Emerging solutions expand payment options at the POS.
Consumers are exploring a variety of payment options—including paying with their smartphones and tapping instead of swiping their credit cards—and they are demanding their favorite grocers do the same. With so many choices, supermarket retailers are showing interest in products that streamline operations and deliver value to customers, say industry observers.
While banks seem to be backing away from charging customers to use their debit cards, the uncertain economy and a reduction in discretionary income are also changing the ways shoppers pay for groceries. Wary consumer confidence and escalating interest rates for example, have kept credit usage on a downward slope. Credit transaction growth in October was 9.9%, compared to 11% in September, according to First Data SpendTrend, a report from First Data, an Atlanta-based e-commerce and payment processing provider.
Despite an abundance of controversy surrounding fees, experts say debit card use remains on an upswing. For years, debit cards have been under fire due to the escalating fees generated by signature-based transactions versus PIN-based ones. The recently imposed Durbin Amendment, which went into effect in October, was established to alleviate the financial burden.
The Federal Reserve-imposed amendment mandates that debit interchange fees are capped at $0.21, plus 0.05% of the transaction, and the card must be able to be processed on at least two independent networks. While amount of interchange collected by the issuer is limited, “it’s anticipated that small ticket purchases will actually cost retailers more because processors will charge the maximum fee regardless of the purchase amount,” says Bill Roese, senior vice president and general manager, payments, fraud and product solutions for FIS North American Card Services. The organization is a division of Jacksonville, Fla.-based FIS Retail Payments Solutions, formerly Certegy Check Services.
As the industry awaits the impact of the amendment, PIN-debit transaction growth continues to rise. Specifically, growth jumped to 5.5% in the third quarter, compared to 3.3% in the second quarter. In October alone, PIN-based debit transaction growth hit 7.4%, First Data’s study reports.
As more consumers opt for debit, they write fewer paper checks. “There are currently 24 billion checks written today—a significant drop from the 66 billion written during the mid-1990s,” explains Curtis Hallowell, vice president, product management for Cummins-Allison, a Mt. Prospect, Ill.-based provider of money handling equipment.
While this number will continue to deteriorate, “We don’t expect to see checks going away over the next 10 or 20 years, and many of those checks are processed in the supermarket industry,” he says. “The key is to streamline the operation to reduce the costs, errors and labor involved with check processing.”
One area where checks still pose a challenge is in cash till processing and deposit preparation. This “manual and messy process,” according to Hallowell, requires managers and bookkeepers to individually count and bundle money and checks from each cashier’s register drawer. Next, checks are often photocopied, microfilmed or imaged through a desktop check imager, and then a deposit is created.
In total, the process takes hours to complete. And if banks receive deposits after the cutoff deadline, grocers do not get credit for the deposit until the next business day.
Grocers are exploring how electronic check conversion, either at the POS or in the back office through remote deposit capture, can ease the pain. Cummins-Allison is responding to this demand with the JetScan iFX, a desktop-based currency and check scanner and archive device. Once the cash and checks are scanned, the images can be forwarded to banking partners for real-time credit to the grocer’s account.
Each note or check that passes through the device is imaged and an electronic file is created. As data is passed onto banks, grocers get credit for the deposit, and the original file is stored locally at the originating store. Once the currency is finally delivered to the bank, each note is verified by its individual serial number. “If anything is out of sync, the electronic file is a record that keeps both parties accountable,” Hallowell explains. The device can capture 400 two-sided check images per minute and 1,600 notes per minute.
Along with new processing equipment, new payment options also continue to evolve.
Gift card usage has grown exponentially over the years, and the grocery industry is a driver of this growth. By partnering with non-competing third-party retailers and restaurants, supermarket retailers feature kiosks with robust gift card offerings.
“While everyone loves getting a gift card to their favorite retailer, many people don’t necessarily need another book or sweater,” says Tom Solomon, vice president of sales for Atlanta-based prepaid and transactions technology provider InComm.
“Some shoppers would rather have financial help to buy everyday things, including gas, household supplies and groceries,” he explains. “Grocery retailers are learning they can drive revenues and loyalty by offering dedicated gift cards, and integrating bank-supported general purpose reloadable gift cards.”
Savvy retailers are also expanding the value of reloadable cards within new retail scenarios. With a system from Openbucks, based in Redwood City, Calif., consumers can use third-party retailer gift cards online. Company officials say this is a powerful concept for grocers’ unbanked customer segment, or those who are still wary about sharing their credit card account or personal information online.
“Currently, 97 million people do not have a credit card, and that includes a vast majority of teens and the Gen Y segment, both which have strong shopping influence,” says Marc Rochman, Openbucks’ CEO and founder. “This customer base is eager to make online purchases, including downloads of games, music and other miscellaneous purchases. This is a safe way for consumers across all segments to keep personal information protected and still shop online.”
Six retailers, (Subway, Circle K, CVS, Citgo, Hess and Sports Authority), are part of the Openbucks community and allow their prepaid cards to be used as payment on hundreds of online gaming and retailer sites, say company officials. They hope to add grocers to the network in early 2012.
Users also reload the card at amounts four times higher than it was purchased for. “They are reloading the cards 36 times over a three-month period, or on an average of twice a week,” Rochman says. “The program has also attracted 67% of shoppers who have never made a previous online purchase.”
