The Vanishing Checkout Lane: Will Today’s Point of Sale Satisfy Tomorrow’s Retail Customers?

The retail point of sale is fundamentally changing. It is moving from traditional checkout lines to wherever the customer  may be: shopping  on the Internet, walking a store’s aisles, traveling  or lounging on the beach. Are you prepared for what this means to capturing and retaining customers?

By:
Barry McCarthy
General Manager,  Mobile Commerce and Point of Sale
First Data

Introduction: An Almost Unnoticed Transformation

Not so many years  ago, returning  a rental car was  often an exercise in anxiety and frustration. Typically,  you  would  be  racing  to  the  airport  to  catch your  flight  and  probably cutting your
schedule a little too closely.  You’d drop  off the car, gather up your possessions and drag  them to the  rental-return counter with  paperwork in hand.  You  might  stand in a slow  line serviced by  an attendant casually  checking in the  line of  others returning  their  cars.  If you  forgot to write  your mileage or fuel on the paperwork, you would  dash  back  to the car, write  down that information  and  then  sprint back  to the  car-return counter. While completing the  paperwork and processing your credit card,  the counter attendant might try to engage you in idle chitchat. Meanwhile you were rapidly losing patience.

Those  were the  days.

Now, of course,  returning a car is much simpler. You pull into the  lot. An attendant walks over  to you, scans a bar code on the  car and checks  the  mileage.  The attendant asks if you want  to keep  the  charge on your card.  He hands you the  receipt, and you’re  done,  almost before you’ve finished taking your luggage out of the trunk.

This new process seems so natural that it’s easy to forget those  not-so-good old days. Today’s  travelers  have quickly grown  to expect this level of service  and even  take it for granted.

From the car rental company’s point of view, changing the way it checked in a rental return and completed a sale was inspired by one simple idea: rather than bringing the customer  to the point of sale (POS), let’s  take the POS to the customer.  New wireless technology made this possible,  and the results were  dramatic:

• A major improvement  in customer  satisfaction
• Significantly faster  transaction  processing
• Fewer  attendants needed to check  in the same volume of returns
• Reduced need  for a staffed return counter  and lobby area
• A different kind of customer  interaction.  Rather than a pressured clerk facing  an anxious customer, often  in front of an audience of other anxious customers, you have a quick, efficient, satisfying, one-on-one transaction.

We hardly think about  returning  a rental car today.  We just grab  the  receipt and run, and that  could  be  all there  is to say about  how the POS changed in the car rental business.

But that’s  not the end of this story. It is, in fact,  the beginning of a much bigger story, one that  is unfolding right now and will have a profound  impact on the way many kinds of retailers transact sales and interact  with their customers.

Today’s  emerging POS technology will make many things possible,  but there  are two  essential  points to keep in mind:

• What do customers really want when they stand in the checkout line?
• What does  this mean to the way retailers manage their businesses and interact  with their customers?

What Do Customers  Really Want?

Several  years  ago,  market research  firm Yankelovich  reported that  half of all consumers  polled,  at all income levels,  say lack of time is a bigger problem  for them than lack of money.1   Anything  a retailer can do to save shoppers time and make the shopping  experience more convenient would pay dividends  in increased loyalty, greater frequency of visits and fewer lost sales.

This is not surprising. Almost all significant technical  changes at the POS over the past  30 years or more have been driven by the  need  to increase  the  speed and accuracy of transactions.  From the  time that  magnetic strips on credit  cards  enabled the  elimination of those  old “knuckle  buster” manual card  imprinters, to the addition of bar-code readers at checkouts, and signature pads on card-swiping equipment, to the more recent entry  of contactless readers  at the  POS, retailers  have  sought  ways  to accelerate and simplify transactions for customers.  These  advances have  consistently improved  customer  satisfaction and  reduced  the  cost  of handling each  transaction.

