Convenience of service as the main factor in eliminating intermediaries in payments and retail

The ousting of intermediaries that have become entrenched in the market today has become something of a form of art in the field of payments and retail.

Physical retail is experiencing a booming process of reducing the number of intermediaries caused by the activities of new players using digital technologies and data, which make the offers of old players less and less relevant.
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Payment terminals lose their relevance due to the development of the same device, which only recently allowed micromerchants to accept digital payments, namely, a mobile phone.

Traditional banks are beginning to feel like alternative borrowers follow them, unencumbered by the old infrastructure and cost structures, and using processes that are sharpened by the digital world, based on artificial intelligence, that reduce risks and provide loans instantly.

Traditional acquirers are being supplanted by tech players who provide more versatile software platform solutions that want more control over payment interactions with their merchants.

Digital wallets are facing new risks for their model due to the recent adoption by card brands of EMVCo's Secure Remote Commerce online browser standard, which makes the online payment process even easier and safer.

And these are just a few examples.

The truth, however, is that intermediaries are always present on both sides of this process. And not all new players manage to successfully enter the market and press the “old men”. Survival depends on how carefully the players think about the future of their company after entering the market and how ready they are, if necessary, to abandon their own once revolutionary approaches and radically change them to reflect the new realities.

New innovators crowd out old ones

Let's look at this process in the context of a story.

In 1734, in a city near London, customers discovered a new Bennetts store , which allowed them to buy in one place all that they had previously visited a number of other stores. For the first time, buyers had a convenient opportunity to visit one store, to look and touch and purchase certain goods, many of which were simply inaccessible to them in the malls of the main streets of their hometowns. Thus, the first universal stores appeared, displacing merchants from the main shopping streets. The new approach to trade flourished virtually unchanged over the next 270-odd years.

In 1916, Clarence Saunders opened the first self-service grocery store in Tennessee. As in the case of department stores, Piggly Wiggly offered customers a wide range of food products in one place. They could personally see, study it and select the desired products. Prior to that, they had to buy meat, agricultural products, canned goods and bulk products in different places, behind the counter of which stood the seller, who released the purchases. Very soon, the grocery stores, these new intermediaries who ousted various food suppliers from the main streets of the country, became the main and usual place to buy food. As in the case of department stores, the “reign” of grocery stores has come, lasting more than 100 years.

In 1985, Blockbuster opened a network of stores that allowed consumers to take videotapes of recently released movie theaters and watch them at home. For the first time in history, apart from of course individual local and regional rental outlets, residents of many US cities had the opportunity to watch movies not only in movies. Video rentals and nightly film screenings became the main rituals of cinema lovers in the next two decades.

In 1979, Sony introduced the Walkman , an innovative invention that made music both portable and personalized. Before Walkman, portable music meant listening to the radio, and the choice was limited only to those songs that the radio stations put on the air. But now consumers have the opportunity to buy a cassette (and later a DVD) with their favorite songs and listen to them wherever they are. The player’s advertising company called “A revolution is taking place on the street”, which introduced the Walkman to the US market in 1980, was named one of the most efficient product launch companies in the past 50 years and gave Sony a 20% increase in the portable music market.

In 1995, one year after the founding of Amazon, eBay virtual doors opened to consumers wanting to sell all sorts of things that took place in their attics, basements and garages. Prior to this, sellers and buyers of such goods were mainly limited by their geographical location and the possibilities of newspaper ads. The new online retailer has become a leader in this area, moving all yard and garage sales to the online space, and later expanding its activities to the sale of new branded products. About ten years later, Amazon grew out of selling books, and niche players like Etsy began to offer a new and improved range of antiquarian and other similar products that eBay had previously specialized in, along with improved service.

In all these cases, marketing and merchandising became tools by which these, once considered revolutionaries, intermediaries managed to keep their place under the sun. The “Titans” whom the new “gods” tried to overthrow were simply “other guys” from the market claiming territory. The battle took place for the right to become a better mediator, to provide more products, newer, cheaper, unique products, better service within stores, more meaningful loyalty schemes. About providing a more convenient consumer service, rethinking its very essence, there was practically no talk at that time.

This continued until the attack turned into a defense against a new generation of fighters with intermediaries using new technologies, which, just a few decades ago, were aimed at rethinking the role of the intermediary and its value in the eyes of the consumer.

The digital beginning dominates the material.

Software has become more important than hardware.

Minimizing the "friction" in the service came in first place, and any roughness in the customer service model began to cast a shadow on the brand.

Gradually, new generations of intermediaries have grown, providing even more convenience and thereby displacing yesterday's innovator intermediaries from the pedestal.

See the future or face the inevitable

This year brings a sense of deja vu.

Take, for example, retail.

Those who continue to believe the Census Bureau, reporting that 90% of all retail sales still occur in physical stores - people are clearly out of this world. The cycle of failures resulting in a record number of closures and bankruptcies of malls and stores over the past decade is a clear indicator of the overall decline in physical retail, which we continue to observe, including today.

As one of my interlocutors said recently about this: “Today, people buy even mattresses online.”

Yes, that is right.

Digital, mobile technologies and the use of data to improve customer service, which have played a crucial role in changing the status quo in retail, continue to force out intermediaries from it.

Repress them all.

Digital and physical stores: who is more popular

For more than one year, we conducted quarterly surveys of consumers who visited physical stores. During this time, we had a chance to talk with 8 thousand customers, study their behavior in both large and small stores from four segments of the retail market: consumer goods (including department stores), groceries, clothing stores, and health and beauty products.

