piloting new approaches, and finding out what customers expect in terms of experience. At the same time, they will need to keep integration and the big omnicommerce picture in mind and look for partners that can help them navigate the landscape. No one in the marketplace is going to have a solution for all of this it s too multifaceted, the market is moving too quickly, the pace of innovation is too fast, says Boeding. It s going to require collaboration that brings together many different solutions to create the right customer experience. The technology will continue to evolve, and merchants and their partner ecosystems will need to track that evolution closely. But in the long run, says Boeding, the key will be to keep the focus on evolving customer needs and preferences and on engaging the customer through consistently good experiences. About Vantiv Vantiv is one of the leading integrated payment processors in the United States. Known as Fifth Third Processing Solutions since 1971, the company, headquartered in Cincinnati, Ohio, changed its name to Vantiv in 2011, and became a public company in Vantiv s credit, debit, prepaid, and mobile solutions help businesses and financial institutions of all sizes get the most out of payment activities. Vantiv Corporate Headquarters 8500 Governors Hill Drive, Cincinnati, OH For more on the Vantiv Insight Series: TL0002 6/13