Retail: Embracing Digital Wallets, BNPL and POS Systems

As financial services navigate the digital revolution, retail payments are being transformed with digital wallets predicted to hit a staggering transaction value of over US$16tn globally by 2028, reshaping consumer spending habits across the globe​. 

According to McKinsey & Company, advanced POS systems are incorporating instant payment technologies to deliver real-time, seamless shopping experiences​​. This technological leap is influenced by a notable shift in consumer trust, with large tech firms gaining ground over traditional banks, demonstrating a preference for digital-first payment solutions​​. 

The surge in popularity of Buy Now, Pay Later (BNPL) services reflects a broader trend towards flexible financial solutions, especially during times of economic uncertainty​. 

Changes to the retail payment industry are also characterised by innovations in POS technology, from cloud-based systems to enhanced personalisation, promising to revolutionise retail interactions and elevate customer satisfaction​​.

Digital Wallets: Growth and Global Trends

The retail payments market in the Euro area exhibited strong trends in the first half of 2023. Non-cash payment transactions rose by 10.1%, highlighting an accelerating shift towards digital payment solutions. Card-based payments increased by 15.6%, and notably, contactless card payments surged by 24.3%, according to data published by the European Central Bank.

These trends emphasise increasing consumer preference for rapid, secure and convenient payments options and a broader shift towards digital wallets and innovative technologies across Europe.

Olivier Sery, Global Head of Sales, Digital Solutions at Giesecke+Devrient, recently discussed the significant expansion of digital wallets, which are predicted to represent 28% of all non-cash transactions by 2027. 

This growth is fueled by the increasing dominance of e-commerce and mobile wallet transactions, expected to account for 54% of transaction values by 2026, per a Capgemini report.

Sery elaborates on the evolving role of digital wallets, stating: "Digital wallets are evolving beyond simple payment tools. Banks have a unique opportunity to harness their capabilities fully, transforming banking applications into comprehensive payments solutions. 

“This transformation includes enabling NFC-based payments and providing customers with greater visibility, control and choice, thereby placing these institutions at the vanguard of sustainable banking practices."

He further explains the potential of "super wallets," which integrate a broader range of services within a single application. 

"Digital banking users can leverage transaction data for valuable environmental insights and actions. Moreover, super wallets facilitate access to a suite of services including credit requests, online purchases and even social media or instant messaging. We're witnessing significant growth in this sector, especially in emerging markets. 

“As digital wallets become more integrated into daily life, consumer expectations are shifting, anticipating more comprehensive lifestyle services from their payment providers and banks,"  Sery continues.

A "super wallet" typically refers to a digital wallet that offers a wide range of features beyond just storing cryptocurrencies. Unlike a basic digital wallet, a super wallet may include additional functionalities such as integrating various financial services, supporting multiple types of digital assets (like cryptocurrencies, tokens, and even non-fungible tokens or NFTs) and offering services like staking, lending, or swapping assets directly through the wallet interface. 

In short, it's a more advanced and versatile tool for managing digital finances, often aimed at providing a comprehensive financial platform in one application.

Pinar Koygun, Senior Director of Retail Vertical Growth at Worldpay, predicts that by 2027, digital wallets will represent 61% of online transaction value and 46% of in-store transactions. This trend is especially pronounced in the APAC region, driven by QR-code payments and a high adoption rate among younger consumers.

“Our global survey of 5000+ respondents from key markets reveals that 49% used digital wallets in the past year, citing convenience. With nearly half of shoppers engaging in multi-channel shopping and a preference for digital wallets among 18–26-year-olds (34% of respondents), we anticipate increased usage across all commerce channels,” says Koygun.

The Evolution and Stabilisation of BNPL Services

BNPL services are reshaping consumer credit, especially among younger demographics accustomed to the immediacy of digital shopping. The appeal of BNPL lies in its simplicity, aligning well with the digital-first lifestyle of newer generations. 

As these services mature, experts like Elena Bazhenova from Exactly predict that BNPL services will stabilise, courtesy of regulatory frameworks and market maturation.

The evolution of BNPL is not limited to consumer transactions. The sector is also making strides in B2B applications, where traditional trade credit practices are being enhanced with digital solutions, offering more structured and secure payment terms. 

This shift is notably driven by tech companies in Europe and the US, with sectors like construction seeing significant benefits.

Louis Carbonnier, Co-founder and President of Hokodo, discusses the evolution of the BNPL sector, noting its fluctuating popularity and operational challenges. "BNPL has seen significant ups and downs. While it has become a preferred consumer payment method and exploded in popularity, major players struggle with profitability," Carbonnier said. He forecasts that BNPL will remain popular in B2C markets but anticipates major regulatory and market consolidation changes.

Carbonnier also highlights the distinct nature and growing trend of B2B BNPL services, driven by a select group of tech companies in Europe and the US, including Hokodo. "B2B BNPL differs notably from B2C. Businesses, accustomed to trade credit, are inherently more cautious in spending, which influences the dynamics of BNPL in the B2B context," he explains.

