How the payments landscape is changing

Klarna has partnered with Adobe Commerce to let merchants offer its buy now, pay later services, according to a Tuesday press release. 

The deal will extend Klarna’s installment payment services to more customers buying from sellers on Adobe Commerce, the release said. 

“Consumers are embracing the flexibility that buy now, pay later services can provide, with Adobe Analytics data showing over 11 percent growth this year,” Jason Knell, senior director of content and commerce partners at Adobe, said in a statement.

Klarna’s partnership with Adobe Commerce builds upon the buy now, pay later platform’s previous efforts to draw more customers amid a challenging economic climate. Earlier this year, the company introduced a subscription service that would allow customers to pay a monthly charge to avoid service fees while receiving rewards points and access to promotional offers through partner retailers. Now, the Adobe Commerce deal allows more sellers to offer Klarna’s services. 

“Our relationship with Adobe Commerce offers thousands of merchants a flexible, seamless, and smooth way to accept payments,” Erin Jaeger, head of North America at Klarna, said in a statement. “This enhances the shopping experience for consumers and boosts the operational capacities of merchants.”

Eeke de Milliano, Stripe’s head of global product, said in a recent interview with sister publication Payments Dive that BNPL volume spiked 172% in the past year. However, de Milliano noted that “buy now, pay later options are priced at a premium and merchants are still trying to understand the value.” Meanwhile, last month Apple shuttered its BNPL service. Instead the company will offer users of its digital wallet installment loans through debit and credit cards and other lenders starting later this year when they check out with Apple Pay.  

Though BNPL usage appears to be on the rise, research suggests that many consumers employing the service are trying to relieve pressure on their tight budgets. Half of BNPL customers used the payment option to spread their cash flow, according to a YouGov and Bankrate survey released in March. Nearly 30% of BNPL users said they spent too much money through the option. Additionally, “financially fragile” consumers use buy now, pay later services and “appear to have embraced BNPL as a regular payment option,” according to research from the Federal Reserve Bank of New York. 

Continuing its U.S. expansion, Afterpay has expanded its merchant partners, adding its installment payment services to Diane von Furstenberg, HanesBrands, Kendra Scott, Shop Premium Outlets and multiple other retail businesses, the company announced Wednesday. 

BNPL users aren’t just spending on beauty and fashion. In 2023, the top Afterpay categories for Gen Z and millennial users were arts, travel and entertainment, home and garden, hardware, health and beauty, and electronics, according to the company’s analysis of its customer data. 

To that end, some of Afterpay’s new merchant partners operate outside the apparel space, including Made In Cookware and Poly & Bark.

The new partnerships mark Afterpay’s continued growth since it entered the U.S. in 2018.

As of last year, Afterpay had 4.2 million U.S. monthly active users, surpassing competitors like Affirm (3.3 million), Klarna (3.3 million) and Zip (755,000), according to Bank of America Securities data. Klarna said in an email to Retail Dive that it currently has 7 million U.S. monthly active users.

In Afterpay’s announcement, the company noted that its new installment payment partnerships come at a time when younger consumers are looking for alternative money management tools to navigate inflation. 

“Younger consumers have faced many financial challenges over the past few years, fueling the growth of alternative payments like Afterpay,” Alex Fisher, head of revenue at Afterpay and Cash App, said in a statement. “Our goal is to not only offer more transparent payment options, but to also promote a healthy and responsible customer base.”

Amid ongoing inflation woes, consumers have turned to installment payment providers when their budgets are squeezed. According to a report from the Federal Reserve Bank of New York this year, 60% of financially fragile consumers have used BNPL services five or more times in the previous year, a higher share than the roughly 20% of financially stable consumers who do the same. During the 2023 holiday season, shoppers spent $16.6 billion online via buy now, pay later companies, up 14% from the previous year, Adobe Analytics found.

 

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By Adyen

55% of consumers will abandon a purchase if they can’t pay how they want. Forget the fact you’ve created an amazing product, enticed shoppers to your store or website, and got them to the checkout page - if you offer a poor payment experience, over half will leave without buying. 

On the flip side, great payment experiences can drive conversions, foster loyalty, and help build brand affinity. Customer experience is always high on the retail agenda. But today, the high cost of living and inflation are eating into both consumer spending power and business margins. As a result, business efficiency is also a hot topic in boardrooms around the world. This poses the question: 

How can retailers balance amazing customer experience with operational efficiency?

To find out, we surveyed over 38,000 consumers and 13,000 businesses. Download the full report or read on for a summary of the four ways payment technology can help you delight customers without spiraling costs.

