Frictionless payments fuel boom in online spending

A brief stroll through the streets of Hounslow, West London, offers a glimpse of Jeff Bezos' ever-enduring quest to push the boundaries of shopping.

At the base of a modern block of flats lies Amazon Fresh, the checkout-less grocery shop being rolled out to disrupt the way consumers buy their fresh produce, milk, tea and toilet roll.

Having already become the preeminent force in online retail, Amazon's founder - and one of the world’s richest men - is building a high street empire using smartphone apps, data and sophisticated cameras that track what shoppers are putting in their baskets.

It has been made possible by the rise of so-called frictionless payments: mobile wallets, auto-renewing subscriptions and smartphone fingerprint payment tech sweeping online and physical stores.

For shoppers, it promises speed and convenience. For retailers, it turns fickle-minded customers into regular spenders while increasing the opportunity to harvest their data.

Research by Barclaycard found around £40bn worth of potential purchases were abandoned by online shoppers last year, with 24pc caused by slow payment processes. Investment in new payment technology, however, helped slash those products left languishing in online shopping baskets by as much as 16pc.


Claire Tassin, the retail and ecommerce analyst at Morning Consult, says frictionless payments are handing online retailers more tools to drive sales.

"For the consumer, frictionless payments are phenomenal in terms of convenience. It makes it so easy to just to move through your day without having to fish for your credit card every time you want to checkout online,” she says. “And it is good for online retailers because you don't have those abandoned carts.”

Tassin adds: "Individuals who use mobile payment technology like the wallet on their phone are much more interested in retailers that offer buy-now-pay-later services, or loyalty programmes. The loyalty area is really interesting because they often come with a mobile app that supports embedded payments.

"So, you have this payment system where you can store a consumer's payment history, ordering ability, loyalty rewards and credit card in one space that makes it easier for that retailer to own the customer journey."

The rise of frictionless payments comes despite early anxieties over security and data privacy: a report from online payments company Paysafe in 2018 found half of shoppers feared such payments would put them at greater risk of fraud.

Covid has helped temper those fears. An increasing number of consumers turned to online grocery shopping during lockdowns, or embraced mobile wallet payments to cut physical contact with cash.

This prompted more retailers to adopt payment services offered through smartphones. More than half of retailers now provide digital wallet services such as Apple Pay or Android Pay, according to Barclaycard. Meanwhile, research by UK Finance found contactless card usage accounted for 2bn transactions in November, up 30pc on the same month last year.

Concern over “surface-level cleanliness” during the pandemic was “a big accelerator to start trying more of that mobile payment technology", says Tassin.


Social media giants have also played their part in getting consumers comfortable with quick payments. Instagram, for instance, has diversified away from sharing images and videos, allowing users to buy products touted by influencers.


The move brings together its powerful social media algorithm with an easy way for consumers to buy what they discover: reducing the number of people leaving Instagram to find products elsewhere on the internet.


And with 59pc of those online between 18 and 29 year olds using Instagram, according to the London School of Economics, such payment trends are becoming increasingly embedded within society.


For Mark Mulligan, the co-founder of Midia Research, frictionless payments have been a key driver behind the subscription economy, which has accelerated the rise of Netflix and helped transform the New York Times into a global media powerhouse.


The American newspaper publisher, which recently bought mobile gaming sensation Wordle, lets readers subscribe to its app using fingerprint authentication on Apple’s iPhone before auto-renewing. It claims to be on track to reach 10m subscribers by 2025, having already amassed 8.4m - of which 7.6m are digital.


"Anything in the digital world that reduces friction is going to be a positive because it is providing simplicity and helping companies fight for prominence in the attention economy, where there is a finite amount of time available,” Mulligan says.


"That is particularly prevalent for a news service like the New York Times,” he adds. “It shouldn't be underestimated that news is also a crucial part of people's digital identity. News is a social signifier online for how individuals want to be perceived across their digital profiles. So, removing friction is absolutely key to supporting that."


But how far are shoppers really willing to go in their embrace of "invisible payment" technology?


Start-ups like PopID are betting that facial payments will soon become as commonplace as reaching for the wallet when out on the high street. The California-based software firm recently partnered with Softbank's Computer Vision and restaurant chain Wendy's First Kitchen in Tokyo to roll out its facial recognition-based ordering and payment system.


Tassin is sceptical. "Right now, I think there are barriers to consumers embracing payment with facial recognition or the palm of your hand. Mainly because it is very rare.


"I do think that the sense of ease is very appealing, but the issue is the privacy consideration."


How Chinese shoppers pay and transfer money could provide a more realistic look at the evolution of frictionless technology in the short term.


WeChat, the Tencent owned tech giant, is China's biggest app with more than one billion active users. It combines social media experiences of WhatsApp and Facebook, while also incorporating services akin to those found on banking apps such as mobile payment and transfers. Users can message each other, post "moments", send money to friends, or even buy train tickets and pay bills.


Combining a banking, social media, and e-commerce app into one super app may seem a big leap for privacy-wary consumers. Yet, Bezos' Amazon Fresh store in Hounslow shows that shoppers are already stepping into a truly frictionless future.


Source: The Telegraph