Contactless payment is only the start of a revolution which will change the relationship between the retailer and the customer


Who accepts a cheque any more? The passing of an inefficient, insecure and time-consuming payment method has raised very few voices in protest. The chequebook is heading for the scrapheap with other 20th century notions like music cassettes and film processing.
But is it time to add cash to the pile? The major banks clearly think so, with the trials next month of the UK's first contactless payment cards. Visa's payWave and Mastercards' PayPass will enable customers to pay for purchases under £10 simply by passing their card over a scanner. Goods are scanned and bagged at the till, as usual, then a wave of the card, even from inside a wallet, communicates data to the point-of-sale terminal and half a second later the customer is heading for the door.
All well and good, but in the convenience sector - where a personal relationship with the customer is the key to loyalty - are stores going to lose an important part of their appeal? For the convenience retailer, the promise of faster flow through the tills is weighed against that knowledge that it's the smiles and chat which take place as cash is handed over, or the credit card authorises, which makes the convenience channel special. Take that away, they might argue, and we're all indistinguishable retail outlets.
The banks say that with an estimated 27 billion cash transactions taking place in the UK every year, 80% of which are for less than £10, the cards are an ideal payment method for the high-frequency, low- value transactions that form the majority of purchases in convenience stores. For the volume retailer, the attractions are shorter queues, because of the speed of transaction, and a reduction in the time and expense spent handling cash. With no till receipts, the system claims an environmental advantage, and its supporters suggest that the terminals, once installed, will attract repeat business from customers who know they can be in and out of the store in a matter of seconds. Then there's the security of the electronic transaction - no cash in the till means there's nothing to steal.
Launching next month, a collaborative rollout involving the Bank of Scotland, Barclays, Halifax, HSBC and Lloyds TSB will begin in selected areas of London, where consumers familiar with the wave and pay concept from their Transport For London Oyster cards are seen as likely early adopters. It is anticipated that other regions will start to see the terminals in 2009, and by 2011 70% of debit cards and 45% of credit cards are expected to be contactless-enabled.
John Bushby of MasterCard Europe says he is confident that consumers in the UK will be quick to adopt contactless payment. "They are faster and more convenient than cash and retailers benefit too," he adds.
Visa UK managing director Jose San Juan stresses that "retailers will enjoy quicker transactions, the security of the payment guarantee and an end to the high costs associated with handling cash".
Not everyone shares the bank's enthusiasm for a cashless world. Some retailers are suspicious about the cost of operating the new system, as they remember how the charges for handling credit card transactions were initially low enough to encourage stores to adopt the technology, then ramped up once it was established. Cash may be expensive to handle, they argue, but this could end up being worse.
Others take a moral standpoint. Ron Delnevo, managing director of ATM supplier Bank Machine, says: "At a time when consumer debt is at an all-time high it is irresponsible of card issuers to suggest that cash transactions are somehow old-fashioned. It is an increasing worry that big institutions and retailers are continually attempting to manipulate the ways in which we spend our money and what it is spent on."
Delnevo adds that a YouGov poll commissioned by Bank Machine revealed that 75% of consumers would prefer to be able to use cash for smaller transactions. "The trials into the contactless card aim to encourage a cashless society which is clearly not what the British public either needs or wants," he adds.
There's no doubting, however, that technology will continue to change our lives and the retail trade is moving with it - but not quite fast enough, according to research that suggests retailers are not meeting consumers' expectations for a smoother shopping experience. In a European poll of 2,400 people, IT company Fujitsu Services found two- thirds felt that automated services improve the efficiency and convenience of their lives. "The key theme to emerge from talking to consumers is that they are clear about the service they expect from retailers and in many cases they do not feel these expectations are being met," says Mark Dorgan, European retail partner at Fujitsu Services. "Multi-channel technologies are available and consumers are willing to explore their benefits. Retailers know they need to catch up - the time to act is now, because consumers demand it."
Making the customer's life easier is a noble aim, but it's not the only reason for retailers to adopt the wave of new technology currently coming our way. The key for store owners is to ensure that the advances work for them, too.
