What Consumer Payments Innovation Means for Retailers

The trend toward cashless consumer payments has retailers preparing for an evolution at the point of sale (POS). With just 24 percent of Americans carrying cash on a regular basis, merchants will need to accommodate more convenient payment options to keep pace with evolving consumer preferences. A TSYS survey found that debit and credit cards are the most preferred payment types among consumers, to no surprise. As the next era of consumer payments takes shape, merchants can expect emerging cashless payment innovations, including dual-interface/contactless debit and credit cards, prepaid cards, and payment objects to play a big role.

The Wave of Dual Interface

Ads portray a world where cash payments halt retail lines. To relieve this pain point and speed traffic at the POS, dual-interface cards seamlessly allow consumers to wave or tap their card to make purchases. Adding contactless capability to the already popular debit and credit card only increase their appeal. The frictionless experience and ease of use are likely reasons why global contactless transactions via debit and credit cards are estimated to reach $2 trillion by 2021.

Such momentum makes it critical for merchant POS terminals to accept contactless card transactions in the near term. Retailers lose billions due to in-store line abandonment in response to long checkout lines. Merchants that fall behind the curve on contactless card acceptance could risk losing customers and sales, as contactless-savvy consumers grow impatient with inserting chips or swiping cards for payment. Speeding through checkout makes for an ideal customer experience while also allowing retailers to convert even more transactions. Incidentally, contactless cards are seven seconds faster than chip-and-pin and 15 seconds faster than cash.

Popularity of Prepaid

Retailers can also expect a boost in consumers using prepaid cards for payment. The global prepaid market is expected to exceed $3.1 trillion by 2022. For consumers, prepaid cards offer both ease of use and an enhanced connection to their favorite brands. Merchants that create their own unique offerings can capitalize on this opportunity through customized loyalty and rewards programs that drive repeat sales using prepaid cards to strengthen the shopper experience. Studies have found that more than half of loyal customers will join a rewards program, and nearly 40 percent of rewards members will spend more on a product even if there are cheaper options elsewhere.

The popularity of gift cards, rewards programs and loyalty points on mobile apps contribute to the appeal of prepaid cards. Consumers appreciate the added convenience of using prepaid via a mobile app or physical card at their favorite stores. The dual payment options enhance the experience for customers who prefer to alternate between both. For retailers, offering a prepaid card in addition to a mobile rewards program can address customer preferences and deepen customer loyalty. In fact, when Starbucks launched its own prepaid card last year, some speculated the move was in hopes to jump-start its mobile channels.

Beyond function, the look and feel of prepaid cards can be another opportunity for retailers to showcase their personality and brand. Using custom packaging and card designs like simulated wood, metal, deboss or die cut effects, merchants can offer customers prepaid cards that reinforce their brand affinity and stand out in their wallets.

Payment Objects Emerge

The next chapter in the evolution of contactless payments is emerging in the form of payment objects. Payment objects refer to any wearable or nonwearable portable device, article or item consumers can use to transact a payment. They offer retailers a wide variety of both open-loop and closed-loop payment applications. For wearable payments alone, global transaction volumes are expected to grow to $501.1 billion by 2020. As contactless card usage increases while contactless POS acceptance proliferates in the U.S., payment objects will be well positioned for consumer adoption.

In a November 2018 survey of credit and debit cardholders, CPI found that 65 percent liked the idea of physically tapping an object for payment. Seventy percent expressed liking the idea of using the same objects to make purchases at a grocery store. Payment objects can be leveraged to support dual-interface/contactless payments along with the appeal of prepaid cards. The combined solution can offer a frictionless payment experience, ease of use, brand association and rewards perks. For merchants, they can look to deepen customer relationships by adding this frictionless payment experience with payment objects to their existing program and capitalize on the trend. With the right technology partner, retailers can customize their own branded payment objects, turning everyday objects into payment-capable devices while offering customers open-loop or closed-loop payment capabilities.

In the near future, consumers will expect merchants to facilitate transactions in a number of new ways. Dual-interface/contactless cards will help pave the way for contactless payments in the U.S., while prepaid cards will remain an innovative tool to engage and delight customers. Additionally, as interest in payment objects grows, a new variety of wearable and nonwearable form factors will appear, including key fobs, cups, hats and bands, in contrast to existing NFC devices such as smartwatches and fitness trackers.

The retailers that are prepared for these changes may be in the best position to thrive. Meanwhile, those that aren’t may see their businesses impacted as a result. Approximately $1.1 billion in potential sales are lost when retailers don’t support their customers’ preferred payment methods. Early adopters that stay ahead of the curve, accelerate transaction speeds, and adapt in lockstep with consumer payments’ evolution may stand to gain additional loyal customers.

Jack Jania is vice president of product management and innovation at CPI Card Group, a payment technology company and leading provider of credit, debit and prepaid solutions.