Innovations for online payment processing and mobile payments are on the rise, and everyone wants to be along for the ride. Though it may seem that these types of payments are edging out the traditional brick-and-mortar retail experience, it may not be completely over for them. There is however, one major player that is giving them a run for their money, and that is Amazon. More specifically, the Amazon Effect.
Long regarded as the place where you can find anything and everything, Amazon has been making moves that will boost its reputation even more. These new moves make it increasingly difficult for other retailers to keep up with their pace, causing concern for brick-and-mortar.
The cause for that concern is the Amazon Effect, the impact that the digital marketplace is having on traditional businesses in the advent of more competitive landscapes and new consumer expectations.
Despite this phenomenon, retailers should not underestimate the value of face-to-face contact with brick-and-mortar. While the convenience of online shopping and online payment processing is great, having a personal connection with a business can help to secure repeat visits, and ensure that whatever product you’re investing in is worth your money right off the bat. There are some instances where a physical store will always be an asset, and there will always be people who want to visit them.
Although the Amazon Effect is a significant threat for these retailers, this is not the only cause for struggle. The Wall Street Journal recently reported that part of that struggle is due to the existence of too many physical stores. While PYMNTS.com reports that 92% of sales to date are being reported from brick-and-mortar, foot traffic has fallen 50% since 2010, causing problems for certain retailers.
Chains such as Gander Mountain Co., RadioShack owner General Wireless Operations Inc. and Limited Stores Co. have all filed for bankruptcy protection this year, pushing other retailers to take stock and consider how to optimize their stores for the eCommerce set. Strategies like ordering online and in-store pickup have been rumored.
Target Corp. has also announced that following weak holiday sales, they will be spending $7 billion over the next three years to improve both their physical stores and digital capabilities. This problem is only part of the threat to brick-and-mortar because the Amazon Effect is still at large, but just how large an effect is it having on retail and payments?
The Amazon Effect on Retail
So much of retail is available online these days. Consumers have the ability to comparison shop, view trends, and use online payment processing all in the capacity of a single, digital screen. Online payment processing is still a bit more popular, particularly for certain categories. Millions of people still flock to Costco for everyday items in bulk, but the online sales for office supplies, sporting goods, books, and apparel show online sales soaring past retail 30-60% from online sources like Amazon. Even grocery sales are starting to make a mark in online payment processing. Retailers aren’t always giving their customers reasons to go to the physical store locations in lieu of what is available online, and the Amazon Effect is a part of this.
According to business.com, the continuous spread of Amazon’s Prime Now is also part of what is making it more challenging for retailers to compete. This service gives Amazon shoppers the opportunity to have same-day delivery in 2 hours or less. The convenience is hard to beat, because not only do shoppers not have to leave the comfort of their homes to shop, it now arrives at a much faster pace. Additionally, online payment processing with Amazon 1-Click only makes it easier. Still, while other retailers may be hurting a bit from the Amazon Effect, physical store locations will likely never become totally obsolete.
Amazon itself has begun opening its own brick-and-mortar locations. The New York Times reported in January that Amazon is continuing its opening of book stores in Chicago, New York, New Jersey, and Massachusetts. Locations already exist in Seattle, Portland, and San Diego, and Amazon is also working on grocery stores that will eliminate long lines, as well as continuing to maintain their flagship convenience store in Seattle. This move to incorporate brick-and-mortar in addition to their always useful online payment processing will continue to give them a competitive edge.
The Amazon Effect on retail has caused many merchants to shift to the mind of the Amazon shopper. A virtual storefront has become popular, particularly with industries that you wouldn’t consider going to Amazon for first, like fashion. Though many assume that top fashion brands would not appear somewhere like Amazon when their own name is so prominent, Amazon Fashion has attracted brands of all types, such as Rebecca Minkoff, Michael Kors, and Stuart Weitzman to name a few. They are selling exactly as they would from their own sites, but getting a much larger viewership from being on Amazon.
Online payment processing sales have been growing at triple the rate of in-store sales, and Amazon took credit for roughly 43% of those online sales in 2016. This success stems from many things, not the least of which is that so many of people’s online shopping searches begin at Amazon. In 2015, it was reported that approximately 55% of all consumers began their search on Amazon, and that number has been increasing with the advent of new technology. Amazon Payments is moving off Amazon and offering its services to other retail sites to offer similar benefits like the volume of consumers as well as a frictionless checkout. Of course, their latest trend is probably the biggest effect on retail, and furthermore, on payments: Alexa.
The Amazon Effect on Payments
Amazon is making strides in the payments industry with voice activated ecosystems. The voice of Alexa has revolutionized the consumer eCommerce experience by being easy to use and available in many places. Alexa’s voice now builds a consumer relationship and speaks to shoppers through devices like the at-home Echo, the Dot, and on the roads with Amazon Tap. One of the biggest uses of Alexa? Payments. Online payment processing becomes as simple as asking Alexa. Those shopping at the previously mentioned Amazon Fashion need only inquire, providing that efficiency and convenience that all consumers crave.
According to RBC Capital Markets, the Alexa Amazon market will grow enormously through 2020, as reported by PYMNTS.com. By that time, there will be an estimated 128 million Alexa Dot, Echo and Tap devices used by 500 million Alexa consumers globally. 17% of consumers use Alexa for online payment processing already, and the RBC only expects this percentage to increase. The ease of shopping via Alexa could drive Amazon sales up an additional 15%, resulting in an incremental lift of about $5 billion a year.
The Amazon Effect on payments is really the Amazon Effect on the “Pays”. Mobile wallets like Apple Pay, Samsung Pay and Android Pay have the most to fear from Amazon consumerism becoming as large as predicted via website and voice-activated ecosystems. These Amazon innovations are willing to meet consumers and commerce anywhere they are drawn to do business Ordering a pizza from Dominos? Register an account with Amazon and order through Alexa.
The availability of Alexa make Amazon the powerful new intermediary that other “Pays” struggle to compete with. Amazon’s ability to do online payment processing through multiple mediums has made them the talk and walk of consumers. Unless a new, formidable rival comes out of the woodwork to challenge Amazon’s success, it looks like the Amazon Effect will be around for the foreseeable future. In the battle of payments, Amazon has currently taken the field.
This piece was written by Lauren Minning, Content Specialist for Payline