PayPal’s new artificial intelligence-driven features and new one-click checkout option fell flat this week, at least in the eyes of Wall Street. It is one of the first major tests for new President and CEO Alex Chriss, who joined the company last September.

The new products are an attempt to latch onto the hot trend of AI, both from a user and investor perspective.

One of the key features is a platform that would use AI to enable merchants to reach new customers based on their previous shopping history. PayPal would be able to leverage that data from the approximately half a trillion dollars’ worth of global merchant transactions it processes. Another AI-based tool, Smart Receipts, allows retailers to recommend personalized items to shoppers through email receipts.

PayPal also announced a one-click checkout feature called Fastlane, which can purportedly accelerate checkout speeds by nearly 40%. “Customers simply save their information with Fastlane to check out in as little as one tap,” PayPal announced in a press release. “No username or password to remember, no personal information to update, and no need to share a credit card with businesses all over the web.”

“The data that we have and our ability to actually see what people have bought and know what merchants are trying to target, that’s where I think AI is the huge opportunity for us,” Chriss told Reuters in an interview.

Watching with a Sense of Caution

While it’s too early to see the effect of the PayPal announcement in the marketplace, observers are yet to be impressed.

“PayPal’s new AI-based features have the potential to offer consumers better personalized recommendations at key touchpoints like receipts and its app,” said Daniel Keyes, Senior Analyst of Merchant Services at Javelin Strategy & Research. “But this effort’s success will come down to if these products can meaningfully increase sales for its merchants, which remains to be seen.”

So far, the early returns from investors are not good either. Wall Street reacted negatively to Chriss’ announcement, sending PayPal’s stock down by 3.67%.

PayPal has struggled to find its footing recently. The company’s stock was down by about 14% in 2023. It has also faced competition from Stripe, a rival payment processor, which has filed paperwork toward an IPO and has been bolstering its relationship with Amazon.

PayPal brought on Chriss with the intention of trying to solidify its relationships with key players in the technology and financial services sectors. In October, PayPal announced it was letting customers add their PayPal or Venmo credit and debit cards to Apple Wallet.

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Wisconsin and Vermont have become the latest states to propose laws requiring retailers to accept cash as payment. Wisconsin’s bill, introduced late in 2023, would prevent establishments from refusing cash for any in-person transaction of less than $2,000. The Vermont bill has no such limits. It states simply: “A seller or lessor who offers goods or services to consumers shall not refuse to accept cash as a method of payment.”

Arizona, Colorado, Massachusetts, Michigan, New Jersey, New York, Mississippi, and the District of Columbia already have payment laws allowing people to use cash at all physical points of sale. Several cities, including Philadelphia and San Francisco, have similar laws.

The Federal Reserve has made it clear that there is no requirement for businesses to accept cash. “There is no federal statute mandating that a private business, a person, or an organization must accept currency or coins as payment for goods or services,” the Fed’s website says. “Private businesses are free to develop their own policies on whether to accept cash unless there is a state law that says otherwise.”

In Wisconsin, sports venues such as Lambeau Field and the state fair have moved to a card-only policy. But The Cap Times reported that Brunch, a breakfast chain in Milwaukee, recently shifted back from its card-only policy after customers complained.

At times, this movement appears to be a solution in search of a problem. According to a report in Seven Days, an independent Vermont media outlet, even the lawmakers proposing the new rule didn’t know if there were retailers who refused to take cash. “While several members of the committee said on Tuesday that they had heard anecdotes about cash-only requirements, including at food trucks,” the article reads, “none of the cosponsors could name a business they were certain has a card-only policy.”

Fueling the Movement

Card-only retailing has been gaining steam for years but became much more popular during the pandemic. Some laws requiring businesses to accept cash predate COVID-19, though. New Jersey, for example, banned cashless retail outlets in 2019.

The resulting movement to retain cash has been fueled in part by Cash Matters, a nonprofit group supported by the ATM industry. Cash Matters was formed in 2017 to “support the existence and relevance of cash as an integral part of the payment landscape now and in future.” According to Cash Matters, cash is used in 12% of all point-of-sale transactions in the U.S.

Laws requiring retailers to accept cash are also under consideration in Georgia and Miami, among other areas. States such as Mississippi and North Dakota have already considered and rejected such bills.

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HSBC’s announcement of Zing, a cross-border transfer app that will launch shortly in the UK, shows one of the world’s largest banks wielding its muscles once again. HSBC becomes the first major legacy bank to compete in the steep-trajectory consumer cross-border space.  