Changing POS technology has also changed people’s attitudes about how they pay for things. A Nilson Report found that debit  and credit card transactions now account for more than half of all transactions, compared to
29 percent a decade ago.2 And 90 percent of retail consumers  surveyed say they  prefer  or don’t mind using cashless  payment methods,  according to  selfserviceworld.com.3  Today  there  are  about  7 million checkout lanes  in U.S. retail establishments that  are  capable of  doing  electronic checkout and  processing cashless transactions.  As consumers,  we  take  these  changes for granted, while retailers  benefit from more efficient and secure  transactions.

If history is a good indicator, and in this case it probably is, customers will continue to favor retailers and service providers who offer them greater speed and convenience in their transactions.  Consider these  scenarios:

• Today if you go to a restaurant,  the payment process is a ritual that goes something  like this: You ask your server for the bill. Eventually the server brings you the bill in a folder or on a tray. You look at the bill and then place  your payment card in the folder or on the tray. At some point, the server returns, picks up the bill and your card, and goes off somewhere to process your payment.  After a while, the server returns with your card and payment slip for your signature. Now consider this alternative way to pay at the restaurant: You signal you are ready  for the bill. The server walks over to your table  and prints the bill from a payment terminal he carries with him. You look over the receipt and hand your card to the server. He swipes  your card through the portable terminal there  at your table. When the transaction  goes through, the server hands you the payment slip, which you sign in the typical way. The entire process takes  less than a minute.
• You are in a meeting  that is taking longer than you thought. Your car is parked  at a metered space, and time is running out. From your mobile phone,  you call a toll-free  number, enter the lot and space number where  your car is parked,  and pay for another hour of meter time.
• While other shoppers wait in checkout lanes, you stroll through the store selecting the items you want. You bag  them and set them in the cart as you go. When you’re  done, you leave  the store. Did you forget to pay? No—the  specially equipped grocery cart used contactless reader technology to scan the items you placed in the cart and then authorized your credit card payment as you left the store.

You manage a beachfront bar and cabana, one of several  in the area. People who lounge  on the beach in front of your place  come into the bar to buy drinks. Recently, you’ve noticed a decline  in your business, and yet business seems to be booming  as never before for your competitor a mile up the road. It turns out that the competitor extended his service  area onto the beach, with his staff  taking drink orders from customers lying on the sand, sitting in their beach chairs or playing volleyball. The servers then deliver the drinks to the customers (who are still doing something  other than waiting in line for a drink) and processes card payments on the spot, right where  the customer  is, with small wireless terminals they carry around with them.

These  are just a few  instances  that  show  how the changing POS can have  a huge  impact  on merchants  and relationships  with their customers.  All of these  examples  are happening, or can happen, with products and technologies available today.

Just as in the rental car return example cited  earlier, customers want the benefits gained by moving the points of sale closer  to them, and customers are a major driving force  in this trend.  But there  are benefits for the retailer as well, and these  go beyond just the ability to attract more customers with a service  they want. The examples  described above underscore the key factors  driving the trend to more mobile POS solutions:

• Greater  convenience and time savings for customers
• A more efficient transaction  process for retailers
• Opportunities for retailers to provide  more personalized service  to their customers, which results in more chances to up-sell customers, close sales and build customer  loyalty
• Ability to offer products and services  where  it has not been physically possible  to do so before

So what are these  new technologies that are changing the face of the retail checkout process?

Technology Enablers for the New POS

Recent advances in POS hardware and mobile technology are enabling  retailers to move their points of sale, and their customer  relationships, closer to their customers.

Trends in POS Hardware.

In recent  years  POS devices have  become smaller and more functional.  Several  scenarios  described  earlier show retail staff  going  directly to customers to complete a payment transaction  using portable POS devices.

New, highly compact payment terminals can supply a full shift’s battery power and provide  wireless access to communications networks for connection to payment processing systems. Many of these devices have software that enables retailers to customize the checkout process and printouts for different business models.

