Knowledge bites: trends shaping merchant payment ecosystem in 2021

The MPE 2021 conference is the place where merchants, acquirers, and payment providers connect to discuss a variety of themes that are highly relevant for the payments and commerce industry considering these unforeseen circumstances.

Some of the topics that will be discussed are: the ‘digital’ acquirer's business models and operations; the merchant payments regulation in 2021; mapping the world of retail payments; optimising merchant payments for omnichannel commerce.

What are the trends that will define the future of merchant payments in 2021?

Alfredo Soria, Corporate Partnerships Manager at Fintech Europe Plug and Play Tech Center: One trend that will impact merchant payments in 2021 is the rising data-awareness required in every business activity. More specifically, data linked to merchants’ activity needs to be transformed into useful and actionable analytics. Some solutions in the field are offered by GoodData and Hanzo.

A second trend to emphasise is the expansion of the portfolio of available payment solutions, driving users away from plastic cards and other traditional means of payments. Among all the innovative ideas available, one that will probably be very impactful is digital wallets. In the US, 24% of the amount spent on ecommerce platforms was represented by digital wallets, while the same method was only used for 6% of spend at the POS.

A third trend is the collaboration with external players. Large corporations are focused on building an end-to-end great customer experience. Startups, however, focus on a very specific stage of the customer experience – thus, they become good at solving particular pain points. Corporations have found that collaboration with these emerging companies is key to stay relevant: it’s faster, cheaper, and more efficient than trying to cover everything internally.

Jeremy King, Regional Head for Europe, PCI Security Standards: Considering the changing nature of how consumers use payments, the PCI SSC will continue to prioritise mobile payments and software security.  As part of this, PCI SSC is continuing to focus on mobile payment security standards to expand the range of payment acceptance opportunities available to merchants. Therefore, in 2021 the PCI SCC will be prioritising DSS publishing version 4.0 of the PCI Data Security Standard (PCI DSS). The update of our Data Security Standard (DSS) will be our biggest news in the payments industry in 2021-22.

How did the pandemic change consumers’ payment behaviours?

Alan Moss, VP of Marketing, Miura Systems: The pandemic drove a massive growth in online shopping. Therefore, even the online world saw a major degree of re-balancing, with categories like home improvement and gaming showing huge increases, whilst the international travel and tourism sector fell through the floor. In general, there was an accelerated move towards a real omnichannel consumer journey, with strong growth in click-and-collect or curb-side and kiosk payments. Contactless card payments were a strong beneficiary, as well as mobile wallets, or other ways of making touch-free payment, like QR-code driven apps.

Oscar Berglund, CEO, Trustly: We have certainly seen the pandemic affect consumer behaviour. In 2020, 18% of shoppers have made their first purchase online. Besides, some reports show that up to 38% of consumers have tried a new payment method during the pandemic. Moreover, consumers are increasingly paying off debt, due to the uncertainty of their financial situation. Therefore, gaining more control of their spending is a bigger priority than consumption.

Overall, debit options are becoming an increasingly attractive way to pay. Trustly surveyed 10,000 Europe-based consumers in late 2020 and most of the respondents said they prefer to pay for online purchases by debit. This is mainly because they find it more convenient since they don’t have to think about paying invoices or credit card bills later. Another key reason is that consumers want to be in control of their spending.

AS: The pandemic has heavily impacted payment habits in physical stores. For example, COVID-19 fostered the need to deploy checkout-free technologies at the point-of-sale. These types of solutions allow customers to limit contact as much as possible during the payment phase and enjoy a frictionless shopping experience. Grabango is a useful example to mention in this context. It offers checkout-free technology for large-scale grocery and convenience store chains. Customers can simply walk out after scanning the code with the Grabango app.

Regulation and compliance have driven modernisation of payments before the pandemic.  Do you believe that the next wave of merchant payments innovation will be driven by the changing needs of merchants and consumers?

AM: It would certainly be nice to see payment innovation being driven by changing needs of merchants and consumers. I think largely, though, it will be innovation allowing merchants to respond to an increasing expectation of being able to pay with whatever method best suits the consumers’ personal preference or location at any specific moment. At the end of the day, people choose payment methods that offer them convenience and provide trust. The challenge for merchants is how to provide acceptance for all the new ways to pay in a secure and economic manner, without adding friction to the customer experience.

