Checkout-free Shopping: It's Bigger Than You Think - Crunchbase News

Checkout-free Shopping: It's Bigger Than You Think - Crunchbase News

Checkout-free Shopping: It's Bigger Than You Think - Crunchbase News

Posted: 21 Sep 2020 05:00 AM PDT

Cashierless checkout won't merely restructure retail business models: It will disrupt the entire payments industry.

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A few years ago, Amazon made headlines with its Amazon Go stores where shoppers simply retrieve items from shelves and walk out. This process has often been dubbed "cashierless checkout" but would be more accurately described as "checkout-free shopping," as the checkout process is entirely eliminated.

While most industry analysts predict checkout-free shopping to impact automation, resource allocation, and store structuring, they're missing the biggest target: payments.

On the horizon

Purchasing goods without having to check out saves customers time and annoyance while allowing retailers to upgrade their operations.

Amazon employs a combination of hardware and vision-based software in its Amazon Go stores. Each item sits atop a weight sensor. When a shopper lifts the item, they trigger the sensor, which assigns the item to that shopper by video. This solution is functional, but prohibitively capital intensive for small retailers.

Other solutions include QR codes, smart shopping carts and RFID tags. Machine vision, however, is most likely to succeed: It's entirely software-based and leverages cameras, which most retailers already have for security, thereby minimizing any additional investment overhead.

Industry experts tell me current machine-learning algorithms can already assign goods to shoppers as accurately as the average cashier. Objectively, they're both functional and economically viable, with startups like Inokyo leading the industry.

In every one of these new technological solutions, an app on the customer's phone connects them to the store when the shopper arrives, automatically taking care of payment in the background.

For merchants of all sizes, checkout-free shopping provides a host of benefits:

  1. An improved customer experience and faster shopping process means more sales volume will flow through the store: Simply removing checkout lines is worth $37.7 billion.
  2. With no need for traditional cashiers, merchants can reallocate those personnel and financial resources elsewhere for greater profit.
  3. Eliminating checkout lines and checkout hardware will permit retailers to use their space more efficiently and display more products.
  4. As cashierless checkout solutions track movement at the item level, retailers can gain robust analytics on item movements, handling and purchasing behavior.
  5. When grabbing an item and walking out is a form of purchase, traditional shoplifting becomes a thing of the past.

Amazon, Albertsons and Sam's Club are all trialing checkout-free technology across multiple stores. These retail giants can afford their own proprietary solution but most retailers can't, so expect a white-label solution such as Grabango, Standard Cognition, or TrigoVision to target smaller retailers.

While the promise of convenience and streamlined operations fuels funding for checkout-free technology, replacing existing payment solutions is an even bigger opportunity.

Attacking payments

Today, credit cards are the most popular payment method for retail in the U.S. Payment processors (the companies that create the terminals you use at checkout) like First Data, Revel Systems and Toast charge about 2.3 percent to 2.8 percent and a flat fee (around 10 cents) from the merchant for every credit card transaction. Especially on low ticket items, this cost can severely cut into the retailer's margins, one reason many small retailers set a minimum purchase size for paying by card.

Fees are structured this way because card networks like Visa and Mastercard take 1.5 percent to 2.5 percent and a flat fee from every transaction. These "interchange fees" are the largest cost component of processing credit and debit cards, with Visa, Mastercard, American Express and Discover controlling the vast majority of the market.

When checkout-free shopping provides brick-and-mortar retailers with a more direct relationship with their customers, they can easily add payments to that relationship, cutting out payment processors and reaping the rewards. New payment methods are intuitively available if consumers never have to pull out their wallet. Direct ACH transfer, for instance, is far closer to feeless, costing less than 1 cent per transaction. Merchants could share this retrieved economic surplus with their customers in the form of lower prices and loyalty programs.

For those customers who would prefer the sort of perks typically offered via credit cards (reward points, cash back, etc.), new direct-to-customer offerings from the merchant will fill the space: When retailers recapture 2.5 percent plus 10 cents per transaction, they have a significant amount of wiggle room to play with.

Diagrams by Charles Yu 

Coming sooner than you think

The payments landscape can shift incredibly fast. For example, in less than five years China went from a market where transactions were made exclusively via credit/debit cards and cash to payment being primarily made via mobile wallets such as Alipay and WeChat. When I traveled to China last year, more than half of the stores in major cities wouldn't even accept cards.

Source: Walk The Chat, "China's mobile payment market share: mobile vs. non mobile."

