Digital Commerce

Is your digital payments strategy ready for the “Now Economy”?

The digital wallet landscape is evolving fast — and changing rapidly.


The digital wallet landscape is evolving fast — and changing rapidly. Whether your enterprise already is deeply committed or just considering offering wallet payment access, building the right digital payments infrastructure involves a dizzying array of decision points that can make a huge difference in your level of success. Choosing the right payments processing partner may never be more important to your bottom line.

 

The “Now Economy” is here

 

Increasingly, consumers want to buy when, where and how they please — at merchants they trust and with the least amount of friction. Digital wallets answer the need. They are quick, convenient, and give consumers more power to spend and earn rewards, encouraging loyalty. They can work at POS, In-App and e-commerce via consumers’ electronic devices. And they are proliferating in new and perhaps unexpected ways, from wearables to connected homes to automobiles.

The speed of development in payments technology coupled with global demographic trends unequivocally point to growing consumer demand for a seamless checkout experience. Globally, digital commerce volume exceeded $3 trillion in 2017 and is expected to more than double by

2022.1  In the U.S., approximately 110 million Americans have used a digital wallet at least once as of 2018. Three-quarters testifies that digital wallets are simply more convenient than cards or cash, and one in four said they spend more with digital wallets.2

Moreover, the trend looks to be fairly universal, demographically speaking. While it’s no surprise that Gen Yers (18 to 38-year-olds) are the heartiest embracers of wallet technology, with 50 percent saying they use digital wallets regularly, older groups also are propelling the trend. Forty percent of Gen Xers and 17 percent of Baby Boomers have used wallets during 2018.3

The world is going mobile

Mobile commerce continues to have positive year-over-year growth (as does desktop e-commerce), as the chart below demonstrates. In fact, mobile wallets are estimated to exceed 50 percent of all retail sales in the U.S. by 2021.4 Smartphones enable quicker, more convenient transactions, including tap-and-go checkout at participating merchants. They also add countless users to the mobile wallet base as underbanked portions of the population become new and lucrative consumers who can increase sales and advance growth. The impetus is clear. Consumer buying behavior points to connected lives that grow by the millions every year. Merchants must be positioned to actively adapt as new channels emerge.

Merchants must adapt to this new retail reality

 

While the new digital economy doesn’t spell the end of brick and mortar retail, it demands that merchants deal with evolving challenges, many of which they have never considered before. The tradeoff? A potential treasure trove of cost-savings and business growth opportunities.

Solving cart abandonment

The average online cart abandonment by American shoppers is pegged at 70 percent.5 The reasons are many. For example, 37 percent of those who don’t buy say they didn’t want to create an account. 23 percent didn’t trust the merchant site’s security. 25 percent said their preferred method of payment wasn’t offered.6 Digital wallets can solve these issues and more and have been shown to increase shopper conversion rates by as much as three times.7

Enhancing fraud and breach protection

Because wallet technology enables tokenization of payment credentials, consumers and merchants alike are better protected from fraud, especially in the case of major data breaches.

Potentially lowering acceptance costs

Credit card processing and interchange fees can be negatively impacted by many factors that select wallet technology can ameliorate.

Merchants also must consider the cost savings that can be realized by obviating the need for printed coupons and receipts and print advertising.

Driving business growth

Card-on-file payment acceptance is proven to influence additional purchases. More than a third (34 percent) of consumers who store cards said they make purchases more often. Nearly two-thirds (63 percent) of millennials who store cards testifies the same.8

Consumers are more connected than ever. No merchant can afford to ignore digital wallets.

 

…But, where do you begin?

 

Consumers face an ever-growing number of choices as digital payments technology evolves. Optimal wallet selection must be based on customer needs and wants. Choosing the functional considerations that can help drive accelerated adoption as well as maximize purchase rates requires intimate knowledge of your current customer base plus those you wish to attract.

Which wallet to choose

Look for a provider that offers the types of payment features that can be extremely important in driving adoption and usage for your business. Among them: order-ahead capability, promotional offers, shopping list storage, auto-order and pay at pump in the fuel industry. Merchants who rely on points and loyalty programs require a wallet that can easily integrate with the existing program and enable

pay-with-points and barcode photo-capture. For some, in addition to the basics of accepting both credit and debit, the availability of gift cards and, possibly, private label cards are another consideration.

The importance of the phone hardware/software cannot be underestimated. Many businesses will require more than one wallet as not all digital platforms can accommodate both Android and iOS operating systems.

Don’t forget POS

Consumers’ desire for speedy checkout is fueling the growth of contactless payments at the Point of Sale. Tap and pay requires the capability of near field communication (NFC) and QR code access, again, features not all wallets can deliver.

As digital wallets mature, new providers emerge and new markets embrace the technology, the choices will only multiply and, along with them, design decisions will become more complex. Finding the delicate balance that will optimize your investment today and into the future is key.

 

Not all wallets are created equal

 

Digital wallets are software-based systems that store users’ payment credentials and passwords, enabling consumers to make purchases without directly entering their personal account information. Most allow consumers to use multiple payment instruments, such as credit or debit cards and bank checking accounts or, in some cases, even store money to create a type of prepaid account.