Increasingly,  contactless readers  are  becoming a normal part  of  the  POS  so that  customers with  cards  or stickers  with embedded Near Field Communication  (NFC) chips can  make purchases by simply waving  the chipped device very close  to the contactless NFC. Many fast-food chains are equipping all their POS devices with  contactless readers,  and  the  technology is spreading. These  readers  work  with  any kind of  payment device that  uses  NFC chips,  such  as  contactless credit  cards,  contactless stickers  and  some  new  mobile phones  that are beginning to appear in the market. (For more information about  commerce-enabled mobile devices, see  First Data’s  series of mobile commerce white  papers on the First Data Web  site, firstdata.com.) In the transportation sector,  businesses and transit authorities  alike have  been early adopters of contactless technology that has revolutionized the way consumers pay for taxis, toll roads and mass transit.  Removing the long-standing reliance  upon cash  in transportation payment scenarios  has increased satisfaction, improved efficiency and reduced costs.

Mobile Devices  – Putting the POS Into the Hands of Your Customers.

Increasingly, consumers’ mobile phones are turning into payment terminals people can use to do their banking and initiate transactions.  Here are a couple  quick examples:

• USAA is a large insurance company that provides  insurance, banking services  and investment services  to members of the armed forces,  veterans and their families. Now USAA bank account holders can deposit paper  checks  via their iPhones. To deposit a check,  the customer  uses the camera in the phone to photograph both sides of the check,  and then uses the iPhone application to send the images as part of his or her electronic deposit.
• A new application from eBay sends  alerts to customers’ iPhones regarding items on which they are bidding. The application also enables eBay customers to pay for purchased items from their phones  through their PayPal™ accounts.
• Sprint, First Data and others participated in a pilot project  with Bay Area Rapid Transit (BART) to test mobile phones  equipped with NFC chips and account management software. People with these  phones could pay for their transit fares as well as food  items from Jack in the Box restaurants.  To make payments, participants simply waved the phones  very close to contactless readers  at the transit turnstiles and restaurant  points of sale.

These technology-enablers not only change the way a retailer physically processes a payment, but they also introduce  new  ways  of selling and marketing  to customers.  What does  all this mean to the  way  merchants relate to their customers?

Taking the Transaction to the Customer

When the POS moves closer to the customer,  there is a fundamental change in the relationship the retailer has with that customer.  Traditional retailers are set up to bring customers into the store and guide them through a maze of product offerings, which leads to checkout lines where  customers transact their business.

However, in a number of business scenarios, moving the POS to the customer enables merchants to personalize their  service.  This can  take  as  many different forms as  there  are  business  models,  but  let’s  look at  some examples:

• Apple stores, which are the retail outlets  dedicated to selling Apple computers, iPods, iPhones and other products from Apple,  frequently do not have cash registers.  Roaming representatives engage shoppers as they view the merchandise.  The representatives answer  questions,  retrieve  the selected products from inventory and complete the purchase transaction  with portable devices. This method  enables Apple to provide  a substantially higher level of personal service  by bringing the representatives’ expertise directly into the customers’ decision-making processes.
• Convenience is the driver behind a changing point of sale for the hospitality industry. Already, hotels have streamlined their procedures so guests don’t have to visit the front desk when they check  out. But what about  check-in? The hotel knows the preferences of its regular guests. Guests  could receive their room confirmations on their mobile phones  and go directly to their room without  stopping at the front desk. Touching the commerce-enabled phone to a reader  on the door could provide  keyless  entry.
• In a more visionary application scenario, consider how a department store can combine consumer metrics and mobile commerce to highly personalize interactions  with its customers.  Imagine that you’re  a regular shopper  at a department store that uses sophisticated analytics to follow your buying preferences. Let’s further speculate that you carry a commerce-enabled mobile phone. As you enter your favorite  department store, you tap your mobile phone to a special “welcome” contactless reader.

  Instantly, you receive a text  message: “Welcome back. Ralph is working in the Men’s Suits department.
  If you buy a suit from him today, he will give you two  free shirts.” Meanwhile,  Ralph (your favorite  fashion consultant) has been alerted that you are in the store and is viewing  your prior purchases so he can recommend something  you will like.

