When credit cards were introduced half a century ago, the way we use money and make payments fundamentally changed forever. Since then, technology has advanced quickly, making it possible to imagine a world where payments will be even more digital, mobile, borderless and cashless. It will be essential for retailers to reconsider how their businesses operate in order to meet shifting shopper preferences when it comes to making payments.

The rise and evolution of cards

UK shoppers have really tapped into card payments, with card expenditure accounting for 78% of total retail sales in 2016. This is especially the case in the grocery sector, where we’ve seen the number of transactions and total value of spend both increase steadily.

In 2012, we saw the roll-out of contactless cards in the UK, which have been a true alternative to cash payments. Shoppers enjoy the convenience of using contactless cards for smaller payments and because this technology reduces the average time of transactions by 55%, retailers who implement this in their stores have an advantage.

Check-out alternatives

Over the past few years, there has been a significant shift towards self-service checkouts in the retail industry, especially in supermarkets. Not only are self-service checkouts more operationally efficient for retailers, but they cater to the needs of shoppers who seek convenience and want to get in and out of stores quickly.

For example, Tesco’s Queensway London store, which opened in November 2015, has more than 10 self-service checkouts including five card-only terminals, highlighting a new approach to convenience retailing.

Some UK retailers have gone one step further by trialling completely cashless stores. As these will only work in certain locations, store concepts and with certain demographics, there is still a way to go before they become mainstream, although they present a clear opportunity for retailers. Not only do cashless stores improve efficiency for shoppers and staff, but transactions will be more accurate and secure.

Waitrose has become the first major supermarket in the UK to operate a completely cashless store. It was launched in August 2016 at Sky’s head office in Hounslow, and has five self-service checkouts where customers can only pay by card or by mobile device.

Latest technology

Retailers are using new technology to encourage cashless retailing in several ways. Mobile wallets are compatible with cards issued by major banks and allow shoppers to use their smartphone to tap-and-pay in-store, to speed up the shopping process. According to our ShopperVista research of over 2,000 British grocery shoppers earlier this year, 5% of shoppers claim to already be using their mobile to scan and pay without going to the till, while 43% say they would be interested in doing this.

In Sweden, at the beginning of 2016, a convenience store opened called Näraffär. It is an unmanned store that will never close and will be accessible through a smartphone ID app, which opens the store doors to registered customers. The app also functions as a scanner to approve every purchase, and the shopper then gets invoiced.

Amazon announced the launch of its checkout-free store concept at the end of last year, using "Just Walk Out" technology at its Amazon Go convenience store. We are also seeing semi-automated convenience stores being implemented in Japan by several leading retailers.

7-Eleven has gone one step further and is trialling a 'HandPay' system where there is no need for cash, card or a smartphone to make payments in the store. It's a biometric authentication method that identifies customers through palm scans. The system will identify the products being bought with a 360-degree scanning technique.

With this in mind, we expect other retailers to become more innovative by coming up with their own smart store of the future.

The future of cashless retailing

Recent technologies that we’ve seen suggest we are moving towards a society with fewer coins and notes, and more virtual payment opportunities. This way of shopping means shoppers are spending less time in-store, so it is important for retailers and manufacturers to ensure they develop new ways to keep them engaged.

Retailers are trialling numerous alternatives to traditional payment methods. Some categories and brands can benefit from this because it strengthens the data they have on shopper behaviour in-store. However, for impulse categories that were once located at checkouts, it can create challenges.

Making these new payment methods mainstream may take time, but it is clear contactless and mobile payments have grown in popularity quite quickly. Retailers should begin to think about how they may adapt checkout areas and invest in new tools and devices to ensure they’re equipped with the latest technology.

IGD’s Online and Digital Summit takes place on 10-11 October in London. Hear from the world’s leading retailers to understand how they are innovating to make shopping more convenient and engaging and what this means for manufacturers. Find out more