How do Dutch consumers pay in 2020 - trends and scenarios

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Overview of how the Dutch consumers pay in 2013 and the nine trends that are most likely to change this behavior; resulting in four consumer payment scenarios for 2020

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How do Dutch consumers pay in 2020 - trends and scenarios

  1. 1. HOW DO THE DUTCH PAY IN 2020 A REPORT ON TODAY’S TRENDS AND FUTURE SCENARIOS Shopping2020 - December 2013
  2. 2. Table of contents Introduction and background Management Summary PHASE 1: How the Dutch pay in 2013? 1. Payment contexts 2. How do the Dutch shop anno 2013? 3. How do the Dutch pay anno 2013? 4. Trends and examples PHASE 2: How the Dutch pay in 2020? 5. Drivers for the future of payments 6. Four possible scenarios for payments in 2020 7. Concluding remarks and findings ANNEX © Shopping 2020 – Expert group Transaction 1
  3. 3. Introduction of the expert group Transaction Within the industry broad initiative of ‘Shopping2020’, the Expert Group Transaction described the current state of affairs of transactions in retail (Part 1, ShoppingToday) and explored future scenarios for retail payments (Part 2, Shopping2020). The illustrations below clarify the structure of the entire program. In ShoppingToday, the experts identified 9 trends that determine the development of transactions in retail contexts. These trends, together with the current situation, have been the starting point for part two of the study: Shopping2020. In the second part, four scenarios were created, based on two major determining forces: the public stance towards the use personal data and consolidation/fragmentation of payment brands. The expert group identified implications of the four scenarios and came up with a set of overarching conclusions. Position of expert group Transaction in total program Research questions of phase 1 and 2 Future Trends Demographic, Culture Economy Customer Journey Orientation Selection Transaction Delivery Customer Care Customer Intelligence Technology Future Touchpoints Action Shopping plan 2020 S2020 Vision Netherlan ds Travel Action Actieplan plan Retail Finance Actieplan other… Ecology Political / legally Key Themes Business Models Omnichannel Organisation Security & Fraud New mainstreet Smarter Shopping Supply Chain Online enterpr 19 Expert Groups Central Research Question Shopping 2020 How does the consumer shop in 2020 and which actions should be taken on national, branch and company level so that Dutch B2C operating companies can anticipate on that, nationally and internationally? ‘Shopping Today’ (2013) ‘Shopping2020’ Research Questions Expert Group ‘Transaction’ 1.What is the current situation for transactions in Dutch retail practice? 2.What are current trends and examples? © Shopping 2020 – Expert group Transaction 1.What are most important trends, points for improvement and opportunities in transactions? 2.What are the most likely future scenarios? 2
  4. 4. Main findings: retail payments is about optimizing convenience and trust Today, the Dutch retail payment landscape is dominated by cash and Maestro (‘pinnen’), offline, and iDEAL, online. Both contexts remain largely separated, although they converge slowly. The expert group identified nine trends that are currently shaping the future of retail payments. Among them are the emergence of digital identities, convergence of channels and, for certain consumers, a stronger desire to protect their personal data (full set of trends: Part 1). Four scenarios were described and assessed (Part 2), based on the current state of affairs and trends. The scenarios are built along the axis of privacy and control by consumers and the number of payment service (s / providers). The expert group is aware of a shift towards scenario 2 (many payment services, decreasing privacy awareness), that deviated by an incident or new regulation to arrive at the other scenarios 1 High privacy Awareness and 3 control t=0 2 Low privacy awareness 4 and control (Consolidation) Few payments methods (providers) Four future scenarios for retail payments 2 1 Many payments methods (providers) Incident + regulation! Each of the scenarios will demand a different strategy from retailers and service providers. Four observations and best practices transcend the scenarios and hold for all four: Because transaction services are part of two-sided markets, with sophisticated dynamics and network effects, new developments are expected to be incremental In all scenarios, trust is a key element for providers of transaction services. Consumers are asking for more sophisticated services but never at the expense of trust 3 4 The internet has become an integrated part of the total shopping experience. Payment services should be available across contexts and offer a consistent UX The development of digital identity services has the potential to radically change the retail and payment landscape. If we want to realize a truly seamless, omni-channel shopping experience, there is a challenge for the payment industry to come up with an infrastructure that enables the exchange of digital identities in a convenient and trusted manner and that provides the necessary reach on both sides of the ecosystem. © Shopping 2020 – Expert group Transaction 3
  5. 5. Expert group ‘Transaction’: well-grounded with 21 payment experts from diverse backgrounds (1/2) Eric van Vuuren (Host) Business Developer Equens Michel Drupsteen Sr. Business consultant ING Bank Shikko Nijland (Chairman) Managing Partner Innopay Wieske Ebben Policy Advisor Payment De Nederlandsche Bank Paul Alfing Policy Adviser Thuiswinkel.org Max Geerling Director Card Products & iDeal Currence Simon Berende Senior Product Manager Consumer Payments ABN AMRO Bank Rene Hodde Executive Director Chess Group Gert Blom Manager Strategic Alliances Paysquare Rob Hoitink Productmanager iDEAL Currence Gijs Boudewijn Hoofd Betalingsverkeer & Veiligheid Nederlandse Vereniging van Banken Rommert Jorritsma Consultant Payment Systems Intersolve © Shopping 2020 – Expert group Transaction 4
  6. 6. Expert group ‘Transaction’: well-grounded with 21 payment experts from diverse backgrounds (2/2) Marja van Kalveen Teamleider productmanagement Toonbankbetaalproducten Rabobank Nederland Bedrijven Noor Pierik Sr. Marketeer Cards Acquiring Equens Gerben Klop Strategy and Business Development xXess360 Marja van Reijn Regional Manager Global Blue Jip de Lange Consultant Innopay Michel van Westen Voorzitter VBIN Okke Mönking Business Leader Acceptance Mastercard Dennis Wooning Sr. Productmanager Debit- & Credit Cards ABN AMRO Bank Tom Nijenhuis Head of Strategy & Development Equens © Shopping 2020 – Expert group Transaction 5
  7. 7. Table of contents Introduction and background Management Summary PHASE 1: How the Dutch pay in 2013? 1. Payment contexts 2. How do the Dutch shop anno 2013? 3. How do the Dutch pay anno 2013? 4. Trends and examples PHASE 2: How the Dutch pay in 2020? 5. Drivers for the future of payments 6. Four possible scenarios for payments in 2020 7. Concluding remarks and findings ANNEX © Shopping 2020 – Expert group Transaction 6
  8. 8. Payments in NL anno 2013: cash, ‘pinnen’ and iDEAL Offline: Maestro Online: iDEAL 58% 93% (market share, # electronic transactions) (Last used online payment) Remarks: • In this report we refer to “pinnen” for what is actually a Maestro transaction Source: DNB, Currence © Shopping 2020 – Expert group Transaction 7
  9. 9. ‘ShoppingToday’: nine trends that will impact the role of transactions in the total retail experience (1/3): Trend 1: Digital Identity • Increasing electronic interaction between parties leads to demand for identification/authentication in the virtual world, thus requiring a trust framework and providing the participants with clarity on rules of engagement, risk and liabilities • Since trust is a basic requirement for consumers and merchants to participate in (e-)commerce, having an online identity which is as strong as a real-world identity is the ultimate solution Trend 2: Mobile Shopping • The share of smartphones of total mobile phone penetration in The Netherlands has well passed the 50% mark • Nearly 3/4 of Dutch smartphone users browse the internet every day, and over 70% have used them to make informed shopping decisions • Currently mobile shopping is held back from the lack of widely adopted payment methods that are designed for the smaller screens (although PayPal and KNAB and ING’s & Rabobank’s iDEAL mobile solution are exceptions to this rule) © Shopping 2020 – Expert group Transaction Trend 3: Digital Wallets • Digital wallets offer services for payment and loyalty, storing consumer and payment credentials. Wallets aim to: ₋ Increase speed and convenience for consumers ₋ Provide conversion and customer retention for retailers • We currently see many parties trying to offer wallets to consumers and retailers, resulting in a “war on the wallets” • Many additional and innovative services are expected as wallets try to claim the primary customer and merchant interface 8
  10. 10. ‘ShoppingToday’: nine trends that will impact the role of transactions in the total retail experience (2/3): Trend 4: Changing POS interaction • The in-store Point of Sale terminal (POS) is changing to new interfaces, the classic ‘magstripe’ has been changed to the EMV chip and a next step is the contactless interface, allowing consumers to tap with either a contactless card or a contactless mobile phone supporting NFC • New technologies are challenging traditional POS terminals and the way payments are initiated in-store • The need for smart and secure terminals might decrease with security moving into the network and shifting to the consumers mobile device • We also see the use of new forms of hardware, identification and data communication, such as mPOS devices, Biometrics, NFC and QRcodes Trend 5: Changing checkout • In combination with the capabilities of smart devices such as tablets and smartphones, the in-store checkout and payment flow is changing • Some stores allow sales assistants to freely roam the shop floor, where checkout can be delivered from a smart device such as a tablet and payment is carried out by mPOS • Others allow consumers to scan products using their mobile device and pay via a wallet, thus eliminating the need for a checkout as a whole © Shopping 2020 – Expert group Transaction Trend 6: Conversion of channels • As the internet maturity of the Dutch population continues to grow, consumers are by default considering both the online and offline channel to make purchases • On top of this, there is a growing possibility at merchants to go across channels during in the shopping experience, creating a true omnichannel customer experience • For the consumer this means no longer distinguishing between eCommerce, m-Commerce or physical commerce, but just commerce 9
  11. 11. ‘ShoppingToday’: nine trends that will impact the role of transactions in the total retail experience (3/3): Trend 7: Consumers in control • The need to register yourself over and over again forced consumers to leave information across websites. Sensitive information is left scattered on the internet, which makes it vulnerable to fraudsters • This is also causing many privacy risks especially when online or offline personal data is being used for big data mining • As a reaction to this scattering and usage of personal data and related privacy issues an interesting trend emerged to turn the ownership of personal data around Trend 8: P2P payments • Peer to peer payments, payments with less links in the chain and less central control, will be an alternative in retail contexts, when messaging or information surrounding the transfer of funds becomes real time • Such payment methods could be based on technology as used in mobile channels because it gives both sender and receiver an interactive (and real time communicating) device © Shopping 2020 – Expert group Transaction Trend 9: Increased regulation • The European Commission (EC) has been providing the legislative directives to harmonize payments on a European level • This has resulted in the initial Payment Services Directive (PSD) and the implementation of SEPA payments under the European Payments Council (EPC) • Another relevant directive is the Electronic Money Directive (EMD), setting the rules on funds held in non-bank managed stored value accounts • The regulations mainly aim at creating a level playing field, increasing innovation and lower costs for consumers 10