Expecting a shakeout in the sector, Carbonnier predicts: "As the market matures, a few dominant players will emerge. B2B BNPL is gaining traction as a safe, simple and supportive trading mechanism among businesses." These insights underline the anticipated stabilisation and growth in the B2B BNPL segment, reflecting a shift towards more regulated and structured market conditions.

Sery, discussing the burgeoning BNPL sector, highlights its growing appeal, particularly among younger consumers who value the simplicity and convenience associated with digital transactions. "BNPL's popularity, especially among millennials and Gen Z, is tied to the seamless integration with e-commerce." 

He also addresses the evolution of BNPL platforms into "super apps" that are becoming the starting point for consumer shopping experiences. "These super apps not only connect merchants with new customers but also enable personalised interactions based on established purchasing habits." This shift is creating significant opportunities for retailers to enhance customer engagement and retention.

Sery also emphasises the potential for traditional financial institutions to compete within the BNPL space effectively. "Banks are ideally positioned to meet the demands of digital-first consumers by adapting their offerings. By incorporating BNPL features into mobile banking applications, essentially creating a 'super wallet,' banks can leverage their established relationships and expertise." 

Sery predicts that this integration will not only streamline the payment process but also increase conversion rates for merchants. "We're likely to see a more comprehensive and efficient payment experience as banks embrace flexibility and digitalisation, aligning with the needs of modern consumers," he concludes, indicating a strategic transformation in how financial services and retail sectors intersect.

Innovations in Checkout and POS Systems

Retailers are not only updating their payment systems but are also innovating and enhancing consumer interaction at the point of sale. Scan-free checkouts and mobile POS systems are pivotal in this regard. 

Brad Hyett, CEO at Phos, recently discussed the emerging trend of scan-free shopping technologies, such as SoftPoS, which are transforming the retail experience by simplifying the checkout process. 

"Mobile point-of-sale systems, enabled by NFC technology, allow retail staff to use their existing devices to meet customer needs promptly, eliminating long lines and the search for checkout counters," he explains. 

He emphasises the dual benefits to both consumers and staff: "This technology not only enhances the shopping experience for customers but also alleviates the pressure on staff from managing large crowds and maintaining multiple checkout terminals."

Hyett highlights the cost-effectiveness and operational efficiency of adopting NFC-enabled SoftPoS systems. 

"Retailers can increase efficiency and reduce costs without the need for additional investments in checkout infrastructure. This allows staff to concentrate on providing exceptional service rather than dealing with the logistical challenges of traditional checkouts," he adds, underscoring the strategic advantages for retail operations adopting these innovative solutions.

The introduction of mobile POS systems is transforming interactions within stores: systems like Tap on Any Device technology allow any smartphone or tablet to act as a payment terminal, revolutionising customer service by facilitating transactions anywhere within the store or even outside it. This flexibility is crucial for enhancing customer experience and operational efficiency.

George Sinanis, COO of Viva.com, describes how Mobile POS systems are revolutionising retail by converting any smartphone or tablet into a payment terminal. This innovation significantly enhances the flexibility and efficiency of retail transactions by enabling payments anywhere, directly at the point of customer interaction.

Sinanis highlights the impact of this technology: "Mobile POS systems represent more than just an enhancement in payment convenience—they signify a major shift in commerce. With Tap on Any Device technology, any mobile device can seamlessly become a checkout point, eliminating long lines and enabling transactions wherever the customer prefers."

"For small businesses, the need for traditional, bulky cash registers diminishes, allowing for cost savings and the use of existing devices for transactions. Larger retailers can equip staff with mobile devices to facilitate payments anywhere on the premises, from stores to hotels, enhancing the customer experience and eliminating lost sales due to wait times." 

Concluding, Sinanis stresses the broader implications: "Tap on Any Device isn't just a new payment method; it's redefining retail interactions. It opens up possibilities for transactions at any point of contact with customers, making the payment process almost invisible and seamlessly integrated into the overall customer experience."

Enhancing Customer Loyalty through Innovative Programs

Retailers are increasingly integrating loyalty programmes into payment systems, using real-time data to personalise rewards and enhance customer experiences. This approach not only retains customers but also integrates social commerce elements, improving the overall shopping experience for the customer.

Pinar Koygun highlights the most effective loyalty strategies: "Preferred programmes range from point-based systems to memberships and tiered rewards. In today's economy, offering exclusive discounts and unified loyalty points is essential. Moreover, future loyalty efforts will likely focus on personalised incentives, sustainability through recycling rewards, and seamless experiences across all channels."

Alan Holcroft, UK Country Manager at Cegid, emphasises the importance of aligning retail strategies with customer preferences. He states: "Retailers must understand customer needs to tailor clienteling solutions effectively, using purchase histories to drive personalised engagement and boost sales."

Holcroft also highlights the challenges of managing promotions within retail environments. "Effective promotions draw customers, but POS systems must efficiently handle multiple discounts to prevent dissatisfaction and loss of sales," he explains, stressing the need for advanced POS technology to ensure operational efficiency and customer satisfaction.

Looking ahead, the digital wallet landscape is poised for significant growth and transformation. With advancements in technology and changing consumer preferences, digital wallets are set to revolutionise payment systems globally.

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