Make buying easy

Insight: Payment trends move faster than retailers

QR codes, buy now pay later (BNPL), self-service, digital wallets, and social commerce are all important payment trends. For example, the average spend globally for BNPL is $294.72. For social commerce, it’s $197.03.

But, while these trends are gaining traction, retailers are struggling to keep pace. Only 28% accept digital wallets, 19% support one-click checkouts, and just 16% support BNPL. 

Action: 3 steps to achieving the ‘wow-factor’ at checkout

The moment of payment perfectly illustrates the line retailers must walk between efficiency and customer experience. Before adding new features to your checkout, it’s important to get the basics right. Here are the three steps to achieving a next-level experience.

1. The basics 

Before jumping on the TikTok Shop bandwagon, you want to ensure your native payment experience is all it can be. For example, do your payment methods match your shopper demographic? Is your checkout optimized for conversion? Are your in-store terminals embedded into your POS system?

2. Taking things up a notch 

Once you’ve laid the foundation, you can start offering experience-enhancing elements that won’t just delight your shoppers, they’ll improve your efficiency as well. These include:

• mobile point of sale (mPOS) - for taking payments anywhere
• Tap to Pay - where your phone becomes a terminal
• Network tokenization - for recognizing and improving authorization rates for return shoppers
• Next-gen self-service - as demonstrated by Uniqlo (powered by Adyen)

3. Getting futuristic

Already, 13% of consumers want more purchases to be made possible in the metaverse; TikTok Shop is powering social commerce; and the Amazon-Go model is now dazzling football fans by letting them pour their own beers.

How we can help: Amazing payments at the flick of a switch

Adyen allows you to deliver frictionless payment experiences to your customers in an efficient way. Just one integration gives you end-to-end processing and global acquiring that deliver the highest possible authorization rates. New payment methods can be added with the flick of a switch and our unified commerce platform makes it simple to connect new channels as needed.

Get connected

Insight: Retailers that deliver unified commerce will shine

53% of shoppers want to buy things online and return in-store but 76% of retailers still don’t enable customers to shop across channels. This points to a huge opportunity for differentiation. In fact, of the retailers that embraced unified commerce in 2023, 47% reported increased sales and 44% increased customer loyalty.

Quick reminder: What’s unified commerce?

First, there was omnichannel, which uses different systems to connect various business components. Now there’s unified commerce, which uses a single, integrated platform to connect everything in one place. In the context of retail payments, that means all your payments, from all your channels and regions, feed into the same system. 

Action: Get unified

To quote Alex Rhodes, our Global Head of Unified Commerce: “Retail is a complex space. It’s often multi-channel and multi-regional. Many systems need to work in harmony to deliver on customer experiences. And, as the rate of change accelerates, retailers are in a constant race to modernize their systems to stay ahead of consumer expectations.”

Connecting your systems to achieve unified commerce will improve your efficiency while keeping you agile and able to respond to new consumer demands. But unified commerce is a marathon. It involves the bringing together of departments, and connecting systems, not to mention extensive change management. A good place to start is payments. By connecting all your payments across all channels and regions into a single back office you’ll not only make things easier for your finance team, but you’ll unlock data insights that will help you know your customers better.

How we can help: Unlock unified commerce with Adyen

Our platform was designed to enable unified commerce. All payments, whether online, in-app, in-person, via social, or even in the metaverse, are connected in the same system. This not only improves your business efficiency, it enables more shopper journeys, giving your customers the freedom to choose how, where, and when they buy from you.

Make everyone a VIP

Insight: The retail data vortex

As our Unified Commerce Strategy Manager Philip Ladiges explains: “Retailers are investing significantly in their customer data infrastructure, including tooling and loyalty programs, as well as strategies to capture more data in-store. The ultimate goal is to better understand customer behavior so they can deliver personalization and improve customer lifetime value.” 

Businesses that know the majority of their customers well enjoyed 12% higher revenue growth compared to the global average last year. But we still have some way to go. 25% of retailers lack customer data and the technology infrastructure to truly understand their customers.

When it comes to loyalty programs, retailers’ faith seems to be wavering, with 22% halting investing in loyalty over the past 12 months. Given that the 73% of retailers that use loyalty programs also report revenue growth, cutting investment on loyalty might be a false economy. On the other side, consumers are keen to see loyalty programs continue. But it has to be done well.

Action: Power up your payment data

“Payments are a source of high-quality first-party data, which can be used to fill the gaps within loyalty programs and better understand marketing attribution,” said Philip. Payment data can also power your loyalty program. Instead of furnishing customers with yet another physical loyalty card, or prompting them to download your app, rewards are linked to your customer’s payment method. 