  12. 12. ‘Shopping2020’: four payment scenarios emerge from these trends, shaping development of ‘transactions’ towards 2020 Many payments methods (providers) Scenario 2 - ‘Consumer Driven’1 Scenario 1 - ‘In Control’ Out of the many payments methods I can choose the way I pay to fit my privacy needs” “I choose from many options those that bring me convenience and provide smooth user experiences in a given context” Personal data is exchanged between contexts to provide smooth customer experiences High privacy awareness and control Scenario 3 - ‘Back to the Trust’ Scenario 4 - ‘Big Brands, Big Data’ 1 “I feel comfortable with a limited number of payment methods where I have full control over who is doing what with my data” Low privacy awareness and control “My payment provider knows a lot about me and can therefore provide me with useful services in all contexts” • Payment providers serve as information brokers between services • A limited set of payment methods is available across contexts Few payments methods (providers) Note 1: All scenarios reflect possible extremes. They are not reflections of the actual current attitude of consumers, merchants or financial institutes with regards to confidential data, nor are they opinions of the experts © Shopping 2020 – Expert group Transaction 11
  13. 13. ‘Shopping2020’: an incident can create an instant shift to another scenario Many payments methods (providers) 1 High privacy awareness and control 2 Incident + regulation! Low privacy awareness and control t=0 3 4 (Consolidation) Few payments methods (providers) I. According to the experts, scenario 2 ‘Consumer Driven’ III. For scenario 4 ‘Big Brands, Big Data’ to unfold, the can be recognized in some of the trends that are currently current trend towards more payment methods / happening. Therefore, scenario 2 can be regarded as an providers will have to stop. However today, there are extrapolation of current developments only a limited number of commonly used payment methods today, so the current situation isn’t far off from II. For scenarios 1 ‘In Control’ and 3 ‘Back to the Trust’, scenario 4. According to experts the number of payment experts expect an incident combined with or followed by methods will first still grow but will further consolidate more stringent privacy regulation that will shake towards 2020 consumers and change their attitude towards the use of personal data. This will shift consumers to higher privacy awareness © Shopping 2020 – Expert group Transaction 12
  14. 14. Impact  ‘Shopping2020’: scenario 4 ‘Big Brands, Big Data’ is most likely 2 4 ‘Consumer Driven’ ‘Big Brands, Big Data’ 1 ‘In Control’ 3 ‘Back to the Trust’ likelihood IV III II I Likelihood I. ‘Big Brands, Big Data’ is considered by the experts as the most likely scenario. The current dominant position of a relatively small group of financial institutes and big brands, combined with the high investments involved with the embrace of new technologies might prove difficult for newcomers to step in. When the experts extend the current movement towards more convenience and wider use of personal data in retail contexts, this scenario is quite likely to occur II. The second most likely scenario is ‘Back to the Trust’. In addition to what is said above, the experts see the risk of a large scale incident involving personal data as eminent. Such an incident could spark a movement contrary to the current trend of more data becoming available and could further enforce more stringent regulation: people may become more aware of their privacy and put their trust with only a small set of service providers III. A development towards the ‘In Control’ scenario is conceivable, but only after an incident (like with scenario 3). Even in this case, it remains to be seen whether consumers are prepared to give away the convenience they have grown used to IV. An important inhibitor for scenario 2 (‘Consumer Driven’) is the ‘absorption capacity’ of users: there is doubt whether users are capable of understanding many different payment methods and appreciate a wild variety of check-out experiences. Although choice is good, things might get too confusing (as is already today the case in the abundant choice of phone subscriptions, energy contracts and healthcare insurances) © Shopping 2020 – Expert group Transaction 13
  15. 15. Impact  ‘Shopping2020’: scenario 2 ‘Consumer Driven’ has highest impact Impact The impact of the various scenarios was determined by the experts taking the current situation as a starting point, including the trends that we witness 4 I II ‘Big Brands, Big Data’ III 2 ‘Consumer Driven’ 1 ‘In Control’ 3 IV ‘Back to the Trust’ likelihood I. According to the experts, scenario 2, ‘Consumer Driven’ is the scenario with the highest impact on the position of payments in the total retail chain. Although it is commonly felt that most trends currently push in the direction of this, the possibilities of ‘Consumer Driven’ are endless. Currently, the number of payment methods that is commonly used is still relatively limited and consumers and businesses are still beginning to discover the possibilities of putting personal data to work in retail. It is therefore hard to underestimate the impact of this scenario II. The second biggest impact is from ‘Big Brands, Big Data’: the application of large quantities of personal data in retail context is regarded as a stronger impact than the number of payment methods III. ‘In Control’ would halt the trend of applying more and more personal data in retail contexts IV. The impact of the ‘Back to the Trust’-scenario is coming from the fact that it would reverse trends that we are currently seeing: it would push retail in the opposite direction of where it is heading now. However, both movements (‘right’ and ‘up’ in the graphic) have only just started. Therefore the impact on the current payment experience is limited © Shopping 2020 – Expert group Transaction 14
  16. 16. Observations & conclusions 1. When it comes to shopping and paying consumers seem to want both reliability/security and convenience at the same time 2. Furthermore, Dutch consumers are not used to pay directly for this category of services and merchants are used to low costs for accepting electronic payments 3. Consumers seem to consider reliability/security more like a qualifier/hygiene factor while convenience is being considered as a differentiator/added value 4. Payment is most likely to become increasingly a seamless part of the shopping experience whether there are many or few payment methods and/or providers 5. Consequently, in any scenario some sort of digital or financial identity will be a key enabler to progress the market and as a means to more seamlessly embed payments in the shopping experience 6. The current movement seems to be that consumers find privacy important but seem to be willing to trade it for convenience, even though we see some momentum developing in favor of more privacy control by the consumer. Especially major privacy incidents can turn the situation around and increase regulation, awareness and a demand for control of personal data 7. Developing (international) rules & regulation, frameworks, infrastructures, services and products regarding digital identity and personal data management is considered almost conditional for any scenario since this has high potential for improving the shopping experience depending on how it will be implemented 8. Developing more seamless shopping experiences based on new infrastructures towards 2020 in parallel with improving the existing shopping and payment process and infrastructure seems the most logical approach for migration towards shopping in 2020 Note: The observations presented on this page were made during the process of detailing the Shopping2020 scenarios and thinking ahead about retail experiences in 7 years. They can be regarded as remarks by the expert group across the scenarios © Shopping 2020 – Expert group Transaction 15
  17. 17. Table of contents Introduction and background Management Summary PHASE 1: How the Dutch pay in 2013? 1. Payment contexts 2. How do the Dutch shop anno 2013? 3. How do the Dutch pay anno 2013? 4. Trends and examples PHASE 2: How the Dutch pay in 2020? 5. Drivers for the future of payments 6. Four possible scenarios for payments in 2020 7. Concluding remarks and findings ANNEX © Shopping 2020 – Expert group Transaction 16
  18. 18. PHASE 1 HOW DO THE DUTCH PAY IN 2013? DON’T BELIEVE THE HYPE...........YET ShoppingToday - September 2013
  19. 19. Phase 1: ‘ShoppingToday’ Central Research Question to be addressed in this report: How does the consumer shop in 2020 and which actions should be taken on national, branch and company level so that Dutch B2C operating companies can anticipate on that, nationally and internationally? Phase 1: ‘ShoppingToday’ (2013) Phase 2: ‘Shopping2020’ Research Questions expert group Transaction 1. What is the current situation for transactions in 1. Dutch retail practice? 2. What are the most important trends. points for improvement and opportunities in transactions? What are current trends and examples? 2. What are the most likely future scenarios? © Shopping 2020 – Expert group Transaction 18
  20. 20. Payments in NL anno 2013: cash, ‘pinnen’ and iDEAL Offline: Maestro Online: iDEAL 58% 93% (market share, # electronic transactions) (Last used online payment) Remarks: • In this report we refer to “pinnen” for what is actually a Maestro transaction Source: DNB, Currence © Shopping 2020 – Expert group Transaction 19
  21. 21. Table of contents Introduction and background Management Summary PHASE 1: How the Dutch pay in 2013? 1. Payment contexts 2. How do the Dutch shop anno 2013? 3. How do the Dutch pay anno 2013? 4. Trends and examples PHASE 2: How the Dutch pay in 2020? 5. Drivers for the future of payments 6. Four possible scenarios for payments in 2020 7. Concluding remarks and findings ANNEX © Shopping 2020 – Expert group Transaction 20
  22. 22. How consumers and merchants are related: a two-sided market Purpose of the chapter: • This chapter illustrates the factors determining how merchants and consumers choose their preferred payment method. • Furthermore, this chapter shows how shopping and payments are related. Two-sided markets: • Two distinct user groups with different needs that are interdependent • Network effects: benefits of usage are experienced across sides Challenges: • Reach is a chicken-and-egg phenomenon • Winner takes all dynamics • Pricing of services across both sides: often one side is subsidized by the other side. In payments, the payer is subsidized by the payee Source: Innopay © Shopping 2020 – Expert group Transaction 21
  23. 23. Transactions consist of three processes: agreement, payment and delivery Transactions are determined by contexts • The ‘transaction context’ is the total of situational circumstances in which three processes of the transaction take place: agreement, payment and delivery • A successful transaction typically consists of two actors: buyer and seller • Risk is at the heart of every transaction, for buyer and seller Source: Innopay © Shopping 2020 – Expert group Transaction 22
