Article

Why payments providers can beat Amazon

In an increasingly crowded payments space, providers who keep it simple still stand a chance of maintaining market share.

October 14, 2013

By Nishat Mehta

EVP of Global Partnerships for dunnhumby

Amazon made headlines last week with the announcement that they were launching Login & Pay with Amazon, throwing down the gauntlet to PayPal and numerous other payment providers.

After building a massive customer base through clever diversification and a willingness to take losses in order to innovate, Amazon stands a solid chance of poaching millions of transactions from other industry players in the coming months.

For years, Amazon has been building trust by delivering a great, personalized consumer experience based on customer data used in an ethical and valuable way. It is now cashing in on that trust to remove friction from the last step in the shopping experience — payments.

But the fact is that the same data-driven approach of putting customers at the center of every business decision is not the sole province of Amazon. This strategy is at the disposal of every provider in the payments space. The players who use robust data to give customers what they want, need and expect will stand a good chance of keeping — and growing — market share.

Here are some key areas they will need to address:

Keep it simple

Do you know the brand you selected on the last milk run you made to the supermarket? Retailer data shows that, if you're like most shoppers, you probably don't. But that same data tells us that you likely know whether you picked up 2 percent, whole, or skim — and if it was a gallon or quart.

This longitudinal analysis of customer baskets over time is why grocers will group all 2 percent, gallon-sized cartons from multiple brands right next to one another. They want you to find what you need, quickly, and discover new products that are very likely to end up in your cart, too.

This kind of simplicity can turn a tedious chore into a more streamlined process, saving you time and making repeat, frequent purchasing much easier. And if anything is a tedious chore these days, online and mobile payments certainly are. With often frustrating layers of security checks (how many of us have had to ask for four or five different CAPTCHAs before we found one we could read?) the inherent risks in payments often translate into agitation for the customer.

The most successful payments providers will be the ones who can remove this pain.

Treat the customer as an individual

Customer data is helping mass retailers get back to the ways of the traditional neighborhood shopkeeper by enabling a merchant to develop a deeper relationship with each of their consumers. For decades, retailers have sent offers via direct mail and e-mail. Yet, surprisingly, they often distribute the exact same offers or coupons to entire customer segments, treating millions of people as if they all want and need the same thing.

The message for the payments industry: Personalize aggressively — and then personalize some more. After all, smart retailers are training more and more people every day to expect this kind of treatment. If the payments industry can't or won't meet these expectations, the entire space will be in trouble.

Give me what I want

Customer data can also improve perception on assortment. Commonly, revenue and margin are analyzed to rationalize products based on the worst performing products in the category. However, a customer-centric decision reviews loyal customers over time to determine which products they consider valid alternatives. This ensures that products without substitutes, such as kosher butter, carry greater importance — even if they are financially less desirable on their own. While no retailer can carry every product, it's important to carry the ones loyal customers expect.

Payments providers must figure out where they will have to adjust and tweak their approach in order to keep loyal users. With competition more fierce than ever, creating and sustaining loyalty will be paramount for everyone in the payments space.

Look past the buzz-worthy topics like NFC, beacons, mobile, and all the other topics that are getting attention in the payments space. Consumers want to be treated as individuals, easily find what they need, and discover new products without looking very hard (or at all).

This won't be easy. The hard truth is that customers are most loyal to a merchant when that merchant is loyal to them. Meeting high expectations in service, trust, simplicity and personalization is a tall order for any payment provider. Treat me only as the Zip+4 I belong to, and I'll flee for the security of the provider that doesn't.

Nishat Mehta is EVP of Global Partnerships at dunnhumby, a global firm focused on the science of customer experience. Follow Mehta on Twitter at @nishatmehta.

Read more about retail payments.