Wed Feb 28 2018
Payment innovations are increasingly impacting both the in-store and online shopping experience. Whether it be contactless payments, new mobile wallets, or even invisible payments, shoppers increasingly expect a range of quick, convenient options at the checkout.
And in 2018 merchants will also have to comply with several new pieces of legislation, namely PSD2 and GDPR, meaning there’s a lot to think about in the next 12 months.
At Barclaycard, we’re planning a lot of exciting trials and product updates this year in both the consumer and B2B industries as we seek to improve the payment experience for merchants, shoppers, and corporate clients.
So to see what’s on the horizon, we spoke to several Barclaycard colleagues to get their expert view on the key payment trends for 2018. Here’s what they had to say…
“The key trend for 2018 will be the continued convergence of retail channels, which in turn means that payments are increasingly embedded within the customer experience.
“What I mean by this is that retail channels no longer exist in splendid isolation – customers rightly expect digital and offline channels to work in sync. For example, we are seeing ecommerce increasingly powering in-store transactions through services such as mobile order and pay or digital kiosks within stores. Domino's has really nailed this – it is now considered to be an ecommerce business because the majority of its pizzas are ordered and paid for via its mobile app 1.
“As a result, customers increasingly expect payments to be built into the customer experience, with the act of paying decoupled from the act of buying. The key is for payments to be fast and frictionless – people don’t expect to queue up to pay anymore, they want to be able to pay before or even after collecting their product. Obvious examples of this include Click and Collect, which over 50% of us have used 2, as well as the emergence of “Buy Now, Pay Later” online payment options such as MasterCard instalments.
“Barclaycard is innovating in this space and will be running a really cool retail trial in 2018 with our grab+go service, which uses mobile technology to make payments truly invisible by eliminating the need to queue up and pay for items in-store. I expect to see a number of other developments in this area during 2018.
“Retailers also need to make sure they are aware of the new regulations taking effect in 2018, notably PSD2 and GDPR. These aim to increase data security and enhance consumer rights, potentially adding new layers of friction to the payment process and bringing in big penalties for businesses that fail to meet the new criteria.
“For example, payments currently power a lot of loyalty schemes, as retailers offer rewards and points by tracking where, how much and how often their customers spend. PSD2 and GDPR will impact how these schemes operate.
“Retailers will have to balance their goal of offering a personalised service to customers with the need to adhere to new data protection laws.”
“There are a couple of issues that will continue to be very disruptive for businesses operating cross-channel in 2018.
“The key challenge is the ongoing evolution of consumer technology, which brings with it new sales channels that brands need to think about. Shoppers already want to interact with retailers online, in-store, via apps or social media, and new tech like AR and smart assistants (e.g. Amazon’s Alexa) continue to emerge.
“Retailers need to spend time investigating new technologies while at the same time optimising their existing sales channels. And if a new channel is deemed important enough to add to your sales mix, how do you ensure that everything integrates properly? This isn’t a new problem, but in 2018 retailers will face increasing pressure to invest in the right backend systems to power their omnichannel strategy.
“Internationalisation is also a big priority for many omnichannel retailers. More of day-to-day commerce is international, whether that be from ecommerce or footfall from tourists visiting the UK. Retailers are faced with the problem of how to cater to international customers and tailor the shopping experience for them, which leads to more focus on payment methods.
“International shoppers aren’t necessarily comfortable paying by credit or debit card. In some European countries bank transfers are the most common form of payment, while in China mobile wallets such as AliPay and WeChat are very popular. If shoppers are unable to use their preferred payment method it could lead to basket abandonment and reduced conversion rates, which is obviously bad news for retailers.
"As such, in 2018 we’ll likely see omnichannel retailers putting a greater focus on the customer experience for international shoppers.”
“The big thing on my mind at the moment is PSD2 and the introduction of two-factor authentication. While we don’t expect this to come into force until 2019, merchants need to be aware of developments and consider how it will impact their checkout process.
“In a nutshell, two-factor authentication requires customers to have two valid forms of ID to make a payment. These have to be something you know (e.g. a PIN number), something you have (e.g. a credit card), and something unique to you (e.g. a fingerprint).
