4 July 2007
The retail sector may be constantly evolving but the bottom line is that it will always be about getting customers to part with cash.
By Helen Dickinson, Head of Retail at KPMG.
Source: Retail Bulletin
However, what does change is how retailers do this. A couple of recent events and news stories have highlighted how this has altered over the years and how it will change in the future.
Forty years ago this week saw the unveiling of the first ever cash dispenser at a branch of Barclays in Enfield. From this humble beginning, the past four decades have seen 1.6 million ATMs spring up around the world, dispensing ?172 billion each year.
Earlier this month saw another birthday; twenty years since people first hit the shops armed with debit cards, meaning they were free to leave their chequebooks at home. It is estimated that there are now 68 million debit cards in the UK.
So what's next? One article I read about the ATM's fortieth birthday included comments from its inventor that cash could be a thing of the past in five years. But are we any closer to the cashless society?
An interesting innovation last year was the launch of the Starbucks Card, which can be loaded with any amount from ?2 to ?150, thus avoiding the daily hunt for the right change to purchase a cappuccino on the way into the office.
When it was launched it promised convenience for customers due to quicker service, the ability to use the card internationally, and security - once the balance is registered online, it is protected against theft or loss. The benefit for the retailer is, of course, securing greater brand loyalty, as well as potentially driving additional sales. Demand was high following the Starbucks Card's launch in the UK, with 100,000 cards registered in the first eight weeks.
Pre-paid cards have also emerged in other guises, such as gift vouchers, which a number of retailers in the UK now offer as an alternative to paper vouchers. They are loaded with cash electronically and accepted in retail stores in the same way as debit and credit cards, ready to be used whenever the recipient wishes. Although paper-based vouchers still appear to be going strong in many outlets here, these cards were worth $76 billion last year in the US, where they have replaced most traditional vouchers.
A step on from this is where MasterCard and Visa have linked-up with leading malls to offer a pre-paid card, which can be used at outlets within specific centres. A range of shopping centres across the UK, from Buchanan Galleries in Glasgow to Cribbs Causeway in the South West, now offer these, branded with the centre's name and logo. Shoppers can pre-load them with cash and then give them away as gifts, allowing recipients to spend not only on what they choose, but where they choose within a particular shopping centre.
We are also starting to see the growth of the pre-paid debit card. It's not exactly a new idea - we've already seen this in the pre-pay mobile phone model - but the market is rapidly expanding with more entrants into the market expected to join names such as Cashplus, Cash2Go, Amex Travellers Cheque Card, Speedcard, I-Money and I-Travel, as well as pre-paid Visa cards and MasterCards.
In addition, later this year we are set to see a trial of 'Tap-and-go' cards as a substitute for coins. A bit like a universal Oyster card, these will allow people to complete low value transactions by tapping their debit card on the reader. The card can be topped up with an amount such as ?20, which can then be used to make payments without the use of a PIN. This will be extremely useful for customers and for retailers selling low value items which generate a lot of coin.
Although these products clearly broaden the payments market, the question for retailers has to be whether they help attract extra customers who might not have otherwise shopped with them. If all they do is attract the same shoppers, then their benefit to retailers' bottom lines may be limited because of the transaction charges they would incur for accepting payment via these plastic products.
Charges continue to be an area of focus for the consumer and will undoubtedly play a major part in how successful some of these new products ultimately become. Charges from the retailers' point of view continue to be a minefield too. As well as direct charges for different payment types there are also hidden charges associated with each of the payment methods - after all, even handling cash costs money.
The risk of fraud is another area which needs to be considered, both from the retailer's perspective and from that of the consumer. It tends to be the case that when a new system is introduced fraudsters find a way to exploit it, particularly if established systems are becoming increasingly secure.
So, in summary, with new payment products hitting the market more change is on the way - with implications for both consumers and retailers. From the consumers' point of view there is a balance between convenience and security, and only the take-up by consumers of new products will show if this is being struck.
At the same time, retailers need to carefully consider their options to ensure the pros outweigh the cons. This includes looking at the costs connected to adopting systems - such as investment in new infrastructure, fraud etc - as well as the hidden costs, which are more difficult to assess. And after all this there's still the element of predicting customer preferences - and that's never an easy task!