Currently on trial in the US is a loyalty kiosk designed by Pay by Touch, which is enabling retailers to personalise discounts for regular shoppers based on their purchasing history. As they enter the store, the customer swipes a loyalty card and receives a printed sheet of coupons which they can use as they shop. A second swipe at the checkout automatically applies the discounts to any of the promoted items which have been selected.
The system then uses data from the current shopping trip to generate the next set of rewards, and can be configured to produce offers for promoted lines, new shoppers or other target groups.
"The printout shows the customer exactly how much they can save with their personalised discounts," says Tom Fischer, vice-president EMEA of Pay By Touch. "And on settlement, the retailer will know which offers influence purchase. It gives you the opportunity to cross-sell, too, by promoting related items the consumer doesn't usually buy." He adds that the company is starting UK trials this year.
A similar focus on personalised offers for each customer is behind a mobile phone-based loyalty scheme due to roll out across 16,000 UK stores this month. Shop Scan Save, which is launched in stores with PayPoint terminals, allows consumers to register to have money-off deals sent to them via text message. The message includes a barcode which can be scanned from the phone's screen at the store, automatically applying the discount.
The system is also said to make the reclaim process easier than with paper-based coupons. The discount is automatically registered by PayPoint and the retailer is expected to receive reimbursement within days.
Meanwhile, in the US, trials are beginning on an innovation which will allow payments to be made over mobile phones. A pilot scheme run by the Wells Fargo bank and Visa will enable the public to make secure payments in stores and restaurants direct from their handset. They will also be able to receive and redeem mobile coupons, and even access their accounts. Other banks including HSBC, Citibank and Bank of America are also looking into the technology.
Self-checkout terminals are already with us, but full-scale adoption remains tantalisingly out of reach. Consumers have been suspicious of using the technology, and some difficulties in operating the systems hasn't helped. Newer versions iron out the problems and self-scan is expected to be widely used by 2010, cutting queues and freeing up staff for other customer-facing duties around the store.
One extension of the contactless trend is the move towards automated vending machines in c-stores. Deepak Patel's Budgens store in Woodbridge, Essex, is trialling a system where traditional behind-the-till items such as cigarettes and razor blades are paid for at the checkout and then collected from a secure vending machine. Vensafe's Zervio shopping system invites customers to select a card - essentially a photograph of the product they want - from a display at the checkout. This is scanned and the product paid for, and the card can then be inserted into the collection kiosk and the purchased product is dispensed. Deepak says the system, which he is using to vend tobacco products and other theft-prone items including batteries, condoms, non-prescription medicines, memory chips and phone cards, has reduced stock losses and eased congestion at the tills. Both customers and staff have been very receptive of the scheme, he adds.
What's interesting is when you put the emerging technologies together. Are we about to enter an era where consumers can receive personalised offers to their mobile phone, order and pay for the goods there and then and collect their purchases from an automated vending facility at their leisure? It's a long way from convenience retailing as we know it, but it may be nearer to becoming a reality than many would like.

Three for the future


It won't be long before your shelves start to sell for themselves, as technology enables you to influence the customer at the point of purchase.

Show and tell
"On-shelf promotional displays are just part of a digital media network system which sends the right message to the right customer at the right time," says Fujitsu Services' Paul Harper. "They make the retail experience more individual for each shopper." The screens can run promotions for items on the adjoining shelves, or cross-sell associated products. Triggered by a motion sensor, the displays can also be used to run manufacturers' advertisements, a potential extra source of revenue for the retailer.

Scan for plans
Radio frequency identification (RFID) reads a tag on the product pack as the customer waves it in front of an on-shelf display. The screen will then show product details, recipe ideas or instructions for use, and can highlight associated products and where to find them in the store. The same RFID tags can be scanned at the checkout without items being removed from the trolley or basket.

The price is write
Electronic shelf-edge labels have been just over the horizon for some time now - but they have come a step closer with new low-energy designs. The labels can include product information as well as automatically updated prices. However the cost per unit will need to come down substantially before the labels are seen in the aisles of most c-stores.

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