To thrive and grow in 2021, payment service providers need a digital strategy that’s ready for anything, including regulation, compliance, fraud and security. What should they do to stay relevant in ‘the new normal’?

OB: As payment trends shift rapidly, businesses need to make sure that superior customer experience extends all the way through the payment and refund process. This is especially critical for young consumers who have specific needs which differ quite a lot from earlier-generation shoppers. As digital natives, they have less trust in online stores that they perceive as insecure, and they have less tolerance for friction. For this reason, they are more likely to drop out and abandon purchases. They prefer debit to a large extent and prioritise biometrics as their identification method. When it comes to returns, these shoppers will most often wait until they have received a refund before making a new purchase, illustrating the need for instant pay-outs of refunds.

In terms of regulation, staying compliant is a big challenge, especially for multinationals and merchants in Europe, who are required to accept payments across the entire EU. This is where Online Banking payments potentially offer a big win for merchants. By working with a partner who can enrich payments with data such as the name of the payer and drive quicker reactivation of the customer by means of instant refunds, the merchant gets a lot more value beyond payment initiation.

New payment solutions like ‘Buy Now, Pay Later’ (BNPL) are growing in popularity during the pandemic as they enable consumers to pay for purchases over a short period. What are the expectations of merchants regarding value-added services that help them better serve their customers?

AM: Merchants are looking to offer their customers choice and flexibility. With a tougher economic environment, consumers will be more interested in the ability to delay or split payment, without incurring extortionate interest rates on credit card balances. This especially applies to the younger generation of consumers who are particularly averse to traditional revolving credit cards.

By the same measure, many SMEs and smaller merchants will be interested in benefiting from business loans or cash advances that can be directly secured and repaid through the card transactions they process. Additionally, merchants will need tools that help them be more creative in attracting customers online or in-store, and connect better with them. This means more loyalty, surveys, e-receipts, and other ways of driving increased sales and keeping customers coming back for more.

OB: Consumers have made a big leap in 2020. For instance, due to necessity, the older generation has started to shop online. Therefore, merchants will expect more from their payment providers to bridge the gap between consumers' expectations and their priorities. For example, offering the right local payment methods is very important for merchants that want to expand their business across Europe, as in certain countries, consumer payment preferences are very strong.

Besides, due to the increased volume in online orders, merchants need to find a way to improve operational efficiency regarding payment reconciliation, chargebacks, and returns/refunds. All of this must be a natural value-added service provided to merchants in 2021.

AS: Merchants can now exploit a wide range of payment-related value-added services that can be offered to consumers at the point-of-sale. Some key areas for which these services are provided are lending, loyalty, and insurance.

Therefore, the BNPL lending solutions can significantly increase revenues for merchants by reducing the number of incomplete transactions, increasing conversion rates, boosting average order values, and facilitating repeat purchases from consumers. In this space, leaders such as Klarna and Affirm, with USD 1.9 billion and USD 1.8 billion in funding respectively, have witnessed the entrance of new players, such as Paidy and Bread, in the global space.

In terms of loyalty programmes, modern technologies allow merchants to deliver tailored offers for their customers. These offers are based on a deep data-driven approach, which supports businesses by anticipating the types of products, services, and experiences that will keep customers coming back to make additional purchases. Some startups in the field are SpotOn and FiveStars.

Lastly, insurance for purchased products is another value-added proposition that can be easily integrated at the checkout. One of the key solutions in this area is Bsurance, which has built a system of cloud-based insurance products to be offered to customers directly at the point-of-sale.

In the current context, retailers and merchant service providers need to work together to adjust their business models and implement solutions to deliver a streamlined shopping experience, taking into account the ever-changing needs and behaviours of their customers. To find out more about the best practices regarding these topics we invite you to register now for MPE 2021, the virtual event taking place between 22-25 February 2021.

About Merchant Payments Ecosystem

The Merchant Payments Ecosystem is the biggest payment acceptance event in Europe, connecting the whole payment value chain: merchants, bank acquirers, PSPs, card schemes, regulators, fintechs, start-ups, blockchains and everyone in between.