The Merchant Payments Digest is a regular update from Oliver Wyman to keep merchants apprised of developments in the rapidly shifting payments space.
Transformational payments solutions:
With the growing emphasis on frictionless shopping, RBR expects there to be over 12,000 checkout-free stores globally by 2027. This would reflect a 90+% growth year-on-year from 2021 when RBR estimates there were about 250 stores with this technology globally – growing threefold since 2020. Currently, Amazon has the largest number of stores with its ‘Just Walk Out’ technology, with other merchants such as Ahold Delhaize, REWE and Tesco also piloting this in their existing stores. RBR expects the strongest growth to come from the US, China and larger European markets.
Rules and standards:
UK’s Payment Systems Regulator (PSR) has announced that it is carrying out two market reviews of payments fees in the UK focusing on Visa and Mastercard. The first review will focus on the levels, structure and types of scheme and processing fees, as these fees have increased significantly since 2014. The second review will focus on cross-border interchange fees in the post-Brexit world. Visa and Mastercard have increased fees on transactions made in Europe using UK-issued cards, with debit fees going up from 0.2% to 1.15%, and credit fees increasing from 0.3% to 1.5%. The PSR is keen to understand the rationale behind these increases.
Customers’ evolving expectations:
According to the Global Findex 2021 database published by World Bank, the pandemic has significantly boosted financial inclusion across the world. Now, 3 in 4 adults globally have an account with a bank, financial institution or a mobile money provider – up from 1 in 2 in 2011. This has also spurred the rise of digital payments, with over 40% of adults in low and middle-income economies (ex-China) who made payments using a card, phone, or online doing this for the first time since the pandemic. 2 in 3 adults globally now report making or receiving digital payments.
Friendly fraud is a significant concern for merchants – accounting for an estimated ~75% of all chargebacks and amounting to ~$25BN in losses annually. In order to combat this trend, starting April 15th 2023, Visa is changing its dispute resolution mechanisms to allow merchants to submit additional data to prove that the disputed charges were authorized by the cardholder and are legitimate. Examples of such additional data include showing payment credentials previously used at the merchant, login credentials, and proof of use of a product, among others.
Apple is entering the buy-now-pay-later (BNPL) market with its new service - Apple Pay Later that will allow consumers to pay for their digital purchases in four installments spread over six weeks. The feature will be integrated with Apple Pay and will be available at all merchants that accept Apple Pay. It will go live later this year when Apple releases the new iOS 16 iPhone software. Apple Financing LLC, a wholly owned subsidiary which holds the necessary state lending licenses, will perform credit checks and risk assessments and will also hold the balances. Mastercard’s white-label BNPL offering “Installments” will power Apple Pay Later, with Goldman Sachs acting as the technical issuer (BIN sponsor).
Square announced that it is partnering with Apple to enable Tap to Pay on iPhone within the Square POS app later this year. By doing this, Square expects to simplify payments acceptance for its merchant clients by allowing them to accept in-person contactless payments with their iPhone (without the need for any additional hardware), while also having access to Square’s suite of tools and value-added services. This will enable smaller merchants to accept payments with just their cellular service and without the need for customers to necessarily use checkout lines (due to the absence of POS hardware at checkout).
Meta has rebranded Facebook Pay to Meta Pay, with the existing product features and customer experience carrying over to the entire suite of Meta’s products - Facebook, Instagram, WhatsApp and Messenger. More recently, Instagram announced that users can purchase products, pay with Meta Pay and track their order using the chat functionality in the app. Businesses that set up a digital storefront using ‘Shops’ on Instagram can use this feature and can create a request for payment on orders made via chat. Separately, CEO Mark Zuckerberg has also recently outlined his vision to create a single digital wallet that will allow consumers to securely and interoperably manage their identities, digital assets and payment credentials in the metaverse, over time.
Oliver Wyman is a global leader in management consulting with offices in 70 cities across 30 countries. Our Payments practice works with constituents across the payments value chain to deliver insights with real impact, combining deep industry expertise with powerful consulting capabilities.