Mastering the Art of Delivering Payments Acceptance Excellence: Choice of Payment Methods and New Ways to Pay

Never have there been so many payment methods available and ways for a customer to pay, but how should merchants decide which to offer and how to prioritise and present the options? Making these decisions is challenging, as they heavily depend on your customer profiles, geographical location, vertical market sector, and the sales channels your customers use. You need to consider multiple factors, including the cost of acceptance, transaction speed, level of security, and consumer protection. Implementing these decisions should also take into account the fact that customers now have stronger and differing personal preferences.

During our 'Mastering the Art of Payments Excellence' workshop, we discussed these key questions with large enterprise merchants, representatives from international payment networks, respected industry consultants, and senior members of our Merchant Services team. We have produced this blog to share our findings and thoughts with you, to help you decide which new payment types to add and how to expand your range of payment acceptance points.

At the POS
For face-to-face (F2F) purchases, debit cards are the most popular choice of payment method in all European countries, with the exception of Spain and Poland, where consumers continue to be heavy cash users. The Nordic region sees the highest use of debit cards, which are also heavily used in the UK, France, Ireland and Belgium. Encouragingly, debit card usage has finally overtaken cash in Germany.

According to multinational retailers, credit card usage stands out in France, the UK, and Spain. Poland leads in digital wallet usage at the POS, while Italy tops the charts for prepaid card usage. Cash usage continues to decline in all markets, but a cashless society is no longer predicted or felt desirable. These observations are backed up by our own insights and independent market research.

E-commerce payments

E-commerce payment method preferences vary more significantly between European countries than for POS purchases. Digital wallets are the preferred choice in the UK, Italy, Germany, and Denmark. In France, consumers lean towards credit cards, while in Ireland and Belgium, debit cards are the top choice. Account-to-account (A2A) payment methods are widely used in many countries and are the preferred choice in Poland and the Netherlands with Blik and Ideal respectively.

Cards remain favoured

Workshop attendees emphasised the convenience of card payments, particularly following the widespread adoption of contactless cards and POS infrastructure, along with increased transaction limits. Cards remain the number one choice when Europeans travel internationally. Visa and Mastercard branded accounts will continue to be widely used for many years due to the high level of trust given to the card brands, and that these are the primary payment credentials consumers are loading into their digital wallets.

Growth in digital wallet usage

Digital wallets now account for over half of e-commerce spend globally, and the initial success in Asia—with Alipay and WeChat Pay—is now spreading rapidly to other geographic regions. Digital wallets have become the preferred online payment method in the UK thanks to the take-up of Apple Pay, Google Pay and PayPal. The planned European ‘Wero’ digital wallet aims to replicate this success further increasing digital wallet popularity. Telco-issued wallets continue to be heavily used across Africa and in other developing countries.

Choice varies by sector

Retail workshop attendees explained that payment method choice is heavily influenced by the vertical market sector, transaction amount, and perception of risk. Credit cards are commonly used in the travel and entertainment sector, including bookings for holidays, airline tickets, hotel stays, and car rentals. Their popularity is fuelled by delayed payment options and robust consumer protection. Similarly, credit card usage is also prevalent in sectors like furniture retailing and home services due to larger transaction values and deferred supply dates.

Additionally, customer reward programmes incentivise credit usage within the grocery sector, particularly where a retailer cobranded card is available. Fuel card and fleet card usage are high in the automotive fuel retail sector.

Buy Now, Pay Later (BNPL) continues to grow

We see continued BNPL growth in the UK and across Europe. German and Swedish consumers lead in BNPL usage, but multiple countries are reporting increased adoption, extending beyond the initial clothing sector into an expanded set of verticals. BNPL is available from many providers from specialist fintech companies to mainstream financial service organisations and thanks to the tightening of regulatory demands and higher costs of funding loans consolidation is predicted.