Today WeChat Pay and AliPay account for 93 percent of China's mobile payments. To clarify the sheer magnitude of this growth: According to Glenbrook Partners, in 2019 at only five years old, WeChat Pay processed 365 billion transactions, more than double the entire Visa network (at 138.9 billion). Similarly in the U.S., apps like Venmo have already normalized feeless transfers between end users and are now enabling consumers to pay merchants directly via their mobile wallet.

The American brick-and-mortar retail market is worth more than $5.5 trillion. If cashierless checkout companies capture 5 percent of that over the next four years (a conservative estimate given how fast we have seen digital wallet adoption in other countries), they will have access to a $275 billion market. Expect checkout-free shopping to create a huge land grab, prompting a massive shift in the payments landscape.

Looking forward

Credit cards have long dominated U.S. payments. In the last decade, China, Japan and Southeast Asia have all updated their payment modes, leaving Western countries trailing in the payments landscape. When checkout-free shopping provides American retailers a more affordable option to process customer payments, cutting out the middleman is only a step away. As users adopt these new payment methods, will the card networks even survive?

Written by Charles Yu, a principal at Bling Capital, and the founder of his own angel fund. Formerly an LP at TI Platform Management, Yu's portfolio includes investments in consumer companies including Spotify, Lyft, Airbnb, Zocdoc, Pinterest and Flipkart.

Illustration: Dom Guzman

No PPP Funding? 5 Ways For Small Businesses To Survive - Forbes

Posted: 14 Sep 2020 09:35 AM PDT

Small businesses haven't had it easy in 2020. First, shelter-in-place forced many businesses to press pause. Then staggered reopenings, headaches getting federal financial aid and draconian rules and regulations forced businesses to pivot again and again.

Almost all businesses have had to adapt to changing customer needs, in order to stay afloat beyond the support of government aid. According to a July 2020 Small Business Trends survey, 92% of U.S. small businesses have reinvented themselves during the pandemic.

If you're not sure how to adjust your business to keep up with the new normal, here are five things to consider.

1. Recognize That Old Wants Have Given Way to New Needs

Customers that used to wander the aisles of your brick-and-mortar retail or grocery store have likely moved to online purchases and contactless curbside pickups. Businesses have had to quickly adjust.

"I've probably pivoted at least six times," says Jason Savino, owner of Potions in Motion, a Boca Raton-based event and catering company who says he used to handle thousands of in-person gatherings a year all across South Florida. When the pandemic effectively ended large get-togethers, he found new ways to keep his business going.

"The main thing was to try and grab any type of creative demand that came about from the lockdown." says Savino.

When the country went on lockdown in March, Savino began offering a meal delivery service of complete dinners for families of any size. That was successful for a while until restaurants began reopening and providing a similar service. So he recast his company and expanded into providing meals at corporate Zoom events and creating school lunch programs while he waits for event activity to resume.

Now, as reopenings are slowly happening across the state, Savino says he's seen an uptick in people planning events and that his mainstay business is improving.

2. Look to Small Banks and Fintech Companies

When the Paycheck Protection Program (PPP) was launched as part of the CARES Act in March, many of the bigger banks gave priority to customers they already had a business relationship with, and some gave even higher priority to their largest customers. The result? The first round of PPP funding ran out in 13 days, and a disproportionate number of those loans were found to have been paid out to just a handful of industries.

This left a lot of disgruntled small business owners and created an opportunity for small banks and fintechs to gain a foothold. These businesses are often able to move more nimbly and provide a more personalized level of customer service than traditional large institutions.

"There are people [banking with us now] that thought they were with a bank that was going to be able to weather any storm," says Eytan Bensoussan, co-founder of startup digital bank NorthOne. "All of a sudden that promise wasn't holding up anymore."

According to Bensoussan, since the start of the pandemic in March, his bank has gained between 20,000 and 30,000 new accounts a month, mostly from customers seeking a better experience than what they were receiving from their traditional brick-and-mortar banks.

If you're unhappy with your bank, consider switching to one that's a better fit for your needs. There's no rule that says you have to remain at the same bank where you first started, and the hassle of transferring to a new bank is likely outweighed by being happier with your new banking relationship.

3. Consider Creative Funding

When the traditional way of selling your wares is no longer feasible due to the pandemic, explore other options.

"When it comes down to the rubber meeting the road, you've got to be able to finance the operation of your business," says Mark Cohen, a director of retail studies at Columbia University and former CEO of Sears Canada, Inc.

"Businesses are pivoting in terms of what they're selling, shifting to ecommerce if they have a product to sell or buy, " says Cohen. He says he's seen some smaller businesses change the mix of what they sell to better match up with what people are looking for and use third-party sales platforms like Amazon or Etsy to reach a new clientele.