One of the more confusing aspects of the wallet phenomenon is the seemingly constant introduction of new wallet brands.  Whether device-based or Internet-based, each involves different technologies, interaction methods, payment options, security mechanisms and, of course, transaction fees. The main business models are:

  • Closed Wallet Models restrict purchases as well as refunds on returned goods or cancelled services to the individual merchant supporting the wallet (ex., Amazon, Walmart).
  • Semi Closed Wallet Models allow purchases at merchants that partner with the respective wallet providers (ex., PayPal, Apple Pay, Google Pay).
  • Open Wallet Models are Bank-provided and can be used for purchases as well as cash withdrawals at ATMs (major credit and debit cards are open wallet instruments).
  • Semi Open Wallet Models work at card-accepting merchant locations and do not offer ATM access (ex. Visa Checkout).

Further, digital wallets can be device-centric or device-agnostic. Device-centric wallets store payment credentials in a mobile device or in the cloud and can allow NFC (near field communication) tap-and-go purchases via smartphones that have the capability. Device-agnostic wallets are web-based solutions and include card-not-present/
card-on-file wallets as well as QR code-accessed wallets.

Finally, the payment networks offer card issuers and merchants “Digital Checkout Wallets” that work on web browsers, mobile devices or proprietary applications. These wallets conveniently integrate a consumer’s bank relationship with a payment application and can automatically tokenize the payment credentials for increased security.

Merchants must make sure that the wallet or wallets they choose to support accurately reflect the payment habits and aspirations of their customer base.

 

Why J.P. Morgan?

 

How can you protect against obsolescence in this constantly evolving environment?

At J.P. Morgan Merchant Services, we face this question every day. And we continually invest in defining and refining the best solutions. The digital wallet purchase habits insight we gain from our own 34 million active Chase Mobile users continually enhances our knowledge base and consulting capabilities.9 And our consistent investment in payments technology demonstrates our commitment to staying on the leading edge of the digital payments evolution.

A major result of that commitment is our development of a simplified and flexible digital application programming interface (API) that allows merchants to:

  • Enable the current top wallets, including Apple Pay®, Google Pay®, Visa Checkout® and Samsung Pay® (plus, we support many others through our Consumer Digital Payment Token or CDPT specifications)
  • Offer checkout options for desktop and mobile devices as well as in-app checkout for mobile users with specific wallets
  • Track customers’ wallet usage and trends with sophisticated reporting
  • Reduce operational burden by automating certificate renewals and reminders

Most important, our API future-proofs your digital payments system by incorporating seamless upgrade capability to support EMVco’s Secure Remote Commerce (SRC) interoperability specifications as they evolve to meet security challenges.

This revolutionary, global standardization methodology creates a consistent, streamlined checkout environment for digital transactions, regardless of device, and provides secure payment acceptance for both merchants and consumers. 

The right partner makes all the difference

The shift to digital is swiftly moving payments from a necessary cost of doing business to an opportunity for merchants to reshape their brand’s value propositions while they streamline middle and back office processes for greater operating efficiencies. Collaboration with the right electronic payments provider is mandatory.

As the largest acquirer of card-not-present transactions and a top five acquirer of purchase transactions overall,9  we have the technology, expertise and experience that clients rely on to stay ahead of the ever-changing arena of payments systems.

No matter where your enterprise is in its development or fine-tuning of digital payment acceptance, we are confident you will benefit from our expertise and experience in this bold new world of payments.

Cindy Turner, Managing Director, J.P. Morgan

As head of Core Acquiring Product for JPMorgan Chase Merchant Services, Cindy has worked with large and small merchants on their acceptance strategies for more than a decade.

Her deep and broad industry experience in Payments including e-Commerce (both on the issuing and acquiring side) plus her additional direct experience working with consumer products, retail and restaurants on marketing, pricing and cost savings initiatives have more than prepared her for the job.

Prior to J.P. Morgan, Cindy partnered with the card networks and various wallet providers on their respective roadmaps and commercialization strategies and supported online and mobile retailers ranging from Fortune 500 companies down through small businesses. She also spent three years as an executive on KKR’s portfolio team.

From sales effectiveness to procurement savings to product management and design, Cindy is a highly experienced business leader, with proven “nose for the money" instincts, who can help clients get things done.

 

James Perkins II, Executive Director, J.P. Morgan

As product director for Terminal and Wallets, James drove the launch of JPMorgan Chase's Wallet API, our market-leading set of capabilities that allows merchants to customize their wallets and the value-added services that work best for them.

His focus on digital wallets was honed via his engagements with many if not most of the leading wallet providers, including Soft Card, Apple Pay, Google Pay (formerly Android Pay), Samsung Pay, Visa Checkout, MasterCard Masterpass, Microsoft Wallet, AliPay and EMVco SRC.

With nearly 20 years’ experience as a proven technologist, startup innovator, and strategic business leader in the digital payments space, James is highly skilled at integrating varied inputs in order to develop and then act on the best strategic and tactical plans.

J.P. Morgan clients count on James to help them leverage technology effectively and efficiently to achieve the best results.

 

1.McKinsey Oct 2018
2.finder.com, “The rise of digital wallets,” June 2018
3.finder.com, “The rise of digital wallets,” June 2018
4.“U.S. mobile retail commerce sales as a percentage of retail e-commerce sale from 2017 to 2021,” Statista, 2019
5.Baymard Institute, “40 Cart Abandonment Rate Statistics,” January 16, 2019
6.Neaton, Gary, “Six Ways To Reduce Cart Abandonment,” Forbes, October 9, 2018
7.Keeton, Graeme, “How to Use Digital Wallets and Mobile Site Optimization Tactics to Stamp Out Cart Abandonment,” 2019
8.Business Insider Intelligence, Snaps looks to AR to boost engagement – Apple Watch returns to growth in 2017, February 2018, Canalys
9.JPMorgan Chase & Co. 2018 Annual Report
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