Payments Insights

The retail revolution has only just begun


J.P. Morgan Merchant Services collaborated with our Private Bank colleagues to support their partnership with the magazine WIRED UK which brings together thought leaders and entrepreneurs from different sectors to explore the big trends shaping the future. They recently hosted a discussion with entrepreneurs, experts and investors to consider the future of retail. Here is a summary of the discussion.

It is mind-boggling to consider how much the retail sector has changed in only a few years. Just over a decade ago, buying music and movies on iTunes was only an affair for the initiated, and many consumers looked askance at e-commerce, fretting about using their credit cards online. Now, purchasing something at the tap of a touch screen—or at the wave of a smartphone—is the rule rather than the exception.

“In the not too distant future, consumer payments will be more integrated as mobile and digital wallets become more prevalent both in-store and in-app,” says Catherine Moore, European President of Merchant Services at J.P. Morgan. “Looking ahead, consumers will not differentiate between Apple Pay, Samsung Pay, their credit cards, bank transfers or cash, but rather think about their preferred forms of payment curated and used in a very personal way.”

Crucially, the change brought about by the Internet and the mobile payment revolution is not going to stop anytime soon—if anything, much more is to come.

A direct channel to consumers

“As retailers continue to innovate and increasingly engage customers online in the full sales experience, facilitating easier and more secure payments will continue to be critical. People today expect a more personalized service across all retail interactions and in multiple locations,” Moore says. “To be successful, retailers have to find a way to continue to extend their brand into the digital space, based on consumer-defined, behavioral frameworks that are still emerging.”

But other companies believe that provenance could be established through different means. British firm EVRYTHNG, for example, marshals a variety of Internet of Things (IoT) technologies—including NFC, QR, RFID, and Bluetooth—to provide consumers with more information. When choosing a product in a shop, a customer can scan it with their smartphone to get valuable insights, explains EVRYTHNG CEO Niall Murphy.

“Digitally enabled products become direct channels of interaction with the consumer. This means that, for example, a consumer can use their smartphone to access information about a product directly from that product item in the store,” he says. “But they can also pay for that product directly from their phone without going to a checkout.”

And, in the same breath, such “smart products” allow retailers to run their businesses more efficiently.

“Retailers lose sales if the right inventory is not in the right retail store when a consumer wants to purchase it. And they lose income if too much inventory is in a retail store, having to discount products to sell them. IoT makes it possible to track individual product items and apply real-time analytical intelligence so solve these kinds of problems,” Murphy explains.

IoT technology might also be leveraged to deliver an interactive shopping experience. Rather than expecting customers to draw out their phones and check out products on the shelves, shelves themselves could address shoppers with recommendations.

“Think of smart shelves that talk to the smart assistant on your mobile phone as you walk past, recognize that it’s your partner’s birthday tomorrow and start recommending not only presents but also recipes for a romantic meal in for two,” says Alex Voica, Head of Technology, PR, and Communications at online retailer Ocado.

In general, though, the real question is: in the near future, will there be shops at all—or will they be superseded by massive warehouses and online shopping websites?

Try it out in-store—but make your final purchase online

The consensus is that brick-and-mortar shops will likely be around for a while, but they will evolve in form and function. We will go to the shop mainly to touch, feel and try on the items we want to buy—but then we could decide to just order it online and get it delivered the day after.

Therefore, many shops will reinvent themselves as showrooms, rather than continuing as marketplaces. They could become smaller, and keep less merchandise in-store. Augmented Reality (AR) technology would play the key role of conjuring goods out of thin air, or customize them on the spot through digital filters.

“Some retailers already have iPads set up in such a way that customers can place virtual chairs around a physical table. Obviously, this allows for much more economic use of those expensive square shop meters,” explains Ko de Ruyter, Professor of Marketing at Cass Business School.

“Nike has a base model shoe on display and—with the help of their phones—customers can customize their own model. You can have any color car on display, because AR-based apps will allow you to change the color by a click.”

It follows that, in some cases, shoppers will skip brick-and-mortar locations altogether, and just download an Augmented Reality app to “try” a given product at home.

Manchester-based startup Digital Bridge, for instance, has developed a technology that blends AR and machine vision, allowing customers to visualize on their handsets what furniture would look like in their own homes.

“It was developed to help solve the problem of the ‘Imagination Gap’—where people can’t imagine how a product will look in their home. This means they are putting off making expensive purchases,” says company founder David Levine.

“Thanks to tech giants Apple and Google announcing the launch of technology that allows AR apps to be developed and used on their mobile devices, there will be a greater opportunity for retailers to get on board.”

The foot soldiers of the digital retail revolution

Of course, once you’ve decided that you love that AR lamp, the question remains of how to get it physically delivered to your place. One-day delivery and real-time purchase tracking are already with us—but will home delivery evolve to be even more high-tech?

Although much has been said about Amazon’s drone-delivery ambitions, regulation could prevent the plan from flying—at least for a while. More terrestrial solutions, though, are rapidly catching on.

The United Kingdom is already a home to several companies that are prototyping driverless delivery buggies—i.e., small autonomous (or semi-autonomous) vehicles that can find their way to the consumer’s home, solving the so-called “last-mile problem.”

“Last-mile delivery is currently the most expensive mile for delivery firms and accounts for the biggest bottleneck in the growth of the e-commerce industry, especially local e-commerce such as groceries and food delivery. Until now, there has not been a truly affordable method of neighborhood delivery for local businesses, online retailers and consumers,” says Allan Martinson, COO of self-driving robotics company Starship Technologies.

“Ground-based delivery robots have opened the door to new opportunities for retailers and delivery firms alike,” Martinson adds.

William Sachiti, whose company Academy of Robotics has designed the self-driving delivery pod KarGo, concurs. “Self-driving cars allow not just super-fast delivery, but they are also enabling in terms of being able to take customers to retail locations where they otherwise wouldn't/couldn't have gone,” he says.

“One of the reasons most people hate driving to a local town is parking. Autonomous vehicles eliminate the parking problem and allow even those who can't drive to be able to go to retail locations.”

“The main problem is regulation: while autonomous vehicles are a great concept, there still is no legislation around them,” he adds.

J.P. Morgan's Moore also underlines the importance that regulation keeps up with the technological disruption the sector is already experiencing. “New regulations will play a significant role in helping retailers maintain digital relationships with their customers in-store and online,” she says.

“Providing active consent for how personal data can be used (up to and including the ‘right to be forgotten’) will be a game changer in redefining how merchants serve up targeted marketing and offers to consumers, as well as to analyze data to leverage for deepening relationships and loyalty.”

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