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Financial Solutions
25 Oct 2016

Don’t let smooth payments become scary

Someone reminded me recently of two predictions I made in a panel discussion in 2008. I got one right, and one wrong. So of course I am going to make a new prediction (I like doing that).

The one I got right was that mobile phones would become the universal tool for banking and payments. It wasn´t really too much of a bold prediction, and I was certainly not the only one having these thoughts even though it took a bit longer than expected. We are seeing that happening today. For many banks, mobile is clearly their clients’ channel of choice, ahead of online and well ahead of physical offices.

My other thought was that several telecom operators would turn into banks. That hasn’t happened. Some tried to move in that direction, with SMS payments or joint industry payment initiatives for example. But it never really took off. I think that boils down to a lack of understanding of the customer relationship.

A couple of trends come into play here. One is the return of the blockbuster economy which becomes materialized in the mega marketplaces. Amazon is the best example: it has created a marketplace where all other brands become mere suppliers. Amazon owns the customer relationship, and everyone else chases the crumbs. Flight aggregators are another example: they find the tickets you want, and just send you to the travel agent or airline for the actual purchase.

These aggregators are pushing for the network effect: if everyone knows they are the place to buy, then everyone goes there to buy. But where does that leave the merchants, who risk being reduced to commodities.

One way is for retailers to become service providers. We think we are in a service economy, but we have barely started. We don’t buy videos, music or software anymore, choosing streaming or subscriptions instead. Home-delivery grocery shopping. Printer cartridges. Vacuum cleaner bags. But in the near future, expect to see the same coming in more durable goods: a food storage system that delivers a fridge and freezer, and then replaces them after a certain time. You pay for the utility, not the products.

That sort of relationship keeps your customer close, but it is still some way off. For now, the only way to avoid becoming a commodity is to cultivate customer loyalty. Your customer needs to have a good relationship with you, trust you, and actively choose you.

Trust also plays a role in something close to our hearts here at Arvato: convenience. And that brings me to my third prediction: the need for control. We and other companies are making shopping more convenient, as smooth and simple as possible. But it’s important to ensure control as well.

For a consumer, e-commerce makes buying easier. But convenience without control also can erode trust. Take subscription models: many have an “auto-renewal” feature, so that the payment comes automatically again next year. If your customer isn’t informed, they can feel a definite lack of trust when they pay for something maybe they didn’t want.

The same can happen in checkouts. It is too easy to click twice on an item, and end up buying two. And if you pay straight away, you can pay for something you didn’t want. Again, lost trust.

People love shopping, but they don’t love paying. We are working to make paying a natural part of the shopping experience. And convenience in every transaction is the mantra that guides everything we do at Arvato. But convenience without control is not good enough. You have to balance smooth and convenient with the need your customers have for control. I see this balance as vital for the future of our industry. And that’s a prediction I am certain about.

– Jan Altersten

Chief Executive Officer, Arvato Financial Solutions Nordics


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