New Types of Digital Payment in Retail

6 May 2021

The retail payments landscape has undergone significant and rapid transformation in recent years. The use of cash, the dominant form of payment until a decade ago, is in rapid decline, while there has been a corresponding rise in the use of card payments and in the introduction of new digital payments in retail.

Digital wallets are at the forefront of new digital payments and they have already achieved widespread adoption. By linking to a card holder’s debit or credit card account which utilises the major card schemes such as Visa and Mastercard to authorise and settle payment, digital wallets such as Apple Pay, Google Pay and Samsung Pay enable contactless payments in-store through near-field communication (NFC), and mobile payments online.

One new form of payment that does not rely on the use of digital wallets is Pay by Link. At the point of checkout, the retailer creates a URL which links to a webpage where the customer can enter their payment details and authorise the transaction. Pay by Link offers an easy and secure way to accept payments remotely, without using a card machine, and can be used over social media, online, over the phone and in-person. Pay by Link is offered by major Payment Service Providers (“PSPs”) such as Adyen, Paypal and Worldpay, and by recent market entrants such as Square, SumUp and Zettle.

A third new digital payment method that is rapidly gaining widespread global adoption is ‘buy now, pay later’. While instalment credit is not a new concept in retail – retailers have offered credit to customers since the days of mail order – the particular innovation is offering instant credit to customers shopping online. Companies like Alma, ClearPay, Klarna, Laybuy, PayPal, Scalapay and many others offer customers the option to split the payment for their purchases into a small number of interest-free instalments spread across weeks or months. The advantage to consumers is being able to buy items when they need or want them; the advantage to retailers is higher sales and basket values by extending credit terms to customers, without taking on the credit or financial risk.

These new types of digital payment in retail present both challenges and opportunities: retailers must choose between a multitude of new digital payment methods as they plan their future payment strategies and then decide how best to integrate each individual payment method with their existing POS solution. Key among their concerns will be how to choose between the broad and often overlapping product and service mix of the PSPs and online payment companies, and how to select the right strategic payments partner.

This article discusses the new types of digital payment now being used in physical retail in more detail, and introduces some of the considerations PSPs, online payment companies and retailers must make when developing their new digital payments strategy.