  24. 24. e-Commerce changed the relative timing of the three processes, resulting in unbalanced risks A P A P A P Agree Pay Agree Pay Agree Pay R Risk D • • • RP R Risk Risk Deliver Point of Sale transaction RA R RD D Deliver Internet transaction D Deliver Context: Relation (r) Product (p) Location (l) Timing (t) In traditional commerce, three processes are executed at one time, in one place: agreement, payment, delivery. The Risk is balanced. The introduction of new channels such as internet changed the dynamics of transactions. Transaction processes are now disconnected in time and place, introducing unbalanced Risks. These risks can be characterized by four risk factors: • Relation (r) Do buyer and seller know or even trust each other? • Product (p) What is the value and substance of the product involved? • Location (l) Where does the transaction take place? • Timing (t) In what order are Agreement, Payment and Delivery executed? Source: “Understanding buyer and seller behaviour for improved payment product development”, C. Liezenberg, D. Lycklama, H. Smorenberg. Journal of Payment Strategy & Systems, April 2007 © Shopping 2020 – Expert group Transaction 23
  25. 25. Timing determines whether Buyer or Seller bares the risks 1 time 2 time 3a time A P D Agree Pay Deliver A D P Pay Agree Deliver A P Pay Pay afterwards Risk with seller D Agree Pay in advance Risk with buyer Deliver Pay and delivery at same time Risk equally divided 3b time A P D Agree Pay Deliver Timing (t): The timeline and order in which the processes are executed. Processes can be executed simultaneously or disconnected. In the latter case the order of Payment and Delivery can be swapped. This leads to three generic types of timing. Source: Innopay © Shopping 2020 – Expert group Transaction 24
  26. 26. … leading to endless payment methods to match all contexts © Shopping 2020 – Expert group Transaction 25
  27. 27. Every context has its own payment methods Person-to-Person      Cash Proximity  Consumer-to-Business Debit and Credit Cards Prepaid Wallets Giftcard Cash 1       eWallet Credit transfer Remote   2 Online Banking ePayments eWallet Credit transfer Debit and Credit Cards PayPal Gift Cards 3 4 Source: Innopay 2010 © Shopping 2020 – Expert group Transaction 26
  28. 28. Payment and Loyalty and related fee structures are mainly based on three or four corner models in 2013 4-corner payment model 3-corner payment model Good/ Servicess 1.Consumer Goods/ Services 2.Merchant 3.Issuer • • • • 1.Consumer PSP Periodic Fee Authorisation (Clearing & settlement) (C&S) 3-corner gift card/loyalty model Paymen t 4.Acquirer 2.Merchant 1.Consument Goods/ Services CPSP PSP TRX Fee Authorisati on Periodic Fee Payment 3.Service provider/ Bank 2.Merchant TRX Fee 3.Brandowner Giftcard (C&S) EGI autorisatie Most payment methods and fee structures in The Netherlands are based on a four corner model (f.i. debit card, Maestro, Mastercard, Visa, iDEAL) Interchange fees are relatively low in The Netherlands compared to EU Most gift/loyalty methods are based on a three corner model 1.2B euro is paid in gift cards and vouchers in NL in 2012 Source: Intersolve, Innopay © Shopping 2020 – Expert group Transaction 27
  29. 29. Since the beginning of e-Commerce, we’ve seen continuous evolution of the payment landscape … 3-party model New 3-party based challengers 4-party based challengers 3-party based challengers 5. New contexts demand new functionality. A new wave of 3-party models aims to fulfill these needs 4-party model Volume Online Banking based ePayment 4. In reaction, the 4-party paradigm was translated to the web 3-party model 1. In the beginning, there were cards 3. New payment methods were designed specifically for use on the web 2. Making traditional payment products suitable for use on the internet (...cards were never designed for the web…) 1995 • • 4-party model 2005 2015 Both three and four party models have adapted for usage on the internet Ever more niches demand new functionality and therefore new payment methods Source: Innopay © Shopping 2020 – Expert group Transaction 28
  30. 30. … but only a few new payment methods make it through their infancy Payment products on the Dutch market (non exhaustive) Cash PIN Maestro / V Pay Chipknip MasterCard / Visa Acceptgiro Wallie card MiniTix iDEAL eWallet emPayment! Bill Payter Mobiel betalen NL Travik 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 • As new payment methods will need reach to become successful, many do not survive for long • As the uptake of the payment method takes too much time, merchants and consumers will loose faith and abandon the novelty Source: Innopay, Equens © Shopping 2020 – Expert group Transaction 29
  31. 31. Successful payment solutions provide Reach and Conversion against fair Cost Consumers: Merchants: 1. REACH: Consumers choose payment methods that are widely accepted by merchants  reach 1. REACH: Merchants are looking for those payment methods that their target audience uses: this makes a visitor an potential customer  reach 2. CONVERSION: From those payment methods that merchants accept, consumers will choose those that they trust, that are fast and easy to use  conversion (ease-ofuse) Reach Conversion 1. Cost 2. 3. 3. COST: Although consumers might not be very aware of the cost of the payment mix they use, they do acknowledge cost factors like risk  cost 2. CONVERSION: Payment methods that consumers trust, that are fast and easy to use increase the number of potential customers that actually buys  conversion 3. COST: The cost of payment methods are primarily born by merchants. Therefore, merchants will offer those payment methods that are most economical for them. Fraud can also be regarded as a cost factor  cost Source: Thuiswinkel, Innopay © Shopping 2020 – Expert group Transaction 30
  32. 32. Summary: new payment contexts demand constant development of payment methods • The choice of a payment method depends on the context • Many factors determine the context of a payment, which leads to many different contexts • This could lead to many different payment methods to cater for all these contexts • Risk (or perceived risk: trust) is a determining factor in the choice for a payment method by consumers and merchants • The rise of the internet introduced a totally new context in which new risks were introduced • The challenge is to balance ‘fit-for-purpose’ (a payment method should meet the requirements of the specific context) with ‘simplicity’ (fragmentation leads to complexity for merchants and consumers) • Successful payment methods balance reach, conversion and cost • The added value of payments is to create loyalty (enable the building of client shopping profiles and provide relevant merchant offers) © Shopping 2020 – Expert group Transaction 31
  33. 33. Table of contents Introduction and background Management Summary PHASE 1: How the Dutch pay in 2013? 1. Payment contexts 2. How do the Dutch shop anno 2013? 3. How do the Dutch pay anno 2013? 4. Trends and examples PHASE 2: How the Dutch pay in 2020? 5. Drivers for the future of payments 6. Four possible scenarios for payments in 2020 7. Concluding remarks and findings ANNEX © Shopping 2020 – Expert group Transaction 32
  34. 34. NL Shopping landscape: small supermarkets, historic city centers and domestic e-Commerce Purpose of the chapter: • This chapter illustrates the factors determining where and how consumers shop anno 2013 The Dutch shopping landscape is characterized by: • Small distances and therefore relatively strong regional shopping areas, located in old city centers • Shopping areas often restricted to (historic) city centres • Absence of hyper markets and relatively small number of ‘big-box retailers’ • A relatively strong domestic e-Commerce sector Source: Van der Gijp 2013, Innopay analysis © Shopping 2020 – Expert group Transaction 33
  35. 35. Online shopping is growing, while offline retail is declining Development online vs. offline retail (NL) +14% 100 7 90 6 8 5 9 Growth compared to the previous year 16 10 11 80 35 25 10 8 40 83 90 92 89 87 83 30 79 6 4 20 2 10 20 15 Percentage 50 30 Percentage Turnover in Billion € 60 10 5 0 -5 -10 0 0 2007 2008 2009 % online retail / total retail • • • • 40 14 12 70 • 45 2010 2011 2012 Online retail turnover 2005 2006 2007 2008 2009 2010 2011 2012 2013 Offline retail turnover Retail Total Online Retail The Dutch online market is one of the most developed e-Commerce markets in EU (after UK ~96 Bn, DE ~50 Bn, FR ~45 Bn online sales of goods & services [2012]) In NL online retail will account for 12% of total retail turnover in 2013 The double digit e-Commerce growth in NL is stabilizing at ~ 10% per year since 2013 The vast increase of online retail until 2030 is for nearly 30% at the expense of offline retail The prices in offline retail have increased, as the amount of goods sold (i.e. volume) have decreased substantially since 2009, while recovery is not expected in the short term (> 2015) Source: Thuiswinkel.org, ING Economisch Bureau, Internet World Stats, Emerce, E-commerce Europe, Roland Berger, CBS, Innopay analysis © Shopping 2020 – Expert group Transaction 34
  36. 36. Stable retail landscape, in spite of declining turnover # companies in thousands Division of verticals in Dutch retail +2% 120 110 100 90 80 70 60 50 40 1 3 4 1 3 4 1 3 4 1 3 4 1 3 4 1 3 4 1 3 4 5 7 7 17 21 24 10 10 10 10 10 10 10 10 10 12 12 12 12 12 7 10 10 7 11 7 7 7 13 14 10 11 10 10 12 12 30 20 10 0 6 4 3 2 1 0 -1 -2 -3 32 33 33 32 32 32 31 2007 2008 2009 2010 2011 2012 -4 -5 2013 -6 Gas station Street trading '(no shop or market) Shops in other articles Shops in consumer electronics Market trade % growth y/y retail Supermarkets and department stores Shops in food products Shops in recreational items Shops in other household goods • Declining turnover of total retail sector is not (yet) reflected in the number of businesses • Number of shops over verticals is relatively stable, except for alternative (micro) retailers, ~16% yoy • Top 10 largest retailers all active in ‘Food’ ((top 10 retailer (# shops): Ahold (759), Jumbo (685), Aldi (480), Emté (Sligro) (130), Plus (270), Lidl (270), Super de Boer(20), Makro (17), Dirk vd Broek (99)) Source: CBS, Innopay analysis © Shopping 2020 – Expert group Transaction 35
  37. 37. e-Commerce in the Netherlands compared to Europe: high internet penetration and uptake of online shopping … % 100 % of online shoppers / total population % Internet penetration (2012) NL 80 93 UK 60 84 FR 80 40 DE 83 20 EU 0 ’10 - ’11 - ’12 NL Mn 350 ’10 - ’11 - ’12 ’10 - ’11 - ’12 UK FR ’10 - ’11 - ’12 ’10 - ’11 - ’12 DE EU Number of online shoppers 250 200 150 100 50 ’10 - ’11 - ’12 ’10 - ’11 - ’12 ’10 - ’11 - ’12 NL UK FR 0% 20% 40% 60% 80% 100% • % Online shoppers in NL as part of total population well above EU average and leading e-Commerce countries • High internet penetration in NL contributes to high share of Dutch population shopping online • Although a modestly sized market, the Netherlands is seen as one of the frontrunners in e-Commerce 300 0 73 ’10 - ’11 - ’12 ’10 - ’11 - ’12 DE EU Source: ANVED, Datamonitor, Euromonitor, Ecommerce Europe, Innopay analysis © Shopping 2020 – Expert group Transaction 36
  38. 38. … although average spending per user is relatively low Average transaction value (’10 – ’12) € Average yearly online spending per user (’10 – ’12) 140 € 3,500 120 3,000 100 2,500 80 2,000 60 1,500 40 1,000 20 500 0 ’10 - ’11 - ’12 ’10 - ’11 - ’12 NL UK ’10 - ’11 - ’12 FR ’10 - ’11 - ’12 ’10 - ’11 - ’12 DE EU 0 ’10 - ’11 - ’12 NL ’10 - ’11 - ’12 UK ’10 - ’11 - ’12 FR ’10 - ’11 - ’12 ’10 - ’11 - ’12 DE • • • Average yearly spending is relatively low, even lagging behind EU average Relative success of the Dutch online market is due to the high percentage of people shopping online Next wave of growth to be expected from increased spending of experienced users • EU An average spending per user in line with other EU markets would result in a growth of 35%! Source: ANVED, Datamonitor, Euromonitor, Ecommerce Europe, Innopay analysis © Shopping 2020 – Expert group Transaction 37
