DEEP DIVE
How transforming retail payments can boost reputation, efficiency and ROI potential
DEEP DIVE
How transforming retail payments can boost reputation, efficiency and ROI potential
Retail / Introduction / Deep dive
Retail organizations have always stayed competitive and profitable by innovating to meet changing consumer expectations. And leaders in the retail sector understand that improving payments processes makes them more resilient – it helps them to withstand and adapt to market disruptions, economic fluctuations and evolving consumer preferences.
A snapshot of the retail sector in 2023
It’s been a year of rapidly shifting consumer preferences and business priorities across the retail landscape. While inflation is no longer rising – dropping to 3.2% for the 12 months ending in July 2023 – the cost of goods and services remains high, affecting consumer spending across the retail sector. Rising wages have affected business return on investment (ROI), while staffing shortages have made it difficult to provide high-quality customer experiences.
Although pandemic-era difficulties such as supply chain shortages and shutdowns have largely subsided, there’s a new challenge for retail: building more resilient organizations that can pivot, adapt and respond to unpredictable conditions in order to remain competitive and be positioned for long-term success.
In U.S. Bank’s new survey in collaboration with FT Longitude, retail finance executives share their perspectives on the current state of their payment processes and how they are working to improve resiliency with advanced payment technology.
Facing aggressive competition
Over recent decades, the retail environment invested in advanced payment technology more rapidly than the public or healthcare sectors. But half of all finance leaders we surveyed know their organization can become more resilient by evolving its payment processes. And 67% of retail executives agree or strongly agree that improving payment acceptance processes is a cornerstone of their strategy to become a more resilient organization. The retail market is aggressively competitive, and 46% of executives in the sector say that rising competition is a key reason why they are transforming payments processes.
Their top priorities? Keeping payment acceptance costs low and customer data secure. For customers, the right payments system makes it simpler to pay the way they want, quickly and safely. For retail organizations, a well-implemented payments system creates better holistic engagement with their target audience and, in turn, drives higher transaction volumes so that the business can meet its financial goals more quickly.
“Consumers want a simple payment experience with options that fit their lifestyle and budget,” says Nicole Tackett, head of merchant for Corporate and Commercial Banking at U.S. Bank. “They also need assurances that their personal and financial data is safe. Companies want to be able to receive and reconcile payments quicker while managing their cost to accept payments."
Identifying roadblocks on the path to payments efficiency
Because a cornerstone of retail success depends on delivering a consistently excellent customer experience, retail leaders are typically ahead of the technology curve. To build a strong brand reputation, attract new customers and retain loyal consumers, they've led the way with innovations their audiences want.
From streamlined options that include contactless payments and buy now, pay later programs, the shopping experience is more convenient than ever. But there are challenges.
In our survey
55%
of retail executives say that hard-to-use systems/interfaces are an obstacle to achieving payment efficiency
47%
say that difficulty integrating systems is slowing progress toward payments efficiency
46%
are only partially able to track and reconcile payments
23%
are unable to track and reconcile payments
Safeguarding consumer data
As shoppers demand speedier, more convenient digital payments, the risks to data security multiply. Retailers understand that fallout from data breaches affects every aspect of their business – from lost customer trust and reputational damage to significant revenue loss and compliance violation costs.
Making sure that payment systems use encryption and tokenization will help support data protection. Adding in an authentication service such as EMV 3-D Secure along with fraud management tools gives organizations a powerful weapon against data breaches and cyber attacks.
83%
of retail executives agree that feeling secure about payment processes is critical for consumers and suppliers
42%
plan to invest in fraud management tools and technology in the next year
55%
say that transaction security is most important when choosing payment acceptance solutions
Controlling costs in a volatile economy
What's driving retailers to re-strategize their payment processes? Among the retail executives in our survey, 73% agree or strongly agree that keeping payment acceptance costs low is very important.
Nearly a third (30%) of retailers surveyed are actively cutting costs now to deal with the effects of inflation – changes in consumer shopping habits, labor shortages, higher wages and an overall increase in the cost of doing business – and 27% have already done this.
Payment optimization solutions can help to rein in expenses
One strategy retailers might consider to keep costs low is Commercial Card Optimization (CCO). This kind of program can lower transaction costs by automatically collecting and transmitting additional data points that help qualify transactions for reduced cost interchange rates. As a cost control measure, CCO is a popular choice for leadership buy-in. But it also collects data points that validate transactional authenticity, which reduces risk and cost.
Prioritizing flexibility to stay competitive
With more and more retailers competing for consumer dollars in person and online, the rush to create a better customer experience and grow the customer base is powering the push to offer more payment options that allow quick, easy and secure purchases.
Sixty-nine percent of the retail executives in our survey agree or strongly agree that it's essential to offer customers the option to pay via their preferred method. They acknowledge that shoppers' payment preferences continue to evolve:
- 80% of those surveyed say contactless cards are a favored consumer payment method – a 35% jump from 20221
- Use of digital wallets dropped slightly, to 53% from 57% last year
- Use of buy now, pay later is on the rise, to 56% from 28% last year
1 This question was asked to retail executives in our survey last year. The list of potential payment options was mostly the same, but two further options were included for participants to choose from.
Bring everyone on board to build a better way to pay
Retailers understand the complexities of creating a great customer experience. And they’ve seen how using technology to provide secure, accessible and flexible payment options can attract new customers, encourage larger transaction values and drive revenue. While only 39% of retailers believe they are advanced/very advanced in their payment strategy, many have laid the groundwork for success.
Education is critical. The C-level might be interested in cutting expenses in the near term, which is why it’s essential to show them how investing in efficient payments processes and controlling costs go together.
A better process drives customer and sales growth and keeps organizations competitive in unpredictable markets. By making strategic, scalable investments now, retailers can create resilience that empowers future success.
Find out how your sector can use payments to increase resilience
Find out how your sector can use payments to increase resilience
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