Cohen also noted that some smaller businesses have even found success with GoFundMe campaigns, asking for donations from friends, family and patrons to help them stay afloat—although this is obviously a temporary solution.

There are business loan and grant programs that exist outside of additional PPP funding, but it's not practical for everyone to borrow money indefinitely. After all, that money needs to be repaid at some point, and being able to repay it depends on your gambit being successful.

"It's a great opportunity for businesses to say, 'What's the business I want to be running?' Maybe you can find other markets," says Kathryn Petralia, cofounder of Kabbage, an online lending platform.

The company got its start providing loans to small businesses in 2011 but adjusted its strategy in March 2020 to focus on processing Paycheck Protection Program (PPP) loans, a brand-new area for the fintech company.

4. Find New Ways to Motivate Your Team

Many businesses have had to do more with less, and that includes working harder but with less staff—and in some cases, less pay. Although anyone can appreciate a raise or fiduciary reward, there may not be funds to spare to recognize someone's extra effort.

"With purse strings tightened and pay cuts potentially in effect, many businesses should consider other non-financial incentives and benefits," says Evian Gutman, the author of "Coming Back From COVID," a business-strategy guide for companies trying to weather the pandemic.

If you want to give kudos for a job well done, or simply provide extra motivation for your hard-working team, Gutman suggests action items like extra days off, creating time for passion projects, supporting professional development opportunities or flexible work arrangements.

5. Don't Shy Away From a Financial Restructure

If the lack of a second stimulus package has forced you to explore other ways to access capital and none of them are a fit, consider a new perspective. Although bankruptcy might sound like an unpalatable last resort, know that all bankruptcies are not created equally.

"Taking on debt in this uncertain environment could be disastrous, and small businesses should look at all their options, from overhauling business models, to pivoting online to closure to bankruptcy," says Amanda Ballantyne, executive director of The Main Street Alliance, a small business advocacy group.

Unlike a Chapter 7 bankruptcy where your business closes for good and you liquidate any assets to pay a portion of your debts to creditors, a Chapter 11 bankruptcy is a reorganization of a business' debts that allows you to work out a payment plan, sometimes at a reduced amount while still operating the business. This might be worth considering if you think your business can find post-pandemic success.z

"We see some of the sophisticated small businesses leveraging Chapter 11 to restructure. This could alleviate some of the liability and debt service," says Brian Marks, a professor of economics at the Pompea College of Business at the University of New Haven.

The CARES Act expanded on a provision of the Small Business Reorganization Act of 2019 (SBRA), allowing Chapter 11 administrative fees to be spread out over three to five years instead of the traditional upfront payment of administrative costs. This might make it a more affordable option and give your business an opportunity to stave off some of your debts while you wait for the economy to pick up.

Gen Z Says They're Eager to Use a Big Tech for Banking – But Will They? - The Financial Brand

Posted: 20 Sep 2020 09:04 PM PDT

Here are a couple of fascinating facts for retail bankers to chew over: First, nine out of ten — 90% — of Gen Z respondents would consider obtaining a banking account from a nonbank company, and more than half (53%) of consumers overall would do so.

Second, 85% of Gen Z consumers say that for certain types of financial accounts they would only apply for them in person. For consumers overall almost two-thirds (64%) say the same.

While it's true these are attitudinal "would you" questions, not descriptions of actual behavior, the sheer size of the numbers on two sides of the digital banking question — coming from the same respondent base — is eye opening.

Veteran financial services researcher Bill McCracken, President of Phoenix Synergistics, which fielded the national research, has a couple of key takeaways from this pair of statistics:

  1. "People are complicated," he observes. They defy being put in boxes as individuals or as generations even though analysts, and bankers love to do that because it makes their work simpler. Generalize at your own risk.
  2. Financial institutions should take a balanced approach to digital transformation. Right now, based on the survey data, a digital-only solution doesn't work for a majority of consumers, McCracken maintains. So the physical and digital worlds need to coexist, although he points out that the physical world of banking can't be the same as it's been for the last ten or more years.

Two large retail banks that currently are getting this new digital/physical formula right are Bank of America and Capital One, says McCracken. Another, smaller, institution he singles out is Umpqua Bank with its signature Go-To banker program that enables every customer to have their own personal banker, reached digitally through its mobile app.

The Phoenix Synergistics survey, based on detailed online responses from 1,500 consumers collected in August 2020, focused on how the customer journey in banking has been changed by the rise of digital banking. In an interview with The Financial Brand, McCracken elaborated on several of the most significant findings.

Banking with Nonbanks Would Be Simpler

The research does not contradict the importance of digital transformation among financial institutions. If anything, the willingness of a majority (53%) of all consumers to obtain a banking account from a nonbank company affirms its importance.