  39. 39. e-Commerce in the Netherlands highly concentrated in small number of large retailers Note: total online turnover amounted to € 9 Bn in 2011 70% 30% 3,2 Top 10 online retailers (NL) RFS Holland Holding (e.g. wehkamp.nl) Bol.com 469 358 200 Ahold Travel Revenue in Billion € Distribution of (B2C) online retail revenue (NL) 130 KPN BAS Group (e.g. MyCom) Coolblue 108 H&M 108 HEMA 1.8 106 110 2.0 2.0 Amsterdamgold.com Thuisbezorgd.nl Top 10 Top 11-100 94 83 Online retail revenue in Million € Outside Top 100 • In 2011 the top 100 online retailers represented € 3.8 Billion revenue (an increase of € 700 Million compared to 2010), this exludes the large Travel websites (e.g. KLM), that accounted for € 3.2 Billion revenue • The top 100 online retailers account for ~70% of online retail turnover and growth in online retail is primarily claimed by larger online retailers • The trend that large webshops will grow further and smaller players will either be acquired, remain small or drop out, is likely to continue in the future • Although 5 of the top-10 e-Commerce players have offline operations, channels still seem strictly separated Source: Twinkle, Innopay analysis © Shopping 2020 – Expert group Transaction 38
  40. 40. Summary: Dutch consumers are embracing ‘online’, although in 2013, online and offline still seem separated channels • Offline retail is dominant, but growth is centered in e-Commerce • There is a trend of retail shifting towards larger businesses. This trend is strengthened by the growth of online, where large, professional players are dominant • Top 10 retailers are all supermarkets with (very) limited online activity • Small group of businesses sets the standard for the way people shop and pay in the Netherlands • Offline and online channel still seem to be strictly separated © Shopping 2020 – Expert group Transaction 39
  41. 41. Table of contents Introduction and background Management Summary PHASE 1: How the Dutch pay in 2013? 1. Payment contexts 2. How do the Dutch shop anno 2013? 3. How do the Dutch pay anno 2013? 4. Trends and examples PHASE 2: How the Dutch pay in 2020? 5. Drivers for the future of payments 6. Four possible scenarios for payments in 2020 7. Concluding remarks and findings ANNEX © Shopping 2020 – Expert group Transaction 40
  42. 42. Offline and Online can still be considered as two different payment channels in 2013 Purpose of the chapter: • In this chapter the most important payment methods for the Dutch market are described Offline Online + Remarks: • Payments can be initiated in the real world; Offline or in the digital world; Online • This context determines the choice of payment method • In our research m-Commerce is considered a type of e-Commerce and thus online • In this report we refer to “pinnen” what is actually a Maestro/V Pay transaction © Shopping 2020 – Expert group Transaction 41
  43. 43. If the consumer is not already registered, online payments are typically more complex than offline payments Offline 1. Choice of Products 2. n/a 3. Cash Register/ Order intake 4. Choosing Payment Method 5. Paymentproces/ Authorisation 4. Choosing Payment Method 5. Paymentproces/ Authorisation 6. Validation + Order Referention 7. n/a Online 2. Filling in Contact/ Delivery Details 1. Choice of Products 2. Log In 3. Order Check 6. Validation + Order Referention 7. Order Tracking 2. Accountregistration 2a. Filling in Contact/ Delivery Details 2b. Log In © Shopping 2020 – Expert group Transaction 42
  44. 44. Main differences in the Transaction flow are in Checkout, Delivery details and Payment Flow Selection Orientation Delivery details Transaction Payment flow Receipt Delivery Service Customer Care Basket Checkout Offline • Physical • Loyalty card • NA • Pay now • Paper • Email • On site • Phone • Law: “Verkoop en garanties voor consumenten goederen” • Cash • D/C Cards • Giftcards • • • • Online • Virtual • Log-in • Input prefs • Input prefs • Stored prefs • Virtual register • PSP • Email • Website • Phone • Law: “Kopen op afstand” • PSD • • • • • • iDEAL Credit card Paypal Acceptgiro DD/CT Cash on delivery • Giftcards • PC, • Laptop • Tablet Mobile • Virtual • Log-in • Input prefs • Input prefs • Stored prefs • Virtual register • PSP • Email • Website • Phone • Law: “Kopen op afstand” • PSD • • • • • Smartphone • Tablet © Shopping 2020 – Expert group Transaction Policies Payment method DD/CT Paypal Acceptgiro Cash on delivery Device Kassa Terminal Dongle Mobile 43
  45. 45. Current Account is the core funding source of basically all payment methods Context Offline Online Wallet iDEAL Channel/ Paymentproduct Funding Cash Cash Debit Card Credit Card Current Account Prepaid ‘Card’ Credit Account Gift ‘Card’ Stored Value © Shopping 2020 – Expert group Transaction Loyalty Card SEPA Direct Debit Virtual Currency Internet Banking SEPA Credit Transfer Loyalty/ Points 44
  46. 46. A broad variety of loyalty schemes and gift cards exist as ‘alternative currencies’ Types of loyalty programs and examples Brand Retailchain Brand combinations Savings Card Branch combination Temporary Savings Program Shoppingstreet/ -mall Gift Cards Closed-loop Semi-open-loop Open-loop Legal supervision for consumer protection (e.g. In case of bankruptcy) differs among the products: FRS, Cadeaubox and the paper VVV bon lack legal supervision, while the consumers enjoy protection with the electronic ‘boekenbon’ Source: Intersolve © Shopping 2020 – Expert group Transaction 45
  47. 47. Offline - Dutch still like to pay with PIN (Maestro) Number of electronic payments in NL Split of electronic payment methods relatively stable 3.000 # transactions (millions) 2.500 +8% 2.000 1.500 147 30 164 32 175 1.000 500 1.334 1.451 1.588 34 176 1.756 37 177 35 178 35 172 39 148 38 90% 2% 2% 2% 2% 2% 1% 2% 1% 10% 10% 10% 9% 8% 8% 7% 6% 88% 88% 88% 89% 90% 91% 92% 93% 2005 100% 2006 2007 2008 2009 2010 2011 2012 80% 70% 60% 1.946 2.154 2.285 2.474 50% 40% 30% 20% 10% 0 0% 2005 2006 2007 2008 2009 2010 2011 2012 Creditcard Chipknip PIN • In this report Maestro (or V-Pay) transaction are called PIN transactions since this is the commonly used term by Merchants and Consumers • Chipknip was introduced in ’96 as a payment scheme to facilitate low value payments, i.e. payments under € 10 • Credit cards are in NL mainly used for high(er) value payments (travel, clothing, catering) rather than everyday purchases, thereby explaining their limited share of total transactions in the offline context Source: DNB, Innopay analysis © Shopping 2020 – Expert group Transaction 46
  48. 48. 120 2.500 100 2.000 # of trx in Millions 140 160 Development # of credit card trx and avg. trx value at POS (NL) 140 120 120 100 100 80 80 80 1.500 60 1.000 40 500 0 2000 140 Trx value in € 3.000 Development # of debit card trx and avg. trx value at POS (NL) Trx value in € # of trx in Millions Offline – # Debit card transactions is increasing considerably 20 2002 2004 2006 2008 Total # of Debit Card trx NL 2010 0 2012 60 60 40 40 20 20 0 2008 Avg. Debit Card trx value 2009 2010 Total # of Credit Card trx NL 2011 0 2012 Avg. Credit Card trx value NL • Convenience, speed and (lower) costs (for merchants) have driven the increase in debit card transactions • Phasing out ‘Chipknip’ in 2015, the intended Dutch payment method for low value payments, and campaigns such as ‘Pinnen, ja graag!’ and ‘Klein bedrag? Pinnen mag!’ has also contributed to the increase in debit card transactions and a decreasing value per transaction • Low value payments represented ~ 30% of total offline debit card transactions in 2012 • Average transaction value of credit cards has been rather stable for several years at ~ €120,Source: BVN, Currence, Panteia, Innopay analysis © Shopping 2020 – Expert group Transaction 47
  49. 49. Online - iDEAL by far most used for internet payments Prefered online payment method Top 10 payment methods used last purchase 58% 54% 58% iDeal Acceptgiro (Online) 13% 14% 13% Acceptgiro (Online) 10% 6% 8% 8% Credit Card Online bank credit transfer 5% 4% 4% PayPal 1% 1% 1% PIN Cash 1% 1% 1% One-off Mandate Buyers 2011-2 (n=1296) Buyers 2012-1 (n=1440) 1% 1% 1% 0% 4% One-off Mandate 1% 1% 2% Recurring Mandate 74% iDEAL 4% 3% 3% Acceptgiro (paper) 7% Credit Card 5% 7% 4% 4% PayPal Buyers 2012 -2 (n=1453) 2% Other 10% 20% 30% 40% 50% 60% 70% 20% 40% 60% Note: the percentages indicate market shares based on surveys • iDEAL is the most used (58%) and preferred (74%) payment method online in 2012 • Pay later payment methods are also popular in 2012 (21%) • The Accept giro will be phased out in 2019, leaving an opportunity for other payment methods to fill the gap Source: Blaauw, GfK 2013 © Shopping 2020 – Expert group Transaction 48
  50. 50. Number of iDEAL transactions is growing rapidly Number of iDEAL Transactions (1,000) Why do consumers prefer iDEAL 116.870 120.000 Habit 110.000 93.063 100.000 Fast Number of transactions 90.000 +51% 80.000 62.961 70.000 Convenient 60.000 43.575 50.000 30.000 Familiar 27.865 40.000 14.811 20.000 10.000 0 • • • • Safe 2007 2008 2009 2010 2011 2012 5% 10% 15% 20% 25% 117M transactions with a total value of 8.8B EUR in 2012 Number of iDEAL transactions has increased with a CAGR of 51% between 2007 and 2012 Number of iDEAL transactions is growing faster than e-Commerce Consumers state that they prefer iDEAL because of high trust and convenience Source: DNB, GfK, Innopay analysis © Shopping 2020 – Expert group Transaction 49
  51. 51. Roughly the same preferences for mobile payments as for online payments Payment method last mobile order 2012 iDeal 70% 54% Acceptgiro (Online) 6% 8% Credit Card 8% 6% 7% 5% Online Bank credit transfer 4% PayPal 1% Cash One-off Mandate Smartphone (n=196) 7% 5% 2% 2% Other Tablet(n=225) 2% Do not know 11% 0% 1% 0% 10% 20% 30% 40% 50% 60% 70% 80% Source: Blauw 2013 © Shopping 2020 – Expert group Transaction 50
  52. 52. Though electronic transactions score relatively good compared to other EU markets, cash is still popular Cash’s share of total transactions NL 2011 (%) Greece 97 Poland 90 Italy 89 Spain 80 Ireland 75 Germany 69 Switzerland 66 Austria 64 UK 57 Belgium 54 Netherlands 52 France 50 Nordics 46 % 0 10 20 30 40 50 60 70 80 90 • Compared to other EU countries NL has a lower % of cash transactions • Merchants value cash payments due to its ubiquitous acceptance and the direct income of revenue streams, while consumers experience cash payments as easy and ‘common’ • Despite the fact that average costs for a debit card trx are lower (~€ 0.21 ) compared to cash payments (~€ 0.24), > 50% of transactions are cash based • For certain contexts, alternatives for cash are not considered valid • However, the higher costs, safety risks, counterfeit money and the administrative handling are reasons for merchants to revert to debit card payments • Cashless checkouts continue to grow in NL • Cash will also remain the number one fall-back option in case the electronic payment system encounters technical problems 100 Source: McKinsey, Innopay analysis © Shopping 2020 – Expert group Transaction 51
  53. 53. Summary: Dutch like to pay with Cash, ‘pinnen’ and iDEAL • Offline and online can still be considered as two different and not yet integrated payment channels • In spite of all the fuzz around new payment methods, Dutch still like to pay offline and electronic with Pin: 93% (2012) and online with iDEAL: 58% (2012) • Pay later payment methods are also popular online since it decreases the (delivery) risk for the consumer • Current account is still the core funding source of almost all payment methods © Shopping 2020 – Expert group Transaction “Cash is still king” 52
  54. 54. Table of contents Introduction and background Management Summary PHASE 1: How the Dutch pay in 2013? 1. Payment contexts 2. How do the Dutch shop anno 2013? 3. How do the Dutch pay anno 2013? 4. Trends and examples PHASE 2: How the Dutch pay in 2013? 5. Drivers for the future of payments 6. Four possible scenarios for payments in 2020 7. Concluding remarks and findings ANNEX © Shopping 2020 – Expert group Transaction 53