Zing will be available to UK consumers through Apple’s App Store and Alphabet’s Google Play, and is eventually expected to roll out to other countries. It is specifically designed for users who do not have an HSBC account.

Zing is licensed as an e-money institution by the UK’s Financial Conduct Authority. Therefore, Zing funds are not considered bank deposits and are not insured by the Financial Services Compensation Scheme, the UK’s version of the Federal Deposit Insurance Corp.

Making Payments Global

For users of the service, the primary question around Zing is how it might make their lives easier. “For consumers, Zing would offer an additional cross-border payment option for remittances and retail purchases,” said Elisa Tavilla, Director of Debit Payments at Javelin Strategy & Research. “Although P2P mobile payment apps are common in many global markets, most only support domestic payments. Super apps, such as AliPay+ and other mobile wallets, are also making it easier for tourists and local businesses to transact in foreign currencies.” 

There’s also the larger issue of what this means—not just for HSBC, but for all banks considering entry into this space. Zing puts HSBC in competition with fintechs like Revolut and Wise, in a market that banks have heretofore conceded to so-called super apps. Zing follows on the heels of the HSBC Global Wallet, which was announced in May 2021. HSBC’s Global Money, introduced in 2020, offers existing customers a fee-free currency service.

“This poses another interesting twist in the race for market leadership in cross-border services,” said Albert Bodine, Director of Commercial and Enterprise Payments at Javelin Strategy & Research. “Correspondent banking is protecting its turf, but fintechs are nipping at their heels. Banks are sprouting up their own fintech divisions to remain relevant—and the card schemes are claiming that they already do this, they’ve done it for a long time, and they do it better than anyone.”

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The surge in inflation has placed a significant strain on consumers, particularly when it comes to essential goods such as groceries. As food suppliers deal with increased costs, including production and distribution, many have resorted to a classic tactic—decreasing packaging while either keeping costs the same—or in some cases—increasing prices.

The Realities of Shrinkflation

This tactic, referred to as “shrinkflation” is becoming increasingly more common. A recent Guardian article revealed how consumers in the UK are feeling the effects and even noted an example:

Persil now has 75g less washing powder in a box for the same price of about £5, meaning that shoppers now get 37 washes from a pack, down from 40. Tesco cut the weight of its 70p mozzarella cheese pack from 270g to 240g, an effective 12.5% price increase.

For those not paying attention, these changes might slip under the radar. However, for consumers who are looking to stretch their money for as far as it’ll go, this shift may affect household budgets, as well as altar the way consumers plan, shop, and manage their day-to-day expenses.

Drinkflation Is Also Causing a Stir

In addition to cutting down consumer-packaged goods products, many suppliers are also decreasing alcohol content.

A spokesperson for UK brewer Greene King told CNN that they’ve “cut the ABV (alcohol by volume) of its popular Old Speckled Hen pale ale to 4.8% from 5%.” And other brewers in the UK, including Shepherd Neame, have done the very same, according to The Telegraph.

Like shrinkflation, drinkflation is also becoming more common because the components that make up brews—hops, barley, and yeast—are experiencing a price hike that’s reverberating through the beverage industry. To keep prices stable, companies are forced to cut corners, leading to a quantity compromise.

Consumers Are Grappling with Inflation

With rampant inflation in the UK, costs of everyday essentials are skyrocketing. Not only are many consumers struggling with increased debt, but cost-of-living pressures have also forced many to shoplift. In fact, in a survey cited by Metro, 10% of young adults admitted to shoplifting from grocery stores. Separate data form Tink found that many expect their income to reduce even more within the next year.

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With better-than-expected performance in brick-and-mortar stores this year, companies are looking to modernize in-store payments to keep it in line with advances in seamless payments on e-commerce sites. A recent WSJ article reported on new in-store payments innovations that are being tried out by Kroger and Halfords, a UK automotive and bicycle parts retailer.

As cited in the article, data from the National Retail Federation found that e-commerce now makes up 16.4% of all retail shopping—a decrease from 18.8% “at the height of the pandemic.” And as a result, retail executives are concerned they might lose some of the customers they regained if they don’t improve antiquated in-store technology.

Neil Holden, CIO of Halfords, spoke to the WSJ of a payment technology his company is investigating involving payment by sound wave. He said:

The cutting-edge technology, which has been used by militaries, involves encoding data into sound waves and then sending it to another device via speaker. Customers would be able to initiate the payment via an app, Holden said.

