It's been a difficult few months for the retail sector. The war in Ukraine, the transition to a post-Covid economy, and managing Brexit have created many challenges for retailers. Retail businesses have been feeling the squeeze from every side, from more
red tape around imports and exports to reduced sales volumes and increased pressure to control costs. Solving and overcoming these problems will take time, patience, and careful planning. However, help is at hand. Over the last few years, we have been going
through a payments revolution, with a new breed of Alternative Payment Methods (APMs) emerging that are ideally placed to help lessen some of the burdens they face
Before exploring the different types of APMs in depth and looking at how they can help, it is first worth clarifying what an APM is. Simply put, APMs are any non-cash payment method that doesn't run on traditional credit or debit card rails. Due to the proliferation
of smartphones and technologies like NFC, QR codes, and biometric authentication, APMs have seen enormous innovation in recent years. Already, payment methods like Buy Now, Pay Later (BNPL), and mobile payments have begun to cement themselves as core payment
options at checkout, while newer systems like Account-to-Account (A2A) payments are starting to emerge. Each provides new features and opportunities for retailers to engage customers better, reduce costs, and develop new business models. It is, therefore,
time to look at some of the main APMs in more depth.
BNPL: BNPL is becoming a widespread payment option in retail. Driven by increasing demand from
35-44-year-olds, BNPL has risen to the stage where failure to offer it risks damaging the customer experience (CX). Despite its ascent, BNPL is not standing still, and we are currently seeing its latest evolution, BNPL 2.0. Built around the need for better
consumer protections, responsibility, and sustainability, BNPL 2.0 builds on what has made BNPL so popular with consumers but adds the maturity it now needs. An example of BNPL 2.0 in action could be something as simple as charging late fees for missed payments.
Charging late fees can help prevent customers from taking on too much debt, leading to longer-term personal finance issues. To stay at the forefront of CX, retailers must ensure they offer BNPL 2.0 solutions. Doing so will not only help retain customers but
also gain new ones from competitors while also helping build consumer trust.
Mobile payments and super apps: Retailers looking to stay ahead of the game need to ensure that payments and non-payment items have a digital wallet option if they are to meet consumer expectations. At the same time, super apps are also beginning
to make their presence felt. Already widely used in parts of Asia, super apps that combine the functionality of multiple apps into one single system are now seeing growth in Europe. Super apps are a fantastic opportunity for retailers to enhance CX by bringing
online and in-store shopping together, making it easier to manage services such as click-and-collect or returns. For payments, too, super apps provide a home for retailers to launch new mobile payment options like BNPL, digital currencies, and bank-to-bank
Digital currencies: Digital currencies arrived with a bang thanks to the excitement around cryptocurrencies. However, so far cryptocurrencies have failed to take off as quickly as a mainstream payment option as many expected. But as the underlying
digital currency technology matures and our understanding of where it can and can't be used develops, we expect to see digital currencies evolving and gaining consumer attention again. For instance, the current attention and excitement around Central Bank
Digital Currencies (CBDCs). Developed from the underlying technology behind cryptocurrencies, CBDCs are set to finally unleash the potential blockchain technology held for payments. Enabling faster payments, lower transaction fees and even micropayments, CBDCs
combine the technological features of crypto with the trust and stability of fiat currencies. For retailers, CBDCs could revolutionise their payment systems and entire business models. This is one area that is once again worth keeping a close eye on over the
next few years.
Bank-to-bank payments: Bank-to-bank payments are seeing a lot of interest from retailers. Facilitating payment as account-to-account transfers, bank-to-bank payments run on streamlined and much simpler rails than those for credit and debit cards.
Thanks to this streamlining, bank-to-bank payments have lower transaction fees and, crucially, instant reconciliation. Consequently, retailers benefit from not only the same advantages that CBDCs offer, like the ability to provide micropayments, but with instant
reconciliation, retailers can improve their cash flow management as well.
Providing bank-to-bank payments to customers can also be accomplished with existing payment systems. Connecting a customer's account to a retailer's account to enable payment can be done via a QR code-based system. Not only is this quicker and simpler than
the rails used for debit or credit card payments, but it is just as secure, meeting the exact regulatory requirements as any other payment method.
While no one knows how the economic situation will end up, one thing is clear; APMs are here to stay and ready for retailers to use and benefit from. For retailers wanting to stay ahead of the game and access the full benefits of APMs, then now is the time
to ensure the right payment systems are in place.