  55. 55. Many trends have been identified of which nine have been selected as most likely to change the way Dutch pay Technology 2. Mobile shopping and payments 3. Digital wallets 1. Digital identity 4. Changing POS interaction 5. Changing checkout 7. Consumer in control 6. Convergence of channels Transaction 8. P2P payment Legislation & Regulation Economy & Society 9. Increasing regulation © Shopping 2020 – Expert group Transaction 54
  56. 56. Trend 1: Digital identity Using a single digital identity throughout the shopping experience can enable seamless payments Description Impact on shopping Impact on payments Increasing electronic interaction between parties leads to demand for identification/authentication in the virtual world, thus requiring a trust framework and providing the participants with clarity on rules of engagement , risk and liabilities • • Since trust is a basic requirement for consumers and merchants to participate in (e-)commerce, having an online identity which is as strong as a real-world identity is the ultimate solution • During current e-Commerce shopping experience, consumer identifies multiple times; towards the shop, payment provider and delivery service provider Having a single digital identity decreases customers effort of multiple identification and minimizes effort of maintaining identification credentials • • Making payments between parties identified and authenticated early in the shopping experience can enable a true seamless payments Providing payments as an invisible step in the shopping experience will increase consumer demand for budget control and insight in payments carried out Seamless payments may affect the sense of safeness negatively. The actual act of pushing a button or entering a code creates awareness of the expense “It's wrong to say IRL means offline: Facebook is real life.” Nathan Jurgenson (2012) The IRL fetish "Easy access, via a single digital identity, to reliable information about the person with whom you do business is crucial for the continued growth of online shopping. It may also be interesting for retailers and customers to learn more of each other for 'tailored' services.“ Paul Alfing – Thuiswinkel.org © Shopping 2020 – Expert group Transaction 55
  57. 57. Trend 1: Digital identity Examples Signicat: • To reuse existing strong authentication mechanisms for various purposes • Based on trusted banking technologies Benefits: • Bilateral agreements between banks and businesses • Five assurance levels, tailored to set of needs • One solution to fit various needs http://www.signicat.com IDchecker: • Multichannel solution to verify ID documents • Automated checks based on various large databases Benefits: • Effective, cross channel solution • Extensive database for accurate checks http://www.idchecker.nl DigiD: • Secure online identification with the Dutch government Benefits: • One gateway for all online services of the Dutch government http://www.digid.nl © Shopping 2020 – Expert group Transaction 56
  58. 58. Trend 2: Mobile shopping and payments Smart mobile devices have quickly changed the way we shop, both in-store and on the go Description Impact on shopping Impact on payments The share of smartphones of total mobile phone penetration in The Netherlands has well passed the 50% mark. Nearly 3/4 of Dutch smartphone users browse the internet every day, and more than 70% have used them to make informed shopping decisions. • • • • Mobile devices are increasingly being used in different contexts: • In store: to look up product information and to compare prices at competitors’ webshops • On the go: mobile commerce enables users to visualize products and offers while not in front of a computer screen. Localized offers are also available thanks to GPS functionalities • Mobile devices are increasingly being used in store to access product information and to find cheaper offers (also known as “showrooming”) According to Thuiswinkel.org, in 2012, 1,2 M Dutch consumers made at least one purchase with their phone Mobile based services often share the same user profile as online counterparts. This makes possible to continue researches and manage lists both on the go or behind a bigger screen Mobile internet glues together the traditionally separated, worlds of online and offline shopping • • • • Currently mobile shopping is held back from the lack of widely adopted payment methods that are designed for the smaller screens (although PayPal and KNAB and ING’s iDEAL implementation are exceptions to this rule) Existing payment methods should be adapted for use with mobile Mobile devices require different user interactions, due to the smaller screens and different input methods Users are asking for familiar online payment methods to be redesigned for the mobile screens Future expected developments will allow deeper integration between mobile phones and POS terminals, with solutions that close the loop of advertising, payment and loyalty points. This will increase the need for payment methods that are able to seamlessly integrate in the integral shopping value chain Mobile devices will provide new opportunities for cheaper PoS payment terminals for acceptance of online and offline payment methods “Mobile phones as successors of cards are one part of the ‘mobile revolution’, but more profound is the idea of smart devices bringing internet into all contexts” Innopay © Shopping 2020 – Expert group Transaction 57
  59. 59. Trend 2: Mobile shopping and payments Examples eBay: • Scan any barcode and see the available listings and offers • Exploits the link between online and mobile profiles • Payments carried through digital wallet profiles Benefits: • Users can access competitors’ prices in store easily • No need to manually type, • Frictionless interaction http://mobile.ebay.com/ OKit: • Single brand covering market needs over multiple contexts • Multi-channel experience, both online and offline Benefits: • Underlying payments via credit cards and direct debits • Future direct connection to bank account available • Reusability for other purposes than payments (eg: mandates) • Integration with merchant terminals with no dedicated hardware http://www.okit.com © Shopping 2020 – Expert group Transaction 58
  60. 60. Trend 3: Digital wallets and in-app payments Payments are initiated from digital wallets, making payment means less relevant Description Impact on shopping Impact on payments Digital wallets offer services for payment and loyalty, storing consumer and payment credentials. Wallets aim to: • Increase speed and convenience for consumers • Provide conversion and customer retention for retailers • • • • We currently see many parties are trying to offer wallets to consumers and retailers, resulting in a “war on the wallets”. The current market shows diversified reach & acceptance and channels supported. There are Internet- and POS-only wallets as well as omni-channel wallets. Wallets can be used in a variety of contexts and from a variety of consumer devices (PC, Tablet, mobiles). Many additional and innovative services are expected as wallets try to claim the primary customer and merchant interface • Digital wallets providing loyalty influence consumer shopping behavior in the orientation and selection phase. Wallets steer consumers in where to buy and what to buy by providing relevant offers and financial benefits to consumers Digital wallets are increasingly used as quickcheckout method in web shops as alternative for traditional PSP-checkout Upon checkout digital wallets disclose consumer and payment credentials • • Consumer’s bank account is still the preferred location to store funds Digital wallets offer initiation of different types of payments (cards, direct debit) resulting in charging the current account, credit account and/or stored-value By providing a seamless payment initiation and additional services from a Digital Wallet, the relevance of the payment means (and it’s provider) decreases and shifts to the provider of the Digital Wallet “The increasing number of parties offering digital wallets asks for a stronger supervision of the e-money institutions from the Central Banks to protect the stored-funds of the consumer.” Source: Rommert Jorritsma - Intersolve © Shopping 2020 – Expert group Transaction 59
  61. 61. Trend 3: Digital wallets and in-app payments Examples Minitix: • Cash-replacement app, allows for various services to be paid through mobile phones • Funded with traditional payment methods (iDEAL, CT) Benefits: • Integration with third party platforms • Mobile user experience adapted to users needs http://www.minitix.nl PayPal: • Single brand covering market needs over multiple contexts • Multi-channel experience, both online and offline • Arguably the largest online 3-party model Benefits: • Integration of different channels • One single user experience, brand trust • Capability to support future payment innovations • Targeted offers by merchants • Enable relevant merchant offers (which will benefit customers and merchants) http://www.paypal.com © Shopping 2020 – Expert group Transaction 60
  62. 62. Trend 4: Changing POS interaction Contactless payments provide convenience and new technologies challenge the classic POS terminal Description Impact on shopping Impact on payments The in-store Point of Sale terminal (POS) is changing to new interfaces, the classic magstripe has been changed to the EMV chip and a next step is the contactless interface, allowing consumers to tap with either a contactless card or a contactless mobile phone supporting Near Field Communication (NFC). • Contactless payments • NFC contactless payments provide consumer with new interaction with a POS • Using NFC enabled card or mobile phone. • Contactless payments allow for PIN-less low value payments New technologies are challenging the traditional POS terminals and the way payments are initiated in-store. The need for smart and secure terminals might decrease with security moving into the network and shifting to the consumers mobile device. Here we also see the use of new forms of hardware, identification and data communication, such as mPOS devices, Biometrics, NFC and QRcodes. • • • • In the current Dutch market, consumers can walk into a store without considering acceptance of payment cards Consumer and merchant interact in a two-sided market Both sides need to be enabled for the new types of interaction to complete the shopping with the preferred means of payment. All developments aim for a smooth and hassle free checkout Goal is taking the pain* out of the shopping experience Increased use of loyalty, in combination with contactless mobile phones will require multi-read capabilities at the checkout, where not only payment credentials need to be exchanged but also coupons, vouchers, tickets, loyalty points and so on. Providing consumers with a uniform user experience is the challenge here In-store alternative payments • New technologies, enables use of non-card alternatives • This brings e-Commerce payment experiences, into the physical store • Examples; Digital Wallets and Card-not-present (CNP) transactions “There is a positive correlation between pain of paying and the amount spend on the purchase. More surprisingly, research indicates that the payment method used influences the level of pain of paying experienced.” Source: The irrationality of payment behavior A DNB Occasional study, describing the ‘pain of paying’ © Shopping 2020 – Expert group Transaction 61
