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Navigating the new normal
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Security
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Economic insights
Visa views

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James Wood

October 2020

James is an award-winning writer and journalist, and managing editor of Payments Cards and Mobile magazine.

 

3 - 4 Minutes

Queue-busting tech: socially distanced commerce and the end of waiting in line

The initial impacts of COVID-19 on payments are, by now, widely understood: an acceleration in e-commerce adoption, rocketing contactless payments and major growth in mobile wallet use. Beyond these first effects, though, emerging payments technologies suggest we’re only just beginning to see COVID’s full impact on how we pay.

In particular, consumers in the hospitality and physical retail segments are looking for the speed and flexibility of e-commerce brought to the real world – as well as an end to queuing for checkout1.

A new era for retail: Checking in, not checking out

Major retail chains have traditionally held an advantage over other business segments when it comes to payments, with their larger turnovers allowing them to negotiate preferential rates with acquirers and point-of-sale (POS) hardware manufacturers2. However, there are signs that this situation has changed post-COVID, with IBM’s US Retail Index3 showing that “non-essential” retail chains like department stores experienced a 75% decline in physical transactions in the first six months of this year.

As in many other areas, COVID-19 has acted as an accelerator to pre-existing trends in retailing. For years, retail gurus have been discussing the advent of a “blended” payment environment, with consumers undertaking product research online, then visiting retail locations to try products out before purchasing either in-store or online. The pandemic has made such experiences commonplace – and both retail chains and hardware manufacturers are responding. Retailer Valora operates 2,700 small convenience stores across Central Europe in which customers self-scan items and pay via a mobile app powered by cashierless check-out solution provider Scandit. Meanwhile, hardware manufacturers are placing the POS in the hands of the customer, creating next-generation devices that can be used by consumers to scan and pay for items in-store, eliminating the need for checkouts. These terminals support a wide range of payment types from cash through contactless credit and debit to mobile wallets – and, perhaps surprisingly, QR codes

QR codes: Payback time

The humble QR code, much-hyped some 20 years ago before almost falling into disuse in Western Europe, has made a comeback during COVID-19 – especially in the hospitality sector. Many bars and restaurants are now using QR codes as a means of distributing information without physical contact, a trend that’s particularly prevalent for menus and booking information.

In China, where the use of mobile wallets for payment is now well-established, QR codes are also widely used for payment, with six in 10 digital wallet users now paying with QR codes at least some of the time. For Li Yan, founder and CEO of digital banking company Wiseasy, “the amazing thing about QR codes is their flexibility – you can select goods from a list or menu, order and pay – all via QR code.” As with in-app payments, QR codes take the wait out of payments, since transactions are instantaneous and confirmed on both the consumer and merchant’s smartphones in seconds. Li expects the use of QR codes for payment to grow in lock-step with the growth of mobile wallets, which his company’s projections say will double in North America and Europe over the next two years to reach between 10% and 15% of all payments by 2023.

Looking further ahead, Li sees QR codes forming the basis of “super app” technologies, with everything from payments to loyalty schemes and “cash in/cash out” ATM functions performed in-store using QR codes. Like soft POS systems (see below), QR code payments are great news for smaller and micro-merchants since their acceptance is easy to adapt for smartphones.

Tap to Phone: From street food to market stalls

As the digital economy grows, it’s important that innovation and tech advances also reach less formal and established segments, and are included alongside traditional retailers. The need to engage street vendors, market stalls, corner shops and other segments in digital payments is particularly acute in European markets like Sweden and Norway, where cash use is dwindling to the point where it now constitutes less than 5% of transactions4.

To meet demand for contactless and queue-busting payment in this segment, new “Tap to Phone” solutions are emerging. These cater for micro-merchants and smaller retailers by enabling contactless card and mobile wallet payments to a merchant’s smartphone linked to their bank account. Faster to start trading and cheaper to manage than a traditional hardware POS device, these solutions are beginning to dramatically expand card acceptance and wallet usage in places where electronic payment has traditionally been challenging5.

Pratap Gautam, Visa’s Vice President of Seller Solutions, says these systems represent “a great opportunity to enhance an acquirer’s offering to smaller firms – businesses can download an app, sign up and onboard with the acquirer, and enable the app to accept contactless transactions within minutes.” Gautam notes that merchant enquiries related to Visa’s Tap to Phone solution program have almost doubled over the past year. He expects to see the emergence of common standards for Tap to Phone apps under the Payment Card Industry Security Standards Council in the near future as these systems proliferate.

In-app: Socialising at a distance

As well as QR codes and Tap to Phone systems, payments “in-app” are growing in popularity – and the hospitality sector is leading the way. Bill Mooney, founder and CEO of automated onboarding fintech Datam, estimates that around 20 new apps have emerged over the past year in hospitality and retail payments in the UK alone. Some are specific to individual retailers such as the UK’s JD Wetherspoon pub chain, which offers consumers the opportunity to select drinks and food from an in-app menu and pay by card or mobile wallet. As well as eliminating physical contact and the need to wait at check-out, these apps make customer engagement more efficient. Servers simply visit tables to deliver drinks and food, rather than undertaking separate trips to carry menus, beverage and meal orders, and finally to arrange payment.

Mooney sees the potential for these apps to go mainstream, with players like Zapaygo potentially offering a “white-label” version of online ordering and payment that retailers can brand for their own use. “The challenge is adoption – by merchants and consumers alike”, he says. “These apps offer retailers benefits that are easily understood – including cost-effective transaction fees and rich information about customer behaviour to inform their marketing. But unless merchants have a fast, frictionless process to sign up and on-board with an acquirer and consumers have places to use them, take-off won’t happen.” He suggests we’ll see well-funded consumer marketing campaigns that promote in-app ordering and payment in the next 18 months, and is confident merchants will be eager to accept systems with a quick sign up process given the operational and cost efficiencies they offer.

One common feature of all these developments is the movement of payments into the background of any activity: in-app payments, for instance, are now becoming an automatic part of the browsing and selection process.

Given the propensity for COVID to accelerate trends, it will come as no surprise to learn that analysts have been predicting such a change for years. As with the shift to contactless and mobile transactions in 2020, it may be that the arrival of so-called “invisible” payments happens sooner than we think.

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