We asked them what they bought, why they decided to visit a particular store and how often they make purchases at this and other similar physical stores and online stores.

And in the end we got a pretty interesting picture.

In all four segments, which account for a large part of all consumer costs, most people no longer make purchases only in physical stores.

In the case of consumer goods, only 35% of respondents reported that they make purchases only in physical stores. This channel accounts for at least 50% of their expenses. Almost half (49%) of respondents reported that they are shopping in both physical and online stores.

In the grocery category, the number of visitors to only physical stores is more and makes up 41%, while 55% reported using both channels.

The same story is with clothes: 35% visit only physical stores, 58% - both those and others. For health and beauty, these figures were 39% and 52%, respectively.

Buyers using both channels are younger, more educated and provided compared to those consumers who visit only traditional stores.

Of course, the future is in the first category, consumer habits and preferences of which are already well formed.

But regardless of age, income level, education, cost, or preferred channel, there is another important point to remember: any preferences are formed based on the convenience of a service.

Convenience - the main criteria. Compared with him, prices are pushed into the background.

The same is true for rewards, loyalty programs, assortment, support or service, accepted payment methods.

According to them, shoppers who are prone to using digital technology have increasingly begun to rely on technology and mobile devices to find a convenient service for shopping.

Convenience promotes exemption from intermediaries

The consequences of this shift have a profound impact on the market and are felt by all players in the payment and commercial ecosystems.

A software-digital approach crowds out physical retail intermediaries and the ecosystems that support them.

Ten years later or so, queuing or trading through counters and terminals will be the exception rather than the rule, as people began to use these methods of purchase less and less.

Today, the purchase takes place directly between the stores, using mobile devices, or even before coming to it using a special application.

Software, applications and mobile devices connected to the Internet turn payment terminals, which for more than 270 years have been considered the cornerstone of retail, into an irrelevant obsolete element. In particular, one of the new devices responsible for this revolution is Square's mobile terminal, ironically in 2009, which contributed to the spread of digital payments among small merchants.

Search for new interesting products is now happening on mobile devices. Recently, Alexa and Google Assistant have been very helpful. These virtual assistants are also able to buy products detected with their help. Such a scheme, in which consumers first look for the desired product, and then decide which of the available offers makes it possible to get it in the most convenient way, threatens to shake the positions of the stores (but not the goods).

However, the Amazon company, the platform of which often becomes both the initial and the final point of the search for goods, probably can not be afraid of this trend.

The tendency to maximally simplify and improve serviceability leads to the crowding out of non-optimal and poorly thought-out payment services, and ecosystems that support such services.

Card issuers and digital wallets face their own risk of being sidelined. Consumers are beginning to use several payment methods, get used to them, gradually lose the need for new ways and become immune to them.

Any rating of electronic wallets in this way will be reduced to the fact that all consumers will name the most convenient brands for them.

In a world where the voice has all chances to become the main channel of access in retail, voice platforms can become a new intermediary not only in determining the stores where the purchase will be made, but also in determining payment methods.

The same role could be assumed by the universal payment button, which includes the data of the consumer's payment card, and is available from all the necessary merchants.

All the same forces are driving a revolution in the banking and credit sectors.

Consumers, accustomed to convenient service, know that the use of mobile and digital banking channels is easy and safe. Physical interactions are no longer a requirement to obtain the necessary services, including credit products.

Quicken Loans has already become the largest mortgage lender in the market, having won its 6% share. Consumers gladly traded the inconvenience of banking loan processing processes to the convenience of receiving an instant response on an online application. Small businesses tend to work with online lenders for the same reasons: the ability to use technology for instant approval and borrowing allows them to quickly and conveniently get an important source of capital to maintain growth and growth.

Digital, software, requiring minimal effort from users, payments have already left their mark in those areas of business where traditional banks once dominated.

What do intermediaries do?

Retailers, players in the areas of payments and lending, many of whom have already grown out of their start-up clothes, are now faced with a new generation of young players. Before them there is a question: how to proceed?

Retailers were at a crossroads where they would have to choose between certain digital technologies, as well as voice control technologies. The choice of one way or another depends on whether it can satisfy the consumer's need for convenience, the need to make the sale part of the process. And it is necessary to make this choice now, before the voice becomes the next wave of innovations, and they have to play the role of catch-up.

Lenders need to take advantage of technologies that allow them to rethink the flow of data and turn them into a source of income for themselves, and new opportunities for consumers and businesses.

Digital wallets need to preserve their role as valuable intermediaries for merchants and consumers by increasing the convenience of their service and adding useful service elements that transform the exchange of funds between physical and digital channels even more smoothly, efficiently and affordable everywhere. And it must be done now.

In general, all players will need new strategies and ways of thinking that will allow them to combine existing assets with new technologies that determine the behavior of the modern consumer. It will also require openness to partnerships, including those players who were once considered malicious competitors.

And two more things.

First, the understanding that the factor of convenience throughout history has been a driving factor in the liberation from intermediaries and has defined innovations in all areas of activity.

Secondly, the understanding that time is a valuable currency.

The department stores retained their popularity for almost 271 years, but the changes that ended their domination began about 10 years ago with the advent of the iPhone and the spread of the concept of applications. Banks have been issuing loans for more than 150 years, but Quicken Loans only needed 32 to become a leader in the mortgage lending market.

After 10 years, the world of retail, payments and loans will look very different, and intermediaries will play an important role in the process of its formation.

The only questions are which of the intermediaries crowd out other intermediaries. You can think a lot on this topic, but there is no clear answer to this question yet.