  63. 63. Trend 4: Changing POS interaction Examples Mobile NFC Leiden: • Collaboration between banks and one mobile operator • Banks and mobile operators to subsidize the issuing of capable devices • Contactless NFC retail payments from mobile phone Benefits: • Collaboration between different types of players • Mobile operators providing hosting of secure banking application http://www.mobielbetaleninleiden.nl Octopus, Hong Kong: • One of the world’s leading smart card payment systems • Enables payment for transport systems as well as at retail outlets and online transactions Benefits: • One single card to enable different payment services • Reloads automatically by connecting to users’ bank accounts, solving the loading problems http://hong-kong-travel.org/octopus/ Snel en simpel betalen, The Netherlands: • Enables caterers to speed up checkout • Supports biometrics and contactless initiated payments Benefits: • Increasing the speed at checkout • Providing an alternative for e-Purse (Chipknip) • Automatic reloading of stored value by connecting to users’ bank accounts http://youtu.be/_o4kyCcb6to & http://www.snelensimpelbetalen.nl © Shopping 2020 – Expert group Transaction 62
  64. 64. Trend 5: Changing checkout New shop floor experiences with evolving cash registers and payment terminals Description Impact on shopping Impact on payments In combination with the capabilities of smart devices such as tablets and smartphones, the instore checkout and payment flow is changing. • • Some stores allow sales assistants to freely roam the shop floor, where checkout can be delivered from a smart device such as a tablet and payment is carried out by mPOS. Others allow consumers to scan products using their mobile device and pay via a wallet, thus eliminating the need for a checkout as a whole. • • Shop floor experiences are evolving from new technologies Location based services (geo-location, in-storewifi, etc) allow for direct recognition and identification of the consumer Using CRM services to determine customer preferences and sales history over all channels maximizes cross and upselling • • If user is identified and authenticated sufficiently, the payment can be carried out as seamless part of checkout Using CRM to linking customer’s payment history to checkout, decreases the merchant’s need for a guaranteed payment New technologies are used to initiate payments; e.g. NFC, QR-code and biometrics Where electronic payments used to be made based on POS terminals, the capabilities of smart devices allow for the customer to pay with a digital wallet in the store © Shopping 2020 – Expert group Transaction 63
  65. 65. Trend 5: Changing checkout Examples LevelUP: • Platform to enable payments and loyalty solutions together • ‘Closing the loop’ of commerce by issuing consumer app and providing merchants with new terminals Benefits: • One solution for merchants’ advertising & payments needs • Hiding the payment interaction behind a pleasant user experience http://www.thelevelup.com Apple Store checkout: • Dematerialisation of the counter: mobile POS solutions allow for payment interaction anywhere in store • Counters can be reused for customer service purposes Benefits: • Better use of store space • Customers do not have to wait in line to pay anymore • Mobile POS terminals are less expensive than traditional http://www.apple.com © Shopping 2020 – Expert group Transaction 64
  66. 66. Trend 6: Convergence of channels Customers are not distinguishing e-, m- or physical commerce; the future will be commerce Description Impact on shopping Impact on payments As the internet maturity of the Dutch population continues to grow, consumers are by default considering both the online and offline channel to make purchases. On top of this, there is a growing possibility at merchants to go across channels during in the shopping experience, creating a true omni-channel customer experience. For the consumer this means no longer distinguishing between e-Commerce, m-Commerce or physical commerce, but just commerce • • • • • Omni-channel integrates e-Commerce platforms into the physical stores Enabling sales personnel to sell products even when they are not in stock Delivery of goods in an e-Commerce manner. Increasingly online orders can be picked up at physical store or pick-up-point • • Payment is specific to the context, resulting in separate payment user experiences for the virtual world and for the physical world Digital wallets try to provide a generic payment user experience across channels Other payment means are adapting to the variety of channels, e.g iDEAL growing to mobile “iDEAL Mobile goes beyond channels and offers “payments everywhere.” Source: Max Geerling © Shopping 2020 – Expert group Transaction 65
  67. 67. Trend 6: Convergence of channels Examples Tesco Virtual Store, South Korea: • Pilot for window shopping through QR codes in metros • Users can scan selected products, pay in-app and get groceries delivered conveniently at home Benefits: • Extension of grocery shopping spaces in creative locations • Online shopping enables better stock management, while payments are carried forward in-app http://www.tescoplc.com Clicks-in-Bricks: • Extending online commerce experiences in-store • Tablets are connected to terminals that allow users to ‘self service’ checkouts Benefits: • Merchants can still sell goods when not in stock • Buyers can browse through merchants catalogs in store and purchase directly http://www.clicks-in-bricks.com © Shopping 2020 – Expert group Transaction 66
  68. 68. Trend 6: Convergence of channels Examples xXess360°. Scan & Shop Around, The Netherlands: • Online multi-channel, loyalty and e-Commerce platform. Providing consumers a real shopping experience through innovative ways of product discovery (360°shopping) Benefits: • Turns real shopping malls into mobile and personalized shopping environments for consumers • Transforms smart phones into personal point of transaction devices allowing consumers to discover, scan & buy products • Retailers expand their stores with mobile shops allowing personal interaction with their customers and increasing loyalty . http://xxess360.com MyOrder SideKick: Cookies for the physical world • Know who’s in the shop • Reach the customer on the smartphone and the tablet with attractive offers • Geo fencing technology, customer gets a reminder when in a certain radius of the store • Consumer gets a reward when he checks in the shop Benefits: • Learning to know your customer • Cross sell possibilities • Push offers over the air • Instant rewards and offers http://www.myorder.nl © Shopping 2020 – Expert group Transaction 67
  69. 69. Trend 7: Consumer in control Increasing need to be in control of personal (payment) data Description Impact on shopping Impact on payments • • • • • • The need to register yourself over and over again forced consumers to leave information across websites. Sensitive information is left scattered on the internet, which makes it vulnerable for fraudsters. This is also causing many privacy risks especially when online or offline personal data is being used for big data mining As a reaction to this scattering and usage of personal data and related privacy issues an interesting trend emerged to turn the ownership of personal data around Life Management Platforms or Personal Data Ecosystems provide users the possibility to retain full control over their own personal data and can basically determine what data to share with which company • • Consumers want to know if merchants respect their privacy (transparency) both online and offline Increasing attention towards merchant and third party behavior by consumers and privacy interest groups Need to balance shopping experience improvement versus privacy • Increasing need for transparency and security Rising need for anonymous and less centrally controlled payments method such as Bitcoin Consumers may have to be protected or made aware of risks when payments are being pushed to the background or further integrated into the seamless shopping experience “The Age of Privacy is Over.” Mark Zuckerberg © Shopping 2020 – Expert group Transaction 68
  70. 70. Trend 7: Consumer in control Examples Qiy: • Platform for users to control their data and privacy levels • The Qiy Foundation is an independent organisation that developed an infrastructure of which your personal Qiy domain is part. This infrastructure is called the Qiy Trust Framework Benefits: • Qiy gives you a personal domain to manage your personal data. That way, you decide who and when others may access your personal data and for what purpose http://www.qiy.nl/ Personal Data Ecosystem Consortium: • Community: face-to-face events in Europe and North America • Education: white papers and hold seminars explaining the personal data economy to enterprises, investors, and entrepreneurs. • Advocacy: engagements with government US and European initiatives like NSTIC to promote user-centric identity and personal control of personal data. • Research: research and share findings about personal data technology, business models, ecosystems, and social impact for our members and the public Benefits: • Credible organization that can provide access to global best practices © Shopping 2020 – Expert group Transaction 69
  71. 71. Trend 8: P2P payments Why would only merchants be able to accept payments? Description Impact on shopping Impact on payments Peer to peer payments, payments with less links in the chain and less central control, will be an alternative in retail contexts, when messaging surrounding the transfer of funds becomes real time. Such payment methods could be based on mobile technology because it gives both sender and receiver an interactive (and real time communicating) device. The distinction between a merchant and just any economic actor might become less obvious as shopping contexts become more fluid. The acceptance of a payment by just any economic actor would enable also less formal shopping contexts and, in the same time, embrace ‘System D’: the informal economy The informal economy is currently responsible for about $ 10 trillion and completely dependent on P2P payment methods. Because of the lack of alternatives, this part of the economy is 100% cash based • • • • The development of a P2P payment method would create a payment method that is applicable to a wide variety of contexts Card schemes add value because they enable real time trade between actors that do not know each other, in a world where funds travel at less than real time speed. Real time messaging around a P2P payment method would challenge this functionality The business case in most retail payment contexts is based on fees paid by the receiver. A P2P payment method is likely to find its business case more equally distributed between payer and payee This could result in fragmentation of payment methods and thus additional complexity for regulators and end users “The ultimate payment method is aP2P payment method” The experts from the Transaction working group discussed about this statement and found that there may be some truth in it as any ‘economic actor’ might be wanting to accept payments.“ © Shopping 2020 – Expert group Transaction 70
  72. 72. Trend 8: P2P payments Examples Bitcoin: • First ever decentralised virtual currency • Monetary policies do not exist, an algorithm keeps the system in balance • Funds are stored decentralised in enduser’s bitcoin wallets Benefits: • Immediate, worldwide transfers between users and businesses • Zero or low-cost payment processing • Added benefits of anonymity and limited traceability http://bitcoin.org/ Mobile Payments, UK: • Coordinated by the Payments Council, allows users to send money between bank accounts • Using mobile phone number as alias to the bank account, providing high ease of use Benefits: • Instant payments, via trusted provider (bank) • Payments carried through Faster Payments for quick settlement http://www.paymentscouncil.org.uk/current_projects/mobile_payments/ mPesa: • Mobile money remittance service. Launched by Vodafone in 2007 • Became most successful domestic P2P payment service, forced merchants to accept it as well Benefits: • Money messages sent through mobile devices, via Telco operators • Instant transfers, with immediate notification that helped uptake with businesses http://www.safaricom.co.ke/personal/m-pesa © Shopping 2020 – Expert group Transaction 71