  Alternatively,  a regular department store shopper  could tap his loyalty card on a contactless reader  as he enters  the store to receive a printout of personalized messages and discounts.

These  examples  not only provide  a more efficient checkout experience by  reducing  the  customer’s overall shopping  time, but  they  also enable retailers  to  merge  sales,  marketing  and  relationship  building with the checkout processes.

And many consumers  are equally  interested in the  “self-service” aspect of making purchases through  new technologies, whether it’s bypassing the  front  desk  at  the  hotel  and  going  directly  to  their room, making purchases from their personal computers or mobile phones,  or using self-checkout kiosks in stores.

Self-checkout kiosks and cashier-free checkout lanes are increasingly  popular  with major retailers and their customers, especially in grocery stores  and  home  improvement  centers. A 2007 study  by  IHL Group found overwhelming acceptance of self-checkout systems.4

Increasingly, retailers are relying on these and other self-checkout methods  instead  of cashiers.  According to IHL Group, the  value  of transactions at self-service kiosks will surpass  $775  billion in 2009 and will grow  to more than $1.6 trillion by 2013.5

The benefits go  beyond the  customers’ convenience. Self-service techniques can:

• Reduce slippage (most of which is attributed to dishonest employees, not customers)
• Reduce the rate of abandoned shopping  carts, which often results when lines are long during peak periods, promotions and store openings
• Provide a business scalability to better handle peak-period demand  without  dramatic increases  in staffing

One   challenge  for  retailers   is  how   they   can   take   advantage of the changing POS in ways  that provide checkout options customers want  and that  can  strengthen customer  relationships. In an  environment  where   POS  technologies  are  changing  even as  customers’  purchasing   habits   are   evolving,   it  is  important for merchants to align their points of sale to their customers’ preferences.

Matching  Customers  to the Right POS

Different  business  models  bring  about  different relationships  between retailers  and  their  customers, and these  relationships are changing.

For instance, traditional grocery stores have lost some market share to high-end gourmet merchants,  low-end price  leaders  and grocery sections  in non-grocery stores.  All supermarket segments are dealing  with major shifts  in consumer  behavior.  Consumers  are  health-conscious yet  time-strapped. They spend  far less  time cooking  meals, and they  make twice as many grocery shopping  trips than they  did a generation ago.  They want nicer stores, more variety and fancier, fresher foods  at lower prices.

Rethinking the POS is one of the steps  supermarkets are taking to stay competitive. The industry has been a leader  in self-checkout lanes, which typically pay for themselves in less than a year in labor savings alone.

Now, a new  generation of POS technology can put personalized service  and queue-busting methods  in the shopper’s hands. Earlier, this paper  described experimental shopping  carts that  use contactless technology to  enable the  shopper  to  bypass the  checkout line altogether by  ringing up items placed in the  cart  and authorizing payment for them. This technology can even  be enhanced with features like electronic shopping lists that direct shoppers to each item’s location and call attention to special discounts available as the shopper approaches items that fit her shopping  profile—personalizing the shopping  experience and providing an abundance of marketing opportunities for the retailer.

Similar challenges and  opportunities exist  for all industries.  When  retailers  consider  what  is right  for their businesses, these  questions should be included  in the considerations:

• What major trends are impacting  your stores and customers?
• How could new or different points of sale improve your relationship and bring you closer to your customers?
• If customers could reinvent your checkout procedures and interactions  with checkout staff, what would they come up with?

For some merchants,  innovations in POS may mean different, less personal customer  touchpoints—with fewer opportunities to  be  face-to-face with the  customer.  This may not be  what  every  merchant  wants  to  hear. Many have geared their entire business to creating personal interactions  with customers, and now technology comes  along that enables customers to sidestep a personal relationship, if they prefer.

This dilemma has no clear answer.  In any industry, technology will influence  the ways  a business relates  to its customers, and when and how those  interactions  occur.

