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Invisible payments and the current barriers to widespread adoption

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Consumers demand a frictionless checkout experience. Whether they are getting a sandwich from a cafe or buying clothes they saw on Instagram, consumers expect to complete purchases almost with the wave of a magic wand. Online stores are making strides to make checkout experiences as streamlined as possible to combat increasing cart abandonment rates, which have hit 76 per cent, by implementing one-click checkouts using PayPal and mobile payments, such as Apple Pay.

Invisible payments have already had a massive impact on the physical and online retail experience, and could have the potential to eradicate cash and payment cards from the payment journey. Amazon Go even went as far as removing Point of Sale (POS) systems from its payment processes to provide consumers with, what they consider to be, an enhanced in-store experience.

While the impact of invisible payments is expected to be significant – predictions are they will account for $78 billion in annual transactions by 2022 – there are some indications that the road there is going to be bumpy for the UK. Not all consumers have been enthusiastic about invisible payments. In addition to customer demand for invisible payments, the diversity of products, prices, and consumer payment preferences both locally and internationally make it quite complicated on the back-end.

For invisible payments to gain mass consumer adoption, there are several cultural and logistical barriers that retailers and the payment industry must consider first.

1. The desire to authenticate large ticket items

Implementing invisible payments for high-value transactions will be a significant barrier. There are many, many successful use cases for low-value invisible transactions; Uber was adopted so widely and so rapidly thanks, in large part, to the user’s payment experience. All these ridesharing companies mostly handle relatively low-value transactions, with consumers welcoming the convenience of this frictionless payment process.

But what happens when the transaction is over £100? 

Buying something for £100 or more without authentication is an uncomfortable thought for many consumers. It can be argued that customers expect – indeed want – a level of friction when making certain purchases. Businesses with big-ticket items will still need to provide consumers with an option to use more traditional payment journeys for the foreseeable future.

2. Vulnerable minorities to financial exclusion – cash-dependent and underbanked shoppers      

Despite a seemingly ubiquitous shift to digital payment methods, cash is not disappearing anytime soon. Consumers in many booming e-commerce markets still have a strong preference for or reliance upon cash-based payment methods; Mexico, Brazil, and Japan are a few examples. In the UK, some demographics prefer to use and rely on cash, particularly the elderly and underbanked. It is estimated that despite the introduction of new technology and different payment methods, cash will still account for nearly 10 per cent of UK transactions in 2028.

Retailers can’t afford to miss out on sales from such a large number of consumers, so they need to take care to introduce invisible payments gradually and, where possible, give consumers options. If they don’t, they run the risk of losing business to the competition.

3. Compliance red tape

Recent regulations have correlated with consumers becoming increasingly aware of the need to protect their data and monitor for fraud. Strong Customer Authentication (SCA), enforced under the second Payment Services Directive (PSD2), states that a customer must verify their identity before payment information can be exchanged between a financial institution and a third-party provider (TPP). Put in place to prevent fraudulent transactions, it simply means that SCA requires consumers to authenticate payments by entering a PIN or using biometric data like a thumbprint. While transaction value will likely influence the level of authentication required under SCA, the need for authentication is an inherent barrier to a frictionless or invisible payment. It remains to be seen how invisible payments and SCA will coexist.

4. The diversity of alternative and local payment methods

4. The diversity of alternative and local payment methods

As commerce goes global, payment preferences – using cards, e-wallets, cash, etcetera – are becoming more and more local. That can be a surprise for people in the UK and US; PPRO’s recent research highlights that 91 per cent of UK consumers use debit and credit card payments. But there are over 450 significant local payment methods (LPMs) across the globe, accounting for over 75 per cent of global e-commerce transactions.

In the UK, PayPal is the most widely used method for invisible payments. However, the Dutch opt for iDEAL as their payment method of choice, which is less suited to invisible payments. In Latin American markets, cash-based payment methods like Boleto Bancário in Brazil and OXXO in Mexico take up a significant share of e-commerce. Those are certainly not invisible either, as the customer has to visit a brick-and-mortar store to pay. If customers are forced to use a payment method they don’t trust, over 65 per cent2 are likely to go to another retailer that accepts their preferred payment method. For UK-based retailers who want to do business across borders, it’s important to recognise that the key to increasing conversion is accepting your customer’s preferred payment method.

Unsuccessful implementation of invisible payments – where locally preferred payment methods are overlooked – could lead to the loss of loyal customers to a competitor. But with so many LPMs, it’s extremely difficult to establish a single unifying, invisible payment journey to achieve global adoption.

The future of invisible payments

While invisible payments will continue to revolutionise the customer experience for casual or everyday purchases, we won’t see invisible payment journeys become the norm across the board for quite some time. Significant hurdles, such as  consumer trust, cash-dependent shoppers, regulatory requirements, and the explosion of local payment methods must be addressed before consumers opt for invisible payments.

Invisible payments have their part to play in gaining brand loyalty and increasing conversation rates. To get on the road to success, merchants must get to know their customers and learn how they like to pay for each purchase they make. They must offer the right payment methods and not force adoption of invisible payments, but incentivise it through exclusive discounts or bonus loyalty points. Customer experience all boils down to providing the customer with options because, ultimately, we live in a society that expects choice and a one size fits all simply won’t work anymore.

Retailers that provide customers with their preferred way to pay – visible or invisible – will be the ones who prosper in today’s competitive marketplace.

Matt Jackson, Head of Partner Development (EMEA), PPRO