Payments on the go
Observers say that mobile retailing continues to change the way consumers shop with their favorite retailers. Approximately 86% of shoppers use mobile phones, and they rely on this touch point more than any other shopping channel, according to officials from Atlanta-based NCR Corp. The key to engaging these shoppers is giving them opportunities to use their personal mobile devices in all aspects of the shopping trip – including the checkout experience.
At the core of this concept is the digital wallet, which electronically links credit and debit card accounts to smartphones and other mobile consumer devices. By integrating POS units with a dedicated payment terminal embedded with a near-field communications (NFC) reader, retailers can detect smartphones (which also feature an NFC chip) and process electronic payments between the mobile device and the POS.
Google takes the concept one step further with its Google Wallet. The app, which launched this past May, stores consumers’ bank accounts and other personal information, such as drivers’ licenses and health care cards. Google hopes to gain even more consumer traction with the software’s ability to store a user’s digital coupons, loyalty points and electronic promotions.
The retail industry has dabbled in other “virtual wallet” pilots, ranging from RFID key fobs to smart cards, over the years. And all programs were also tied to electronic payments deducted from consumers’ linked credit and debit card accounts. While each one tried to reshape how consumers paid for merchandise at POS, they were short-lived. However, mobile retailing and related options are delivering a stronger value proposition for retailers and consumers.
“Past attempts failed because they lacked value,” says Erik Vlugt, vice president of product marketing, North America, for VeriFone, a secure electronic payment solutions provider based in San Jose, Calif. “With the introduction of Google Wallet, and its connection to loyalty programs and in-store promotions, current mobile payment options provide a richer shopping experience.”
One factor that keeps retailers from making the commitment to mobile payments are grocers’ concerns over marking large capital investment of processing hardware. VeriFone officials say the company is working to streamline the task by making upgrades available.
“Not having to swap out hardware is a strong, cost-effective opportunity for retailers that want to accept mobile payments, and the transition is transparent to shoppers,” Vlugt explains. “The key for retailers is to add technology that will allow them to accept all offerings. We will maintain our role as a supporting partner.”
Streamlining with prepaid cards
By adding prepaid cards to the mobile payments mix, retailers can further streamline the payment process. Whether establishing a program on a mobile optimized site or creating a dedicated “app,” consumers can enter grocer-branded gift card account numbers, and use the dedicated software to electronically pay for purchases. The key to encouraging repeat purchases and visits is to bolster the app with functionality.
Observers say grocers can take a lesson from Seattle-based Starbucks’ Card Mobile, a free application that allows smartphone users to create mobile wallets via their Starbucks pre-paid gift cards. Besides electronically paying for purchases, the app also allows users to electronically check their card balance and reload funds, among other tasks.
New opportunities clearly present new challenges, including how to successfully streamline business operations, satisfy consumer demand, and of course, maintain secure transactions. To address these concerns, companies such as FIS Retail Payments Solutions continue developing risk management systems to help its retail partners stay one step ahead of fraud across all payment options.
“With so many emerging processing services, including mobile payments, digital wallets, even EMV Chip and PIN functionality, on the horizon, FIS continues to develop solutions and securely support a complete suite of electronic check services, loyalty solutions, prepaid services, gift card programs, credit card solutions, among others,” Roese says.
As new options continue to hit the marketplace, retailers clearly have their work cut out for them. But how can supermarket retailers whittle down their options?
“The future of payment processing will have to answer the needs of the evolving market,” says InComm’s Solomon. “That means the ideal solutions must be streamlined and convenient, especially in a world of one-click/one-swipe purchasing. And overall, it must offer consumers a secure, risk-free shopping experience.”
Walmart eases banking pains
At a time when consumers are fighting escalating fees for traditional banking products, Bentonvile, Ark.-based Walmart is easing the pain by expanding the services provided in its menu of MoneyCenter financial services.
The Bentonville, Ark.-based retailer, which has a loyal following among the unbanked consumer segment, has become a destination for shoppers looking for a more affordable option to cash paychecks. The service, which costs shoppers $3 per paycheck, is a “cheaper” option than commercial banks that charge fees upward of $6.
Walmart’s MoneyCenter also eases the burden of bill payment. Consumers can pay electricity, water, gas, cable, cellphone, Internet, credit cards, even their mortgage and car payments via a MoneyGram or CheckFreePay, a walk-in payment service provided by Fiserv, a provider of financial technology.
According to a 2010 Fiserv Billing Household survey, 27 million U.S. households already use “walk-in” (in-store) bill payment service centers. This number may increase based on Walmart’s October announcement revealing that it became an authorized payment center for its California customers paying utility bills.
Besides enabling them to pay bills from Pacific Gas & Electric Co., San Diego Gas & Electric and Southern California Gas Co, Walmart is not imposing convenience fees, which often range from $0.88 for standard three-day delivery, to upwards of $3.95 for near-real-time payments. Payments can be made using PIN-based debit cards or cash.
“Consumers appreciate the convenience of paying bills at Walmart, while making everyday purchases,” according to Jardon Bouska, division president, biller solutions for Brookfield, Wis.-based Fiserv. “Walmart’s new service helps thousands of Californians who prefer to make cash payments in person.”
Walmart also offers prepaid MasterCard or Visa debit cards, supplied by Green Dot, for a $3 fee. This is an advantage for Walmart shoppers since prepaid cards issued by Visa, MasterCard and American Express typically cost upward of $4.95 and have a $6 monthly maintenance fee.