Monday, June 20, 2016

Why retail needs to prepare for digital transformation

Digital transformation is disrupting industries whether we like it or not. But is the retail sector as prepared for this as it needs to be?

ClickZ Intelligence’s most recently published report The Pulse of Digital Transformation suggests not. It found that in a survey of more than 400 US readers, just 26% of retail and e-commerce specialists had a formal plan in place for digital transformation.

Financial service providers fared comparatively better, with 56% reporting that they had a formal digital transformation plan in position. But ClickZ’s ‘Innovation in Retail Banking’ report illustrates just how much the digital disruptions taking place in the financial sector will affect retail and ecommerce as well.

The report looks at several major innovations in banking and payments, including contactless payments and the Internet of Things, which are the face of digital disruption in the banking sector. Here’s why these technologies are equally big news for retail, and why it unquestionably needs a formal digital transformation plan in place in order to deal with them.

The contactless revolution

The contactless payment revolution is transforming retail already at a rapid rate. According to a study by the UK Cards Association, contactless spending in the UK rose from £287 million ($414 million) in January 2015 to £567 million ($818 million) in June, an increase of 97.5% over the course of just five months.

The study further put the value of contactless spending in 2015 at £7.8 billion ($11.2 billion), up from £2.3 billion ($3.3 billion) the previous year. Kevin Jenkins, managing director UK & Ireland at Visa Europe, calls contactless payment the “new normal” in the report, saying that Visa has “seen unprecedented growth in this area, with the number of Visa contactless transactions more than trebling in the past year in the UK.”

This trend goes far beyond the UK: Mastercard recently reported 150% year-on-year growth for Mastercard and Maestro contactless transactions across  Europe. And in Australia, a survey of more than 1,000 people aged 18 to 65 found that for 66% of them, contactless was the preferred method of payment, with 64% preferring it to cash.

A picture of a hand bringing a mobile phone close to a white Square reader to pay for a cup of coffee on the counter.Paying for coffee with Square’s Apple Pay reader: just one of a proliferation of new contactless technologies making their way into banking and retail.
(Photo by Mybloodytypeiscoffee, available via CC BY 4.0)

While this might not seem like such a big deal for retailers, considering that most have embraced contactless card payments already, contactless payment isn’t just about cards. Despite its slow rate of adoption, the launch of Apple Pay has paved the way for many similar contactless technologies, and banks are innovating with gusto.

In 2014, Heritage Bank in Australia designed the ‘power suit’, a fine merino wool suit with a Near Field Communication chip embedded into the sleeve that allows consumers to pay with a swipe of their arm. (Talk about taking ‘wearable technology’ to the next level). On a slightly less drastic level, CaixaBank’s Visa contactless bracelet, which similarly allows users to pay by bringing their wrist close to the retailer’s PoS, was the largest such programme in Europe when it was launched in 2014.

Visa’s cloud-based mobile contactless payments have seen large-scale adoption by Polish banks such as ING Bank Śląski. And even more futuristic forms of payment are being pioneered that could have a huge impact on how customers pay for goods in retail and ecommerce in the near future.

A photo of a finger pressing down on a red-lighted square to be scanned.Photo by Rachmaninoff, made available via CC BY-SA 3.0

CIBC, for example, has been experimenting with voice authentication technology that would allow customers to use their voice not only to access their accounts, but pay bills and transfer money. It isn’t hard to imagine the same technology being used to authorise ecommerce payments.

Other forms of biometric authorisation, including fingerprint access and facial recognition, have been implemented by banks like HSBC, and it’s easy to see the possibilities for retail as well. Amazon is already reported to have filed a patent application that would allow customers to ‘pay with a selfie’ (that is to say, using facial recognition).

The banking sector is right to be upping its game and experimenting with the latest technologies in a bid to make payments more secure. But the retail sector should be prepared for what it means for them, as well.

Banking of Things

Another big innovation in banking which has implications for the retail space is the Internet of Things, whose application in the banking sector has been dubbed ‘Banking of Things’ (BoT). According to a November 2015 survey report by Efma and Infosys Finacle, 47% of respondents believe the technological disruption by BoT will have the maximum impact on the banking industry. And its disruptive potential for other industries also shouldn’t be underestimated.

ClickZ’s ‘Innovation in Retail Banking’ report cites Turkish bank Garanti’s app iGaranti as an example of how BoT is revolutionising banking. iGaranti’s functions include a mobile wallet, peer-to-peer lending via social networks and hands-free voice control for money transfers. A collaboration between Fidelity National Information Services and software company SAP may also give consumers the ability to pay their petrol bill from their car using their smartphone.

A photograph of a shiny chrome coffee machine pouring coffee into a small white cup.The Internet of Things could soon enable consumers to make purchases via everyday appliances like fridges and coffee makers. | Photo by Romi, CC0 public domain image

The report goes on to add,

“One of the main applications of BoT is expected to be in payments as is evident from the previously mentioned partnership between FIS and SAP. It has the potential to drive a radical shift away from cash and card payments to payments made from unlikely objects such as a fridge or a coffee maker.”

These ‘unlikely’ payments could be just as significant for the retail sector, as the Internet of Things and the rise of ‘smart objects’ allow consumers to do things like pay for their groceries using their fridge, or reorder filters and coffee grounds using their coffee maker.

Retailers will need to make sure that they have the infrastructure set up to deal with these incoming new technologies, the different opportunities they present for sales and marketing, and the way they will change buying behaviours.

Social payments and social shopping

Finally, we have the disruption that social media is bringing to the banking and retail industries by transforming the way that we pay for things online. A number of social networks and social apps are integrating payment features into their services as a way to attract businesses and brands to invest in them, while also providing a useful extra functionality for consumers.

In China, as our Asia Editor Sophie Loras reported, 31% of WeChat users are making ecommerce purchases using the app. This figure is already twice that of last year, when 15% of users were found to be using WeChat for ecommerce – and we’re only in June. Snapchat is another social app that recently made the move to ecommerce, presenting users in late April with ‘shoppable’ ads that allowed them to swipe down to make a purchase.

A series of smartphone screens next to each other showing colourful Snapchat adverts for the cosmetics company Lancome. The Snapchat ad for Lancôme (source: Snapchat)

As the ‘Innovation in Retail Banking’ report writes,

“One of the primary drivers of this trend is the robust growth in mobile commerce which is outpacing desktop usage in some countries, including China. As the world of mobile payments integrates with social media, the line between social networking and payments is starting to blur.”

The same could easily be said for ecommerce: that as the world of mobile payments integrates with social media, the line between social networking and retail is starting to blur. Social shopping is already a rising trend in ecommerce, with social networks integrating ‘buy’ buttons into their platforms and businesses making use of shoppable video and galleries to smooth the purchasing process.

It can be difficult to know what to do about digital disruption, or even to be aware that it’s happening until it’s right on top of you. One respondent to ClickZ’s ‘Pulse of Digital Transformation’ report said that, “It is so difficult to ‘see’ what the disruptions might be when we are busy doing work every day. [We] need leadership in this area.” And it can be a further challenge trying to get company leaders to see the need for digital leadership and transformation.

But as the examples above illustrate, the technology that will disrupt the retail industry is fast approaching, and in many cases is already here. Retail and ecommerce specialists with a formal plan in place for dealing with digital transformation will have the best chance of surviving and thriving.

To read more about digital disruption in the retail banking industry including 50 of the most amazing recent innovations in retail banking, get the full Innovation in Retail Banking report. Or download your complimentary copy of our most recent report, The Pulse of Digital Transformation!

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