  73. 73. Trend 9: Increasing regulation A clear direction towards a digital economy, increased competition and innovation in payments Description Impact on shopping Impact on payments The European Commission (EC) has been providing the legislative directives to harmonize payments on a European level. This has resulted in the initial Payment Services Directive (PSD) and the implementation of SEPA payments under the European Payments Council (EPC). Another relevant directive is the Electronic Money Directive (EMD), setting the rules on funds held in non-bank managed stored value accounts. • • Parallel to this the EC is working on the Digital Agenda for Europe (DAE) to help European citizens and businesses to get the most out of digital technologies. In general, the EC is focusing on increased competition and innovation in payments as well as safeguarding the trust and reducing fraud and cybercrime. • Banks will implement XS2A in the payments portfolio offered to the account holders XS2A is expected to trigger a broad range on new and innovative payment user experiences • • The PSD2 only drafted legislation on XS2A, it is now up to the market players to continue to come to a mutual understanding and further detailing of the framework. Depending on the speed generated, the ultimate date of implementing the legislation into national laws of EU member states is 2017. XS2A payments will use SEPA Credit Transfers for settling funds between payers and payees Consumers will be able to initiate payments with greater convenience Increasing complexity and possibly the cost structure of commerce and payments There is a risk of diversification, leading to confused consumers and a lack of trust in XS2A payment solutions. A clear understanding on consumer dispute handling and related liabilities is crucial for the trust in and adoption of XS2A services. Mid July 2013 a new legislative pack has been released with regards to payments; PSD2. This drafted legislation sets out new rules on Access-tothe-Account (XS2A). As a result of this Third-party Payment Providers (TPPs) can get access to the consumer’s payment account for informational services and payment initiation. This will lead to merchants seeing new providers of payment services. “XS2A is a clear example of opening up of the payments industry. Banks can either see this as a threat or an opportunity, but when done properly, linking the innovation capacity of new entrants to the reliable and trusted payment capabilities of banks can be a tremendous boost for Commerce.” Eric van Vuuren - Equens © Shopping 2020 – Expert group Transaction 72
  74. 74. Trend 9: Increasing regulation Examples SEPA: • 2014 will be the end date for the SEPA migration • Trough unified standards, Europe is making payment systems effective and reducing their costs Benefits: • Common standards across the region • Cost effective solutions for maintenance of systems http://www.europeanpaymentscouncil.eu/ PSD2: • Opening up access to the payment account for informational and transactional services • Linking innovation to standardized payments Benefits: • New services to become available using bank accounts • Payment account’s access will develop in services including cash management and investment advisory http://ec.europa.eu/ © Shopping 2020 – Expert group Transaction 73
  75. 75. Table of contents Introduction and background Management Summary PHASE 1: How the Dutch pay in 2013? 1. Payment contexts 2. How do the Dutch shop anno 2013? 3. How do the Dutch pay anno 2013? 4. Trends and examples PHASE 2: How the Dutch pay in 2020? 5. Drivers for the future of payments 6. Four possible scenarios for payments in 2020 7. Concluding remarks and findings ANNEX © Shopping 2020 – Expert group Transaction 74
  76. 76. PHASE 2 HOW DO THE DUTCH PAY IN 2020 A STORY ON CONTROL, CONSUMERS, TRUST AND BRANDS Shopping2020 - December 2013
  77. 77. Phase 2: ‘Shopping2020’ Central Research Question to be addressed in this report: How does the consumer shop in 2020 and which actions should be taken on national, branch and company level so that Dutch B2C operating companies can anticipate on that, nationally and internationally? Phase 1: ‘ShoppingToday’ (2013) Phase 2: ‘Shopping2020’ Research Questions expert group Transaction 1. What is the current situation for transactions in 1. Dutch retail practice? 2. What are the most important trends. points for improvement and opportunities in transactions? What are current trends and examples? 2. What are the most likely future scenarios? © Shopping 2020 – Expert group Transaction 76
  78. 78. Table of contents Introduction and background Management Summary PHASE 1: How the Dutch pay in 2013? 1. Payment contexts 2. How do the Dutch shop anno 2013? 3. How do the Dutch pay anno 2013? 4. Trends and examples PHASE 2: How the Dutch pay in 2020? 5. Drivers for the future of payments 6. Four possible scenarios for payments in 2020 7. Concluding remarks and findings ANNEX © Shopping 2020 – Expert group Transaction 77
  79. 79. Scenario planning: working from uncertainties Two uncertainties create four possible futures • Scenario planning is intended to prepare organizations on future developments that are (1) uncertain and that (2) have large impact (see illustration below, left) • The approach to create scenarios for possible futures has been to determine two uncertainties that are independent from each other and both are of high impact on the position of payments in retail contexts • Based on an assessment of trends, developments and risks the following two main uncertainties have bee selected: 1. Consumers’ attitude towards privacy 2. The number of payment methods consumers can choose for as the second uncertainty (see next slides) • The four possible combinations of two alternative outcomes for these uncertainties create four possible futures: scenarios • Subsequently, the expert groups described these scenarios reasoning both from 2013 towards 2020 and from further in the future, backwards to 2020 (see illustration below, right) ‘Plan for…’ ‘Develop scenarios on…’ ‘Develop tactics and policies for …’ ‘Keep an eye on …’ Uncertain effect Certain effect Large impact Small impact Different categories of uncertainties demand different preparation Scenarios can be approached directly (from our current position) or indirectly (from a future perspective) © Shopping 2020 – Expert group Transaction 78
  80. 80. Uncertainty 1: Consumer attitude towards Privacy HIGH privacy awareness and control: HIGH privacy awareness and control LOW privacy awareness and control • People are conscious and want to control about what happens with their personal data and who makes use of it. This does not mean that everybody always wants to be anonymous, but people want to remain in control • Dedicated services can be developed to support people in making themselves known in the way they want to: Digital Identity • A move into this direction can be sparked with an incident or examples of data breaches that harm peoples’ trust in the institutions (both public and private) that gather data about them More or less privacy awareness LOW privacy awareness and control: This axis is about the degree to which the general public is concerned with their personal data. ‘Less privacy awareness’ does not imply that there are no boundaries to what one can do with personal data, but only that people are less concerned in this respect • Currently, experts observe a trend of decreasing privacy awareness: people are less and less hesitant about sharing their personal data: they are willing to share a lot when this leads to increased convenience or brings additional benefits • The adagio ‘I don’t have anything to hide’ is still strong in the public opinion towards public authorities gathering data and towards private businesses, people are willing to ‘trade’ their data for additional benefits like a smoother user experience or promotions © Shopping 2020 – Expert group Transaction 79
  81. 81. Uncertainty 2: Number of payment methods (providers) MANY payment methods (providers) MANY payment methods: • With the maturing online channel, dedicated payment methods have arisen • This may grow even further when user experiences of various channels are more and more optimized and provide payment methods that are developed specifically for that context • The wallets we see currently arising may well develop into payment methods in their own right in order to provide a uniform customer experience, trust and security within the mass of different payment methods FEW payment methods (providers) Consolidation and fragmentation FEW payment methods: • Experts see the variety of payment methods as important uncertainty. Currently, two trends are showing: ₋ Large schemes consolidate and replace smaller (local) brands (local credit transfers & direct debit  SEPA and PIN  Maestro) ₋ More and more payment methods are developed on top of existing ones, to cater for specific contexts. • Although it is not likely that many more global schemes (‘infrastructures’) appear, from the consumer perspective the number of service providers or separate products (‘payment methods’) can grow • With different channels converging, demand for a omnipresent payment method (and brand) increases • From various initiatives, a few will eventually gain the traction that is needed to cater for all contexts and provide universal reach and a consistent user experience • This scenario will be supported by the limit on a consumer’s absorption level (how much different methods can I handle?) and stakeholder’s ability to manage change on their infrastructures • A force that may support this, are schemes that restrict the use of their brand to support other payment services (for reasons of uniform customer experience, trust and security) © Shopping 2020 – Expert group Transaction 80
  82. 82. Based on two selected uncertainties four payment scenarios have been worked out from the perspective of the consumer Many payments methods (providers) Scenario 1 - ‘In Control’ Scenario 2 - ‘Consumer Driven’1 “Out of the many payments methods I can choose the way I pay to fit my privacy needs” “I choose from many options those that bring me convenience and provide smooth user experiences in a given context” Personal data is exchanged between contexts to provide smooth customer experiences High privacy awareness and control Scenario 3 - ‘Back to the Trust’ Scenario 4 - ‘Big Brands, Big Data’ 1 “I feel comfortable with a limited number of payment methods where I have full control over who is doing what with my data” Low privacy awareness and control “My payment provider knows a lot about me and can therefore provide me with useful services in all contexts” • Payment providers serve as information brokers between services • A limited set of payment methods is available across contexts Few payments methods (providers) Note 1: All scenarios reflect possible extremes. They are not reflections of the actual current attitude of consumers, merchants or financial institutes with regards to confidential data, nor are they opinions of the experts © Shopping 2020 – Expert group Transaction 81
  83. 83. Table of contents Introduction and background Management Summary PHASE 1: How the Dutch pay in 2013? 1. Payment contexts 2. How do the Dutch shop anno 2013? 3. How do the Dutch pay anno 2013? 4. Trends and examples PHASE 2: How the Dutch pay in 2020? 5. Drivers for the future of payments 6. Four possible scenarios for payments in 2020 7. Concluding remarks and findings ANNEX © Shopping 2020 – Expert group Transaction 82
