2021 has been another year of big innovation and market disruption for payments. A lot of trends have emerged over the last few years but not all of them will impact a business’s payment strategy — or be able to give them a competitive advantage. I recently spoke with Lily Varon, a Senior Analyst at Forrester Research, to help us unravel the exciting opportunities from the false promises; challenge received wisdoms and bust tired myths, and to take a look at what’s coming down the line in 2022 and beyond.
Too much chasing, not enough improving
Are businesses today spending too long thinking about which payment types to offer and chasing the next hottest method, and not enough time optimizing acceptance rates and customer experiences? Lily thinks so.
Businesses need to think about what it is that their customers are doing and meet them there. What devices are they using? Which apps and sites are they spending their time on? When they are using these devices and apps, how is it that they interact on them? This all matters to the type of payment experience a business should be offering.
Yet businesses tend to restrict their thinking to channels—and even then, just to online versus in-store. “What is presented as an omnichannel approach really isn’t,” explains Lily. “Consumers and consumer behavior is far more complex, and businesses should be building out a more 3D understanding of their audiences.”
That’s not to say that payment methods are not important. Our research points to the need to offer payment schemes that customers prefer; and preferences vary wildly. But there will come a point where a business can either choose to add what they’re missing, or improve what they have.
And ‘more’ does not necessarily mean ‘better’. I have worked with a lot of businesses that wanted to talk about offering a brand new payment method, which is totally fine. However, talking with them we found that there were opportunities that were available to them with their existing payment methods. We were able to drive real value for them by optimizing existing payment methods and then seeing whether adding new payment methods was the right way to go from there.
All too often, customers are forced to confront a bad checkout experience — the result of businesses honing in on one aspect of payments at a time, rather than taking a holistic approach.
Lily sums this point up perfectly: “People don’t want better payment experiences. They want better shopping experiences.”
BNPL and digitizing the paper trail
The impact of Covid-19 has accelerated the shift to contactless and digital payments. One of the major beneficiaries of this move has been buy now, pay later (BNPL). Though the underlying concept of retail finance and payment by installments is nothing new, the shift to online has made it far easier for consumers to access credit, and for providers to offer it.
In countries where the push to BNPL began earlier, such as Sweden and Australia, the market is close to being saturated, suggests Lily. Elsewhere, most notably in the US, BNPL is still emerging.
Businesses that have been tracking the growth of BNPL through 2021 may be tempted to jump on board. But Lily advises a cautious approach. “There is still a bit of the Wild West about BNPL. The regulators will inevitably look to get more involved. You’re already seeing the card networks develop their own offerings in this space. And the big retailers won’t be too far behind in working out how to do this themselves. So although consumer expectation is set, the provider landscape will be shaken-up.”
One challenge of BNPL for businesses, and of digital payments more broadly, will be in providing receipts, bills and invoices for transactions that are more complex than buying a product in a shop. “If you’re offering a digital subscription, or you price based on usage and consumption, how do you display that data to your customer?”
Though the practicalities of those questions may be new, the underlying answer is not. Lily advises businesses to stay anchored around customer-centricity and to follow what the data is telling them. “How do you know what to display...and it’s the same for personalizing a checkout page...comes down to having the customer insights.”
To crypto or not crypto?
2021 has also been the year when investors ushered crypto into the mainstream. Should businesses now expect cryptos to become a pillar of the payments world? That is the million-dollar question.
Lily highlighted that questions of scalability and environmental impact are a blocker to progress presently. As are some fundamental issues with the user experience, such as how a payer identifies themselves.
That said, there are existing solutions in the market—be it for processing a payment or to manage tax implications—that will make it easier for businesses to switch on crypto payment options when the right time comes. And crypto’s underlying blockchain technology can provide some of this, such as for customer authentication and managing loyalty programs.
The former of those is particularly exciting for the payments world, suggests Lily. “In the open ecosystem, where no one party has ownership for authentication, identifying customers becomes the new frontier. Get that right, and payments can become truly embedded into the customer experience.”
I would take the prediction a step further. You can imagine a world where your digital avatar stores your payment information, so you have authentication and payments in one place, and you take this with you whenever you go around the Internet.
Back to cryptos, and Lily expects that adoption won’t be uniform, with consumer electronics and jewelry leading the charge. Computer games and metaverse applications could be another cheerleader for crypto payments because your customers are likely to be familiar with web3 We’re already seeing some gaming companies processing up to 30% of payments via a web3 wallet.
After these first movers and early adopters, expect crypto payments to take hold incrementally with more traditional businesses, as more use-cases and evidence emerges through 2022.
Lily notes that traditional retailers may be quicker to move towards NFTs (non-fungible tokens). I agree as we are already seeing brands using NFTs to increase engagement with their audiences, such as shoe companies allowing gamers to wear their creations in-play. As well as the brand loyalty, NFTs also provide retailers with a new stream of perpetual royalty revenues.
Awareness is another indicator that NFTs may be about to take-off. Lily comments that Forrester’s own research earlier this year showed that a surprisingly large number of people know about the metaverse (where NFTs can be most logically applied). Only 29% did not. And a fifth of people said they’d like brands to build more branded experiences in the metaverse. That also opens the door to NFTs.
For all the talk of new trends and the unquestioning complexities that these throw up, businesses should not feel lost. Lily says that some tried and tested principles are just as important: such as being willing to reconfigure underlying business concepts; being anchored to creating emotionally engaging customer experiences; and always delivering on your brand promise, no matter what. “This should be the North Star of future-proofing payments,” she says.
But payments should not simply be built on these principles. Businesses should also look at that in reverse; in other words, how the right payment strategy makes you more adaptable, creative and resilient.
Businesses should apply the same principles to the payment partners they are entrusting to take them forward. But they also need to focus on what is unique about them, and simply selecting a partner that ticks some generic value boxes won’t cut it.
To protect themselves in an increasingly competitive market, businesses need partners that really ‘get them’—their business model, their legacy, their appetite for change and risk. So different businesses are likely to value different things, says Lily. “Some businesses want a partner they can co-create with and will let them push the envelope. Others just want a safe pair of hands.”
Speak to a payment expert today to learn more about the future of payments.