The banking industry is an enlightening example  of what  happens when  the desire  for face-to-face contact with customers collides  with consumer  preferences and  new  technology. Decades ago,  ATMs transformed banking. Freed  from bankers’  hours and teller lines, bank customers made  much fewer lobby  visits. Bankers, meanwhile, saw that ATMs dramatically reduced the cost of processing a typical transaction. But they faced a dilemma: How do banks sell more services  to customers who don’t come  into the brick-and-mortar locations as often? Banks not only adapted, but they  also accelerated the pace of change with Internet banking  and more interactive ATMs, both of which offer them ways  to personalize service  to their customers.

The lesson here is that many customers prefer  speed and convenience over personal  interaction.  Businesses must adapt to avoid losing this segment to competitors. Innovations in POS will force  businesses to be better marketers with better offerings and better ways  to build customer  loyalty.

Conclusion: What Can a Retailer Do Now?

Technology is enabling  newer,  faster  and more mobile POS options for retailers, but customer  demand  is the real driving force.  Current trends  suggest that  the  POS is moving  ever  closer  to the  customer.  What can  a merchant  do to stay competitive?

The most important point to keep  in mind is that many new POS technologies, especially wireless mobile POS hardware, are  entirely  compatible with existing  POS technologies. Retailers  do  not need  to  redesign  their entire stores  and totally change the existing checkout processes. They can test  new  hardware and see  what works in their respective businesses. Change can be evolutionary,  not revolutionary.

Here are some practical  suggestions for staying  ahead of the curve:

• Look at ways  new POS technologies can make the shopping  experience faster  and more pleasant for your customers
• Consider if there  are ways  to use new POS technologies to actually expand the reach of your business
• Even if you’re  just replacing  end-of-life POS terminals or buying equipment for new stores, consider incorporating a “mobile POS” mentality into near-term  purchase decisions. Recognize that your system  has to be open and capable of accepting contactless transactions and transactions from wireless devices.
• Get the help of payment processing experts, such as First Data, in exploring opportunities and developing a strategic POS plan

Traditional retail points of sale are changing rapidly. To remain competitive, merchants must think strategically about  this key customer  touchpoint.

Please  contact me or any member of my team. We not only want to help, but we  also want to listen. I can be reached directly at barry.mccarthy@firstdata.com.

Sources

1 USA Today, “Stores,  banks go speedy to win harried customers,” December 1, 2006

2 Nilson Report via IBM white paper,  “Cashless  self checkout,” January 2008

3 Selfserviceworld.com via IBM white paper,  “Cashless  self checkout,” January 2008

4 IHL Group, “2007 North American Self-Service Kiosks,” July 2007

5 IHL  Group  press  release,   “More  than  $775  Billion to  be  Processed in Self-Service Kiosk Transactions in 2009,” June 29, 2009

About the Author

Barry McCarthy was appointed to lead the newly formed Mobile Commerce Solutions business unit of First Data in January 2008. There, he has responsibility for commercializing all First Data assets  globally for use in mobile commerce. In
this role, McCarthy and his team work closely with a variety of industry partners, from the largest  wireless carriers to young  start-ups, financial institutions, technology provider and terminal manufacturers.

Previously, McCarthy led global product and business development for First Data and before that, product development for the Commercial Services  business unit. Prior to joining First Data, McCarthy was vice president and general manager  of VeriSign’s Internet Payments  &
Risk Management business unit, a NASDAQ 100 technology company.  Before  VeriSign, McCarthy co-founded and later sold MagnaCash, a Silicon Valley micro-payments company that is currently owned by Digital River (NASDAQ: DRV). Previously serving Wells Fargo (NYSE: WFC) as vice president and general manager  of the ATM business, McCarthy had
P&L responsibility for $110 billion in annual transaction  volume and 14 million active ATM cards. McCarthy started his career at Procter  and Gamble (NYSE: PG), where  he spent  12 years
in roles of increasing responsibility, first in sales and sales management and later in customer  marketing and brand management. He earned  a masters in business administration from the Kellogg School of Management at Northwestern University and completed his undergraduate studies at the University of Illinois, Urbana.