By Delia Pedersoli, COO at MultiPay Global Solutions
We are about to witness the biggest change in payments since decimalisation 40 years ago. While the arrival of technologies such as mobile payments and chip and pin has undoubtedly had a significant impact on retail payments, the recent news that the UK Treasury and Bank of England (BoE) is consulting on a digital currency is a game changer. The arrival of a digital pound – dubbed “Britcoin” – has the potential to cause a seismic shift across the retail sector. So with such a dramatic change on the horizon, it’s worth looking in more detail at what a digital currency is and what it means for bricks and mortar and e-commerce retailers alike.
What is a digital currency?
The underlying technology for a digital currency is nothing new, being closely related to that used in cryptocurrencies such as Bitcoin. However, unlike fully decentralised cryptocurrencies, digital currencies are run by central banks like the BoE. Central banks hold control because they work with – and do not replace – fiat currencies like the pound sterling. When launched, digital currencies will have their value pegged to that of existing fiat currencies but offer features that are impossible for non-digital currencies.
It is the opportunity to enable new features that is driving interest in digital currencies. For example, digital currencies provide central banks with a whole new wealth of data points that governments can use to enhance public services. Of course, as with any data, it will need to be carefully controlled and regulated, but the potential to improve public services is enormous.
Nonetheless, while digital currencies will transform governments’ operations, retailers will feel the most impact. Such is the potential impact on the retail sector that it is worth looking at some of these areas in detail:
International payments: One of the biggest beneficiaries of digital currencies will be retailers operating internationally. With payment rails in place that are designed for digital currencies, transferring money becomes not only easier but cheaper with reduced transactional fees. For businesses operating across international borders or with a large foreign customer base, this dramatically boosts profitability and enhances customer experience (CX).
Loyalty schemes: Loyalty schemes are experiencing a surge in popularity with consumers. Research data has even predicted that the loyalty management market will grow from $8.6bn in 2021 to a colossal $18.2bn by 2026. The arrival of digital currencies will accelerate this further. Connecting loyalty schemes with digital currency payments removes the need for discount vouchers. Instead, customers can instantly receive cashback on their purchases, as money is paid directly into their digital wallet. As brands look to improve their CX, simplifying access to loyalty programmes will encourage existing users to make additional purchases while also driving sign-ups.
Instant refunds: Digital currencies also offer a new way of managing refunds. For instance, the ability to provide triggered refunds directly to a customer’s account will help improve a significant complaint of e-commerce shopping – missed deliveries. Often outsourced to a third-party delivery firm, a missed delivery is still a major annoyance to customers and can easily damage a brand’s reputation. Recent research found that missed deliveries are the number one irritation for consumers when making an e-commerce purchase. Digital currencies, however, can be linked directly to payment. So, if a delivery is missed, a customer is refunded instantly without contacting customer support. Not only does this help improve CX with the customer affected, but it also frees customer support agents to deal with other issues.
Micropayments: The biggest impact digital currencies will have on retail is the introduction of micropayments. Micropayments are, precisely as they sound, small-value payments (e.g., less than a pound or dollar). Electronic payments of a value below this threshold are currently out of the question. The reason? Cost. Making a payment below a specific value is simply uneconomical for retailers, given the cuts that banks, card providers, and payment providers take for processing transactions. However, that doesn’t have to be the case with digital currencies. By reducing processing fees, digital currencies allow retailers to use micropayments.
Going a step further, the use of micropayments has the potential to disrupt entire business models. By offering consumers micropayments, brands can replace or support existing subscription models. For instance, instead of providing a free trial, consumers would be encouraged to pay a small amount for time-limited access to the product or service. Then if they want to keep using it, they can switch to an ongoing subscription. Alternatively, brands may offer micropayments either alongside or instead of subscriptions. By enabling micropayments, brands can add another payment option to increase revenue, boost CX, and drive sign-ups.
Future-proofing payment systems
The only downside to digital currencies is that they are still a few years away from reality. Nevertheless, they will fundamentally change the payment game when they arrive. Right now, though, we can only explore the tip of the iceberg of what is possible.
For retailers that cannot wait for these new features, then help is at hand. New payment systems built to support alternative payment methods (APMs) are already available that can offer some of the features promised by digital currencies. For instance, retailers looking to reduce their transaction fees can access account-to-account (A2A) payments via the latest payment systems. What’s more, these new payment systems are already future-proofed for the arrival of digital currencies. With so many exciting developments on the horizon in the payments space, it’s time retailers ensure their systems are up to the task.
