Deep Dive: How Merchants’ Payments Approaches Must Change To Meet Customers’ Needs

Most retailers survive by staying in tune with customers’ preferences and providing the features and payment methods they crave. Consumers’ rapidly shifting behaviors during the ongoing COVID-19 pandemic have made these tasks much more challenging for merchants, however.

Many of these shifts follow consumer trends that have been ramping up for several years, with customers doing more of their shopping online, seeking faster deliveries and picking retailers that craft personalized experiences. The change is instead a matter of scale: One recent study found that U.S. eCommerce in April and May accounted for 22 percent of the nation’s retail sales, compared to 11 percent of sales in the same period in 2019. Contactless payments usage is also expanding during the pandemic, even for population segments that were previously unenthusiastic about the technology.

Getting these payment experiences right is therefore a necessity for merchants, but they must implement methods quickly to compete with other retailers in multiple commerce channels. The following Deep Dive examines consumers’ shifting payment needs and how they are causing merchants to reexamine their existing infrastructures. It also analyzes how the pandemic is accelerating these changes and making payments innovation critical for retailers as online and in-store commerce becomes more interconnected.

Following Consumers’ Complex Payment Needs 

The pandemic is shedding light on how merchants’ existing payment systems can fall short of consumers’ expectations and lead to costly consequences. Approximately 57 percent of merchants in one recent survey noted that the pandemic has negatively affected their sales, which could ultimately lead to strained cash flows. Retailers that were conducting at least some of their business online before the health crisis are faring slightly better than those that entered the pandemic without any digital presence, but the level of competition merchants face is rising alongside eCommerce sales volumes.

Failing to offer customers’ desired payment experiences could further stress retailers’ bottom lines. Consumers shopping in stores want more support for digital or mobile payment methods as they move away from cash and plastic cards. Forty-six percent of U.S. customers are now making cashless transactions, for example, and a separate study showed that 19 percent of Americans tried contactless payments for the first time in May. Online shoppers are meanwhile anticipating faster delivery times and more personalized reward and loyalty programs. One recent report found that 44 percent of companies are seeking to upgrade their loyalty programs, for example, mostly to make the digital experiences they offer more engaging.

There are straightforward fixes to some of these problems, however. Numerous retailers are installing point-of-sale (POS) systems that enable contactless payments, especially as research suggests that this method will see increased use even after the pandemic has passed. One study found that 74 percent of respondents would continue using touchless payments once the crisis ends, for example. It also found that 80 percent of contactless transactions in Q1 2020 were used for payments under $25 — small-value purchases that have traditionally been made with cash.

These fixes can help meet consumers’ current needs, but they may fail to address the large-scale payment behavior shifts looming in the long term. Merchants will need to continuously examine how pandemic-driven trends will shape consumers’ hopes for their future payments
experiences.

The Infrastructure Stumbling Block 

Merchants must accurately determine which payment trends have staying power to keep their customers satisfied, and most are betting on the continued rise of contactless or digital payments. Some companies are behind the curve, with 19 percent of small businesses still failing to support digital payments, for example. Companies cannot afford to focus too heavily on brick-and- mortar locations and forget to keep pace with changing eCommerce payment trends, nor can they abandon cash altogether.

Offering speed, personalization and service for disparate payment methods will require merchants to think differently about their overall payment systems. This holistic approach can help retailers stay abreast of consumers’ expectations without prioritizing one payment channel or failing to support critical payment methods. Merchants may require help to access such versatile systems, however, and this is where payment partners can step in. Developing infrastructure that can catalog and finalize transactions in myriad ways and channels is one of the retail sector’s next great challenges.