Similarly, Kroger’s CIO Yael Cosset described how his company is developing technology which could make checkout lines obsolete, by installing checkouts in individual aisles. Another idea is a shopping cart equipped with cameras and sensor effectively enabling automatic instantaneous checkout.

All of this costs money to implement, of course, and retail typically runs on a tight margin. So it remains to be seen if these solutions will be worth the investment. Furthermore, payments systems involving surveillance involve privacy concerns.

“Retailers should certainly be looking to improve the in-store shopping experience with new payment technologies to create an appealing payment process so they don’t lose more sales to e-commerce. But many new technologies won’t be a fit for their stores,” said Daniel Keyes, Research Analyst at Javelin Strategy. “Merchants should be evaluating which checkout technologies match up well with their specific retail categories, shopper profiles, and store layouts to create a positive shopping experience in the future.”

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Payment industry pundits and politically motivated legislators should look at the complexities found in Regulation II. Furthermore, they should look at it before they start pushing the Durbin-Marshall Credit Reform Act. You can read more about Regulation II at this recently published Mercator Viewpoint, titled “Debit Regulation II Clarification.”

The Electronic Payments coalition recently posted a letter from the American Bankers Association and every state banking association. It discussed the flaws in the upcoming attempt to impose credit card price controls. Durbin 1.0 brought redundant processing requirements to debit cards. Some of the stress points in Durbin 1.0 will likely bleed over to credit cards if the legislation is successful.

Regulation II will impact more than just large banks.

ABA Letter to Congress on Durbin 2 and Regulation II

According to the ABA letter to Congress:

• This legislation doubles down on the harm already caused by the Durbin Amendment. A recent GAO report found that the Durbin Amendment was “among the top five laws and regulations most cited…as having significantly affected the cost and availability of basic banking services.”

• It also came with broken promises, specifically from merchants that stated this regulation would result in savings for consumers. Not surprisingly, according to the Federal Reserve Bank of Richmond, after the Durbin Amendment was implemented, 98.8% of merchants failed to pass-through savings realized from debit regulation to consumers, and over 20% increased prices.

There Is a Place for Every Consumer in Payments and FIs of Any Size

As the ABA letter indicates, “Our credit card processing system is the most efficient in the world. It moves millions of dollars a second with 99.999% reliability and remains hardened against security intrusions and data theft. It provides protections like zero-dollar fraud liability for consumers and guaranteed retail payments.”

They take care of implementing the complicated and expensive 24/7, 365 infrastructure. And credit card interchange largely finances it. Over 5,000 credit card issuers are marketing directly to consumers, demonstrating plenty of competition, as confirmed by metrics used by the FTC and DOJ and a recent U.S. Supreme Court decision where no justice found evidence of an anti-competitive market structure.

Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group.

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It has never been more important for businesses to align themselves with the needs and preferences of their consumers. We are emerging from the pandemic with different retail payments and shopping expectations. They have been shaped by ongoing digitization in the previous two years.

Alongside this, consumers are more worried than ever about parting with their money. The cost-of-living crisis and unpredictable market forces in the UK have spooked many into delaying large purchases. They are waiting until there is more certainty about what they can and can’t afford. Data from FSB has shown that 53.4% of SMEs and independent businesses predict that they will either stay the same size, downsize or even close their business in the next year.

To help address the challenges coming down the line regarding conversions, changes must be made. Merchants and businesses must provide their customers with payment experiences that center around convenience, speed, and security.

Avoiding Festive Fear

Already we are seeing an impact of the cost-of-living crisis. Merchants are looking to the holiday shopping season. It is integral to ensure a thorough analysis of how consumers are choosing to shop during these unpredictable times.

There has been a general plateau in consumer spend following the boom in eCommerce spending during the pandemic. Data from the ONS has found that retail sales fell 1.2% across the three months to July in 2022 as the cost-of-living crisis continued to bite across the UK.

To maximise revenue amid economic volatility, businesses must ensure that they offer seamless user experiences for their customers. They need to guarantee that expectations are being met, if not exceeded.

Understanding Your Audience’s Retail Payments Preferences

Three years ago, we were still thinking about millennials as the powerhouses with disposable income. However, Gen Z, 10 to 25 years old, is arguably one of the largest groups with disposable income. Young adults in their early 20s, typically, have less dependants and accrued debt than other age groups.