  84. 84. Experts evaluated the four scenarios on related trends, implications for stakeholders and enablers/barriers General description of the scenario Current trends shaping the scenario Expected path for this scenario Which of the trends from ShoppingToday are applicable to this scenario and how? Highlights show the trend most relevant. What are the early warning indicators? How do we arrive to this scenario? What stages can we pass? Etc. Stage 2 Stage 1 Enablers and barriers for the scenario Implications of the scenario for various stakeholders ENABLERS BARRIERS Merchants Consumers In each scenario, the consumer perspective will be presented by a different character and presented in blue boxes Banks PSPs Regulators © Shopping 2020 – Expert group Transaction 83
  85. 85. SCENARIO 1 In Control © Shopping 2020 – Expert group Transaction
  86. 86. 1 3 ‘In Control’: self-conscious consumers 2 4 ‘In Control’ • Consumers are aware of their privacy and want to maintain control over ‘who knows what’, ‘who uses what’ and ‘who shares what’ • Consumers understand and appreciate various choices of payment methods and providers There is a growing market for supporting consumers in managing the complexity that comes with this scenario. Dedicated e-Identity services or ‘personal data stores’ where personal data is securely stored and made available for reliant parties are examples of such services Lots of choice, but the consumer decides what he wants Many payments methods (providers) 1 High privacy awareness and control 2 In Control Out of the many payment methods I can choose the way I pay to fit my privacy needs Consumer Driven Low privacy awareness and control 3 4 Back to the Trust Big Brands, Big Data Few payments methods (providers) I want to be able to control my personal data; who uses it, how and when it is used and who shares it with others I want to be able to separate different parts of my ‘identity’ © Shopping 2020 – Expert group Transaction 85
  87. 87. Trends related to ‘In Control’ scenario 1 2 3 4 # Trend Relevance for Scenario: 1 Digital identity Crucial for identification and controlling privacy 2 Mobile Shopping Applicable in all scenarios 3 Digital wallets The wallet will combine payments products, added value services and (big) data collection 4 Changing POS interaction Less personal data will lead to less services, no optimal shopping experience available 5 Changing Check-out Check out can be seamless only with use of a consumer ID (or more guest accounts which will lead to less conversion) 6 Convergence of channels Cross and omni-channeling will gives extra pressure on a central identity 7 Consumers in control Consumers want in our scenario control of payment method and privacy 8 P2P payment Is one of the payment methods in the scenario and will become more used and relevant 9 Increasing regulation In my daily shopping, I use many different payment methods without leaving my credentials behind My e-ID service provider supports me to control the complexity that comes with this Regulation on privacy and data use is in this scenario starting point © Shopping 2020 – Expert group Transaction They help me to manage what attributes are being disclosed to which service providers 86
  88. 88. 1 3 Possible path to ‘In Control’ scenario 2 4 Gaps with current situation The expert group identified gaps between the scenario and the current situation. Also a possible staged development towards the scenario was outlined. During the different stages, more and more of the gaps with 2013 are closed. These events can function as ‘early warning indicators’: signals that one particular scenario is unfolding. Strategists should be watchful for these signals and adjust their operations accordingly • Privacy legislation outdated • Access to the account not yet there • Mobile not yet trusted device • The ‘Omni channel’ and ‘Big Data’ trend is not beneficial to privacy and control 2013 • Wallets not yet adopted and unavailable with trusted banks 1. Jungle of wallets and payment options 5. Evolving privacy legislation • No identity framework available (eID) 4. Access to the bank account is regulated 2. Privacy incident involving Big Data resulting in more privacy awareness 3. Trusted framework with identity authentication and management After we heard of what could go wrong when you no longer have control over you personal data, me and my friends changed radically our online behavior We started to look differently at merchants that wanted to know details about me and I began to appreciate anonymity © Shopping 2020 – Expert group Transaction 87
  89. 89. 1 3 Enablers and barriers for ‘In Control’ scenario 2 4 ENABLERS • Wallet availability will increase and this gives more control and payment options if issued by a trusted party • Mobile (app) development enables control • Identity framework for authentication (regulation) • Privacy demand of society and legislation of privacy • Shopping without having to create an ‘account’ (guest account) A big incident really served as a wake-up call for many people. This did not only change my internet behavior, but also how I shop BARRIERS • Unsuccessful business models and unclear propositions by many providers • Big players dominating the marketplace, no Dutch wallets available with debit card / iDeal • Advantages of Commercial Wallets for merchants are the building of shopping profiles and targeted merchant offers, which conflicts with control of privacy (all in one hand) • One Digital Identity not available I trust my mobile device and my e-ID provider to arrange my things and use lot’s of payment methods to separate between different contexts: I don’t want to mix the different parts of my persona It is not always convenient though: abroad, I don’t know who or what to trust and I am largely dependent on the brands I know © Shopping 2020 – Expert group Transaction 88
  90. 90. Implications of ‘In Control’ for various stakeholders 1 2 3 4 Regulators • Are confronted with huge demand for privacy regulation • Are sponsor and stakeholder for a trusted identity framework Banks • Are able to leverage their trusted imaged and will therefore have the opportunity to offer wallets or other payment methods that are easily adopted • Must invent new business models with value added services because competition will grow from new players making use of “opening up the bank account” • Are forced to invest in advanced and dynamic security models Consumers • In first 2 phases will be puzzled with choices of wallets and lots of incidents, who to trust • Slowly but gradually will adopt the options and control services • Will make use of various wallets for travelling, pleasure & ticketing and payment transactions • Smart phones can provide and store personal data easily ; precondition that a consumer is able to manage his level of control/privacy PSPs • Have limited consumer access • Need a mobile strategy • Uncertain position unless invest in new ecosystem between mobile and wallets Merchants • Will first go only for major payment methods • Later will see the advantages of accepting wallets because of the merchant-consumer interaction; value added services. • Privacy and control is not beneficial for development of shopping profiles (store and analyze big data) Other stakeholders • Identity Service Providers enter into the market (can be public and Private organizations) © Shopping 2020 – Expert group Transaction 89
  91. 91. SCENARIO 2 Consumer Driven © Shopping 2020 – Expert group Transaction
  92. 92. 1 3 ‘Consumer Driven’ scenario 2 4 Description of the scenario • Many payment methods (e.g. many different customer experiences for different devices and channels on top of a limited number of payment schemes and infrastructures) • More seamless shopping experience: the consumer accepts less privacy over his personal data in return for more convenience, ‘perks’ or promotions. • This is a possible extreme scenario and thus not a reflection of the actual attitude of consumers, merchants or financial institutes with regards to confidential data Many payments methods (providers) 1 High privacy awareness and control 2 In Control Consumer Driven Low privacy awareness and control 3 4 Back to the Trust Big Brands, Big Data Few payments methods (providers) Merchants now recognize me both offline and online and optimize my shopping experience accordingly I feel like I have much more choice of how I want to pay; some payment solutions reward me with considerable loyalty points Paying has become even more easy and fun and is now a seamless part of my shopping experience I probably have to share personal data but I don’t mind as long as I get convenience in return Note 1: As with all scenarios, this description reflects a possible extreme and thus not a reflection of the actual current attitude of consumers, merchants or financial institutes with regards to confidential data © Shopping 2020 – Expert group Transaction 91
  93. 93. 1 3 Trends related to ‘Consumer Driven’ scenario 2 4 # Trend Relevance for Scenario: 1 Digital identity • i.e. decentralized identity scheme or ‘management of identities’ per merchant (group). Two types of identities, one for profiling providing benefits and ease of use and one (financial ID) for linking it to the payment transactions • Interoperable/trusted framework 2 Mobile Shopping Applicable in all scenarios 3 Digital wallets Manifestations of the different user experiences 4 Changing POS interaction Towards a more harmonized user experience for online and offline shopping 5 Changing Check-out Idem: when consumers’ IDs are known by the merchant, check out can change considerably I can choose how and when I want to pay and I even get loyalty points 6 Convergence of channels Channels will converge: when merchants are offered more/better tools to recognize their customers across channels, UX will converge Finally a true seamless shopping experience 7 Consumers in control Apparently less important in this scenario: merchants will be more in the driver seat 8 P2P payment n/a 9 Increasing regulation A large number of payment methods can be the result of increased regulation from a competition point-of-view. More transparent control for the consumer over his privacy / personal data will be the result from less stringent regulation © Shopping 2020 – Expert group Transaction It is okay to provide my personal data since I get convenience in return 92
  94. 94. Possible path to the ‘Consumer Driven’ scenario 1 2 3 4 Gaps with current situation The expert group identified various gaps between the current situation in 2013 and the scenario. Three stages can be distinguished to arrive at the eventual scenario. The scenario describes a situation in which data is used by all kinds of service providers, to offer consumers more convenience and services that are matched with their preferences. An important gap with this scenario is a comprehensive legal framework around personal data and the usage of it in commercial contexts 2013 • No clear/too traditional role of banks, banks are currently not acting to play a role in this scenario • Merchant conscious of providing relevant (dynamic) content to consumers • Limited transparency regarding the type, usage and storage of personal data • Regulation and public opinion are not in sync with technology, e.g. geo-fencing • No unified financial ID (including personal data) 3. Definition and use of transaction models (revenue, exchange) Regulation brought in line with technological possibilities 2. Definition of business models (value definition of personal data) 1. Consumers have limited awareness towards property, usage and storage of personal data I am relieved merchants now personalize my shopping experience based on my on- and offline behavior and making the payment a seamless part of my shopping experience Although at first I was afraid of missing out on relevant information, this has proven not to be the case © Shopping 2020 – Expert group Transaction 93

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