"There are a number of exemptions to these new rules, mainly for low-value purchases, but in future merchants are going to have to challenge customers for more information on a more regular basis than they do today. This is a move away from the frictionless experience the payments industry has been trying to create and could lead to an increased likelihood of abandoned purchases.
“An added complication is that each card issuer is looking at it independently, so the likelihood is that there will be a number of different solutions and less uniformity in the shopping experience. Again, this could have a negative impact on the rate of basket abandonment.
“It’s important that merchants work closely with their acquirers and payment gateway providers this year to consider how best to adhere to the new regulations while being careful not to introduce too much friction to the customer experience.
“One worrying payment trend that’s likely to continue in 2018 is the increase in card-not-present (CNP) fraud, where someone’s card details have been fraudulently obtained and then used to make a purchase online or by phone or mail order. In 2016 £432.3 million was lost due to CNP fraud on UK-issued cards, almost double the total in 2011 (£220.9 million).
“This is an issue affecting the entire payments industry and a lot of work is going into developing ways to combat the problem, including the use of machine learning algorithms to identify fraudulent transactions. PSD2 will also help to prevent CNP fraud but it’s unlikely to be a silver bullet for all.
“The last point I’d make is around awareness. We’ve been doing a lot of work to raise awareness among our clients on the risks of security and fraud, providing advice and tips on things they can do to better protect themselves. Smaller businesses shouldn’t assume that they are too small to be impacted."
“We saw a lot of really exciting innovations in the payments industry in 2017 and I expect a similarly fast pace of change in 2018.
“Invisible payments will continue to be a really important trend due to the positive impact on the customer experience. This is where the payments process is folded into a product or service – well-known examples are Amazon’s one-click payments or an Uber ride where the payment is handled automatically within the app.
“In 2018 we’re planning an external trial of Barclaycard’s grab+go technology following a successful internal trial in 2017. It’s an invisible payments service that allows customers to simply take what they want from a shop and leave, with an app automatically handling the payment. It’s a really exciting project and could have a big impact on the way people shop for everyday items.
“Another key trend for 2018 is around the proliferation of data and the tech challenges that this creates. The IDC predicted that the amount of data available globally will increase 10-fold between 2014 and 2020, which brings with it both new opportunities and challenges. Businesses need new tools to make sense of all that data and maintain a competitive advantage, so a big focus in 2018 will be on machine learning.
“Most of the major software vendors now offer machine learning capabilities within their cloud computing products, making it easier for businesses to get started with this tech. From our own perspective, Barclaycard ran six successful trials in 2017 that applied machine learning to a range of use cases, including things like fraud and credit analytics. It’s a really exciting space and one that’s very important as these tools are relevant to all businesses.
“One final trend for 2018 is the continued emergence of new business models. Barclaycard already works with a number of fintechs at our Rise London accelerator hub in Shoreditch, with one notable example being a digital receipts pilot with Flux.
“We’ve seen an interesting change in the narrative around fintechs recently. There’s recognition that start-ups want to work with established players, creating benefits on both sides. Start-ups are nimble and can offer new ideas, while businesses like Barclaycard have much greater scale, brand recognition and experience of operating in highly regulated markets.”
“Virtual payments are seeing double-digit growth each year and we expect this trend to continue in 2018. In the business travel and B2B procurement sectors in particular, virtual cards are fast becoming the gold standard method of payment.
“We’re already seeing virtual payments displace traditional bank payments in the B2B travel sector, partly due to the ease of payment reconciliations but also due to the richness of the data that’s available. Virtual payments give businesses the ability to view itemised spending data rather than a consolidated monthly invoice with one overall spending total.
“In 2018 I expect to see further integration of payments within business process software. For example, we’re increasingly seeing payments embedded into other ERP (enterprise resource planning) and procurement systems, such as booking tools in the travel industry. This creates a more seamless experience for business customers and means payment to invoice reconciliation is embedded within the vendor’s ecosystem, rather than being handled as an entirely separate process.
"Our own virtual payments products have APIs that make it very simple for businesses to embed payments into their existing ecosystems.”