Therefore, it’s important to capture the needs of this audience when they are making a purchase. Do this by offering them preferred ways to pay. In a recent study we put out, we found that younger generations are more likely to favor new payment methods, such as digital wallets, than their older counterparts. The data also suggests that young consumers are fueling the subscription economy. They are taking out more subscriptions on average in 2020 and spending more on a monthly basis.

Gen Z as well as millennials are also much more likely to favour Buy Now, Pay Later (BNPL) services. However, we look at those shopping in-store. Those who said they are likely to return to the high street to shop post-pandemic also expressed a preference for BNPL. This highlights the importance of unified commerce processes.

Knowing who your customers are is integral to further growth as we enter today’s era of shopping. Recognizing your customer demographic can efficiently ensure that you meet preferred payment methods in the appropriate sales channels.

Accommodating Buyers Regret … At Least in the Short Term

During the pandemic, when consumers could not try on items before buying them in-store, they got used to over-purchasing. They sometimes buy the same item in multiple sizes and colours. Consumers have the intention of returning items that did not suit them. They enjoy the convenience of not having to go into the high street, find and pay for parking and carry bags around while on a shopping spree. This has continued post-lockdown, with the over purchasing behaviours remaining. This has put retailers under further strain. This is at a time where margins are squeezed due to inflation and increased costs in the supply chain, among other factors.

In fact, it’s now becoming unviable for retailers to offer free returns and we have seen household names such as Boohoo, Zara, and Next withdrawing free returns. To remain competitive, the returns process must be as frictionless as possible. Retailers who want to keep free returns for their customers as part of their customer loyalty strategy therefore need to take action now. This will minimize the number of products being returned.

Clarity Brings Results

Clarity of what will be delivered is the best way to reduce large volumes of returns, as customers can better judge if they will like an item when it arrives. Making detailed product descriptions and reviews available and visible means consumers are more informed on what they will receive before they buy. What’s more, at a time when profit margins are wafer thin, it’s critical for retailers to be as efficient as possible. Working closely with their payments partner to optimise their payment strategy, retailers can improve their payment flow and maximise their bottom-line. This efficiency means they can issue refunds in a timely manner to avoid chargebacks, which can disrupt cashflow and, at worse, result in fines. At the same time, if retailers believe they have adequately delivered their product or service, they should have the confidence to defend chargeback claims with their payment partner’s guidance and support.

If free returns aren’t viable for a business, having a clear return policy is key. Making it clear that there will be charges for returns. People may only buy items that they think they will keep.

It Pays to Prioritize Customer Demands for Retail Payments

Whether your customers browse your products via their desktop computers, tablets, or smartphones, you must enable them to pay how they want. Start by partnering with a payments provider equipped with the market knowledge and technology that caters to consumer demands. Giving customers a consistent, effortless experience across any channel should be paramount.

Optimizing payment strategies is integral to the shopping experience of the future. We are bracing for an uncertain winter ahead in the current economic climate. The future of retail will be heavily reliant on enabling easy purchases where payments are invisible. A simple, seamless, and frictionless journey.

The post Consumer Shopping Trends: How Will Payments Influence the Future of Retail? appeared first on PaymentsJournal.

FIS introduced Walmart as its latest partner in the FIS Premium Payback program. This allows customers at Walmart stores to utilize pay with points options during checkout with a single prompt. The move provides access for financial institutions (FIs) using the FIS product to Walmart, the world’s largest retailer. The FIS announcement provides additional details on the program and partnership:

“The addition of Walmart to the Premium Payment network will give millions of consumers the opportunity to redeem their credit card rewards points for real-time discounts at more than 4,700 Walmart stores across the U.S. Walmart customers using eligible cards will be prompted at checkout with the option to turn their card rewards currency into discounts, which will be deducted from their purchase amount.”

Pay with Points: an Alternative Payment Method

The move identifies advancement to accept award redemption as a substitute for other prepaid vehicles, such as gift cards. It also gives a benefit to FIs looking to increase share of wallet with their reward earning credit cards. Points can be a valuable asset for consumers who are looking to use various methods to maximize their budget in the current inflationary market. This includes prepaid mechanisms. I wrote about this in my recent viewpoint. In the release, Mike Cook, Senior Vice President and Assistant Treasurer at Walmart underscores this point. He also points out the need for retailers to reduce barriers in accepting points as an alternative payment method:

“’Walmart’s mission is to help customers save money so that they can live better, and FIS Premium Payback allows customers to enjoy the benefits of their rewards in real-time at checkout,’ said Cook,  ‘Today’s busy consumer is looking for a frictionless shopping experience, and our partnership with FIS makes paying with points as simple as a single prompt at the point of sale.’”