Local Payment Methods (LPM)

Many LPMs still exist within Europe despite significant consolidation over the last two decades. Examples include Cartes Bancaires, Girocard, Bancontact, and Dankort. Retailers appreciate these LPMs for their lower transaction processing fees and because their customers strongly identify with them. It's best practice to support the appropriate payment method for the markets you serve.

A2A payments

Use of A2A payment schemes is growing globally and already popular in many European markets. In addition to Ideal and Blik, mentioned earlier, we see high growth with P24 in Poland, Bizum in Spain, and Swish in Sweden. This growth is driven by the faster transfer of funds, lower processing fees, and increased consumer use of mobile banking apps.

Open Banking offers an extension to A2A and so is expected to further drive adoption and provide increased competition to the international card payments. The UK is an early adopter of Open Banking with initial payment use cases being focussed on government, financial services, utilities, and telco transactions. The introduction of Variable Recurring Payments (VRPs) will dramatically accelerate transaction volumes. Access to Open Banking data services adds further benefits for merchants.  

Digital payments

Consumers are increasingly paying for goods and services using digital payment options with adoption rates significantly accelerating as a result of the COVID-19 pandemic. These deliver increased operational efficiencies, reduce friction and if implemented well can, as explained in a previous blog, improve the customer experience (CX). Payment links and QR codes are two technologies being used to create a digital payment transaction even when originated in a F2F environment.

Smartphones

Smartphones offer a variety of ways for consumers to make digital payments and are rapidly becoming the preferred way to initiate a payment transaction. In a retail store, Near Field Communication (NFC) and digital wallets like Apple Pay and Google Pay facilitate this process. Biometric features such as facial recognition or fingerprint scanning on the phone ensure Strong Customer Authentication (SCA).

Furthermore, frictionless payments occur when users utilize an app that stores payment credentials in a tokenised format. Many merchants now provide payment options via apps. However, research indicates that Pay by Bank apps generally experience higher adoption rates compared to closed-loop retail apps, attributed to their broader merchant coverage and higher usage frequency.

Now, your smartphone can transform into a secure payments acceptance device through SoftPOS, or as we like to call it, Tap on Mobile technology. This empowers micro-merchants to accept card payments for the first time and enables enterprise retailers to introduce innovative services such as assisted selling and queue busting. Tap on Mobile presents a thrilling new opportunity, seamlessly complementing traditional POS terminals.

Self-service payments

The number of self-service points is significantly rising in both unattended and semi-attended environments. This includes in-store kiosks, ordering and return points, vending machines, and new payment acceptance locations like EV charging stations. Quick service restaurants (QSRs) are at the forefront of this expansion, leading the way with the installation of large touchscreen displays to streamline food orders.

Further ways to pay

Fintech companies and payment providers are constantly developing new payment methods, such as NFC-powered wearables like smartwatches, tags, and jewellery. The international card networks are promoting Click to Pay to simplify the e-commerce checkout experience, allowing consumers to make purchases with just one click.

Consumers now have more payment options, such as Scan and Pay and Smart Shopping Carts. Amazon recently announced expanding the latter due to challenges in cost-effective rollout of its Just Walk Out technology. Innovative brands are experimenting with voice commerce payment options, through digital assistants or in-vehicle usage, expected to grow in popularity over time. 

Conclusion

Retailers must navigate an array of payment options and choose which ones to offer customers. They need to recognise that the preferred payment method varies based on customer persona and the type and location of the purchase. The key is to provide suitable options for each situation, considering both customer and merchant preferences. Digital wallets and A2A payment options will keep gaining traction. It's essential to maintain consistency in payment methods, as customers now frequently shop across various channels.

Technological advancements have introduced numerous new ways for consumers to make payments. Payments are increasingly digital, often initiated from a smartphone. These advancements provide merchants with an expanded range of acceptance points and use cases. Consumers typically have a preferred payment method and are hesitant to try new options without education and incentives. They place significant importance on trusted brands and are reluctant to switch behaviours.

We welcome the opportunity to discuss with you how our comprehensive suite of merchant service solutions can support the way your customers wish to pay. Contact us here to get started.