Technology has long disrupted the consumer-facing retail industry. From the introduction of barcode scanning software to the advent of the web and then home delivery, evolving technology continually challenges and changes the industry, remoulding it to enhance the consumer shopping experience.
In recent years, some of the most impactful developments in retail have been driven by the payments industry. Contactless was first introduced in the UK just over a decade ago to provide greater convenience. It has since become one of the country’s most popular payment methods with 54% of consumers using it on a monthly basis, according to our recent Lost in Transaction research. And retailers are continuing to innovate – supermarket powerhouses including Tesco, Sainsbury’s and the Co-op have all trialled checkout-free technologies in their stores this year.
Payments innovation has typically made life easier for consumers. Some have drawn criticism from consumers, who feel more vulnerable to security risks and fraud. For instance, our research found that 64% of UK consumers worry that fraud from contactless is on the rise. This sentiment isn’t isolated to the UK; 59% of German consumers and 47% of Austrian consumers echo these concerns; this critique has cultivated an environment for alternative payment methods to thrive.
One such method is payment by invoice, the “buy now, pay later” concept where consumers have the option to pay by invoice, enabling them to settle up in 30 days’ time rather than there and then. The solution has been so widely accepted by German and Austrian consumers that it has become more popular than debit cards – 38% of Austrian consumers and 29% of German consumers surveyed used payment by invoice in the previous month, compared to a respective 18% and 20% who had made a purchase using a debit card.
Security seems to be the key driver of this invoice adoption movement; 55% of Austrians and 49% of Germans believe payment by invoice is a safer way to pay for goods, which reflects the fact that goods have already been dispatched by the time payment is due and delivery is therefore guaranteed. Pay by invoice not only puts consumers at ease, but it also adds the much-needed ‘try before you buy’ element that the online retail sector had previously failed to emulate from the in-store, changing room experience. Consumers can try on items in the comfort of their own homes and return as many as they wish. And, because the payment process is staggered, there is no need to worry about being out-of-pocket while a refund is approved and processed.
Despite its success in Continental Europe, we are at a much earlier stage in the journey to widespread adoption for payment by invoice in the UK and North America, but nonetheless it is on the radar. More widely available here are pay by instalment services, which enable consumers to spread the cost of items over a number of months. Although more applicable to high-value items, these schemes do serve as the antecedent to more widely available invoice services in the retail sector, preparing consumers for a retail landscape in which they can pay for their goods weeks after receipt, and are used to doing so.
In the UK and in North America, we are beginning to see signs of a shift towards payment by invoice. Taking the UK in particular, in recent months, high-street names including ASOS, Topshop and H&M have all introduced ‘pay later’ schemes, in an effort to tap into a thriving and fashion-conscious millennial market, to which making spending more manageable is a priority. These schemes are still in their relative infancy, but with high-street backing will come greater adoption, and we can expect to see more invoice schemes emerging across the retail sectors in Europe and North America.
The steady rise of pay by invoice represents the latest evolutionary milestone in the way shoppers pay for their goods. Its payments predecessors including the contactless card or the digital wallet have been successful because they made payments seamless, reducing the time of transactions to mere instants. In drawing out the payment process to a matter of weeks, pay by invoice solutions provide a similar level of convenience – just in another way. Pay later strikes the balance between seamlessness and security, but it does so by recognising that what consumers crave is not the seamless payment transaction – which they expect to just happen, but the seamless gratification of their purchases. Retailers adopting “pay later” will earn the trust of their consumers by tapping into this truth.