Loyalty Programs

For retailers, utilization of credit card point redemption at point of sale also provides an opportunity to push retailer specific loyalty programs, that are not tied to payment method but instead to frequency and volume of purchases and visits. Mercator research, via the North America PaymentsInsights study in 2021, shows that consumers who are part of a loyalty program spend more at their chosen program outlets. As an example, 51% of members of grocery and supermarket programs indicate they spend more at their chosen store as compared to those that are not members of the loyalty program. When combined with reducing one of the larger merchant-controlled barriers of potentially cumbersome point of sale processes, the opportunity for retailers to double up on customer loyalty, with both individual’s credit card and store loyalty memberships is an important step to combat the fear of reduced spend in rough economic times.

Overview by Jordan Hirschfield, Director of the Prepaid Advisory Service at Mercator Advisory Group.

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Consumers want more autonomy when it comes to payments. According to a survey conducted by Entrust, consumers want a “digital-first, not digital only approach.” They want a frictionless payments experience.

That was certainly evident in the survey’s key findings. For example, more than 50% of U.S. retail shoppers said they prefer to access their bank information through a mobile app versus going to an actual branch. What’s more, nearly half of respondents said they would rather open a new account via a mobile device. To put that in perspective, 26% of respondents said they prefer to open a bank account online, while nearly as many respondents said they prefer to do that in a physical branch.

In this highly competitive market, if financial institutions want to remain top-of-mind, they must be take a digital-first approach. However, it’s not all or nothing. Customers want the benefits of both digital and physical payment capabilities, depending on the use case.

Overall, more consumers are using their mobile device to make purchases and even send money to friends and family. This trend is expected to continue as the expectation for faster, frictionless payments becomes the norm.

Andy Cease, Product Marketing Director of Payments at Entrust notes, “It’s clear that consumers are looking for intuitive payment options that get them what they need when and how they want it. Independently, each payment option has its own merits, but when delivered as a suite of offerings wrapped up in one secure and seamlessly integrated experience, they become a powerful acquisition tool and brand affinity builder.”

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Recent research by checkout.com reveals that trends in current retail-oriented payment usage are highlighting increasing willingness to add additional technologies to augment otherwise stable use of traditional retail payment methods, specifically credit and debit cards. Kevin Woodward highlights key findings in Digital Transactions:

“Digital payments are growing, but credit and debit cards remain the most popular option—for now. Checkout.com’s report found that 79% of U.S. consumers plan to use a credit or debit card in the next 12 months.”

These traditional payment methods provide consumers with comfort and security of both policies and processes that create a foundation established through decades of acceptance. Even so, individuals are willing to try new payment methods, especially digital payment options which indicate growing confidence in alternatives to the simple card transactions:

“More consumers, however, seem interested in using a new payment method, with 42% of those who had not used one in the past 12 months indicating they would been keen to do so in the next 12 months.”

All entities in the transaction, from the buyer to the merchant, need to understand that utilization of digital wallets provides a different venue for the payment rather than a fully different payment method. Taking aside peer-to-peer payments, the majority of digital transactions will still be processed through traditional card rails.

Interestingly, the report highlights a lack of broad based enthusiasm for Buy Now Pay Later (BNPL) programs, with 66% or those surveyed indicating they had not used BNPL providers and only 9% using one regularly. Adding to the recent Consumer Financial Protection Bureau study, this may lead to increased regulation and may slow continued BNPL provider expansion. The combination of less than expected market opportunity and upcoming regulatory changes will not halt BNPL, especially as economic conditions push consumers to delay or defray costs. As previous Mercator research highlights, merchants can hedge against these concerns by assessing how they select BNPL providers to ensure a robust offering that complements other offers including credit.

The checkout.com report may appear sobering in the apparent stagnation of payment choices, however changes will continue and the reality is traditional payments will continue to be leaders, but increasingly improved with new technologies and options ranging from better use of mobile wallets, to more efficient use of installment options such as BNPL.

Overview by Jordan Hirschfield, Director of the Prepaid Advisory Service at Mercator Advisory Group.

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