More than that, the fact that nine out of ten Gen Z respondents are willing to turn to nonbank companies for banking accounts is more than eye-opening, it's an "overwhelming" number, as the report states.

Consumers willing to bank with a big tech nonbankSpecific nonbanks people would bank with

Amazon topped the list of specific nonbank companies consumers would be willing to do banking with, followed by PayPal and Walmart. Clearly youth reigns here as just under a quarter of Baby Boomers feel comfortable banking with big techs. As McCracken observes, even though older consumers use these digital platforms, Millennial and Gen Z users are much more comfortable with them. Younger consumers apply the same mindset for buying a new mobile phone case online in under five minutes to acquiring a checking account or a credit card or a mortgage, he states.

Baby Boomers, on the other hand, sometimes have difficulty online — knowing where to go next or what to click, says McCracken.

"They're thinking, 'A mortgage is a complicated product, do I want to do that on Amazon?' It's a whole different mindset between those two generations," he observes.

Overall, the main reasons why so many consumers are willing to consider doing banking with big tech firms are more advanced technology and faster/easier processes, according to the survey.

Why people would bank with big tech nonbank

"All this should be a message in neon to financial institutions," McCracken states. He's not sure how many have gotten the message, however. There are so far only a handful of what he calls technologically progressive financial institutions, including the ones named earlier. "Bank of America is trying to be very close to an Amazon type of experience," the researcher states.

A telling statistic is that the average customer age at these institutions is much lower than the industry average: 38 at Capital One and 39 at BofA compared to the overall industry average of 44, according to McCracken. Credit unions as a group have an average customer age of 47, and some banks have an average age over 50, he says.

Read More:



How to Communicate With Customers in a Digital Branchless Reality

Is your bank or credit union struggling to provide exceptional customer experience an in time when you may never see or hear your customers?

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In-Person Account Opening Far from Dead

The other striking statistic from this study, as noted earlier, was that 64% of consumers overall say that for some type of banking accounts they would prefer to apply in person and would not consider any other method. And again, Gen Z respondents stood out here with 85% agreeing with that statement. McCracken believes consumers are saying: Don't take away from us the ability to meet face-to-face or at least speak with a human by phone, video or live chat.

Consumer preference for opening some accounts in personTypes of accounts people prefer to open in person

McCracken admits to being shocked by the fact that the type of account consumers most often prefer to open in person is the checking account. He and his team had expected it to be retirement accounts or mortgage-related accounts.

"The more we thought it through," says McCracken, "the more we realized that banks have done a tremendous job in making the checking account sticky." Today consumer checking accounts are tied into many products including direct deposit of payroll and ACH payments for mortgages, auto loans, credit cards and utilities.

"There's a level of complexity and importance with checking accounts that goes beyond simply signing the application and making a $25 deposit to open the account," McCracken points out.

By contrast, digital has become the preferred channel for opening credit card accounts and this is beginning to creep into lending products secured by homes.

Impact on Branch and Other Retail Banking Strategies

In a separate survey during the summer of 2020, Phoenix Synergistics found that while a majority of consumers don't expect to change their branch or digital banking behavior post-pandemic, just over a quarter (27%) say they will use branches less. The figure is 40% among Gen Z respondents.

The results of the customer journey survey, however, indicate that consumers, and especially younger consumers, still do want to use every channel. To eliminate the branch channel altogether, McCracken believes, would be shortsighted for most institutions. "You would be telling individuals that need or want face-to-face interaction that that's not an option," he states.

That said, the researcher suggests that institutions can't get by with the same branches of ten or 20 years ago. Self-service options and universal bankers who can knowledgeably handle a wide range of financial issues are examples of what is needed, McCracken believes.

"Younger consumers need branches for different reasons," he states. "I don't think Gen Zers go to a bank to deposit a check. They've got their phone for that." But they're also not going in to meet with Sally or John sitting behind a wooden desk. "That's not their idea of a physical interaction," McCracken maintains. Something closer to an Apple Store experience would be, he says.

Banks and credit unions may not need as many branches as they have, but rather than closing all or most of them, McCracken suggests they should ask "What do our branches need to be?" "What does our staff need to be?" And then look at the digital banking elements and ask "How should we integrate all of that?"

Read More:

Traditional Advantages to Build On

If the competitive challenge seems daunting — and for many institutions it is —, consider that the research also found that incumbent primary providers of banking services have an edge in getting additional business from existing customers.

Incumbents have advantage for additional financial accounts

However, once again, age is a major factor. While a minority of older and middle-aged consumers (and even Millennials) comparison shop among multiple financial institutions when looking for a new product, more than half of Gen Z do this.


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