How we can help: Realize the potential of your payment data

Each transaction contains information such as the time, date, location, and value of the payment plus the chosen channel, payment method, and device used. This information helps you build a picture of your customers: where they shop, how much they spend, and how often. And, if the data is also linked to your inventory, you’ll see what they’re buying so you can trigger bespoke recommendations.

Create a safe space

Insight: Fraud - the specter at the feast

Fraud is the enemy of efficiency and customer experience, eating away at both profit margins and consumer confidence. In 2023, consumers were scammed out of 234% more money than the previous year. Not surprisingly, 25% feel more unsafe shopping today than they did 10 years ago.

From a business perspective, chargebacks are an ongoing pain, accounting for 25% of overall fraud. This is especially true for retailers who have opted for more lenient returns policies to boost online conversions. To combat this, 60% of businesses are considering working with a payments provider that offers a chargeback liability guarantee.

Action: Balance fraud defense with customer experience

Fraud defense is an important frontier between business efficiency and customer experience. Ramping up your risk settings might be an efficient way of blocking bad actors, but it also creates additional friction for your customers who, despite security concerns, still expect the buying process to be easy. To find the sweet spot between security and conversion, risk settings can be optimized using smart tools and fraud trend data. In this way, it’s possible to spot and stop fraud before it occurs, while known customers can shop uninterrupted.

How we can help: Block fraudsters, not shoppers

Adyen’s built-in risk management solution is a dynamic program that uses the platform's transaction data to inform its machine-learning models, responding to risks in real-time. Additionally, teams of risk specialists help ensure your settings are always optimized for the best possible results. 

Final word

Customer experience and business efficiency are often seen as opposing forces. However, our research finds that combining the two can unlock exciting growth opportunities. In the context of payments, this translates into more choice and flexibility for the customer and improved loyalty, connected data, and streamlined systems for retailers.

Everyone’s buying now and paying later. At least that’s what the prevalence of BNPL buttons on online checkout pages would lead you to believe.

Buy now, pay later is point-of-sale financing that allows consumers to make a purchase and pay for an item or service over a set period of time, often without interest. It’s exploded in the past few years, appealing to consumers seeking quick access to credit or those turned off by credit cards. It’s also attractive to merchants — from retailers to restaurants — gunning to increase a shopper’s basket size or close a sale. 

The payment trend first gained traction in Europe and Australia about a decade ago. In the U.S., BNPL took off with the rise of e-commerce during the COVID-19 pandemic. Consumers stuck at home and flush with cash tried the financing tool to buy clothes or home goods. 

More recently, soaring inflation and high interest rates have inspired some shoppers to tap BNPL for everyday purchases, to spread out payments and avoid interest charges.

Using BNPL at checkout tends to be a seamless process for shoppers. That’s helped fuel its growth, especially with digital native generations that expect such experiences. “Being easy to use does matter when it comes to payment options,” said Sheridan Trent, director of market intelligence at The Strawhecker Group.

Initially, BNPL gathered momentum with millennial and Gen Z consumers, many of whom are turned off by credit cards, then it began drawing in other consumers, too. Nearly one-fifth of consumers have used BNPL during the past year, Federal Reserve Bank of New York researchers said in September. 

How it works

BNPL is essentially the opposite of layaway, where buyers could only take home an item once it was paid off. BNPL enables shoppers to obtain an item right away, and then continue paying it off in the weeks or months that follow. 

Consumers can access BNPL options through online checkout integrations on a merchant’s website or through BNPL providers’ apps or cards. Merchants are willing to pay higher fees for BNPL services than they would for credit card acceptance on the belief that customers will be enticed to spend more and complete the sale.

When a shopper chooses a BNPL company as their payment method at the point of sale, either online or in-store, the shopper gives the BNPL provider personal information such as address, phone number, date of birth or Social Security number. Then, BNPL companies typically perform a digital soft credit check within seconds before approving or denying a shopper for an installment plan.

The version of BNPL that’s most widely marketed by providers is an interest-free, pay-in-4 plan. Those offers allow consumers to make an initial payment when they buy an item, followed by three more payments, typically spread over six weeks. 

For a $100 purchase, for example, a shopper would make an initial payment of $25, followed by three more payments of $25, at two weeks, four weeks and six weeks from the point of sale. Consumers make those payments with debit or credit cards, or sometimes through an auto-pay function tied to their bank account. 

While BNPL companies play up their no-fee offerings, some providers do charge interest fees in certain instances, and some may also charge late fees. 

For instance, San Francisco-based Affirm does far more interest-bearing, longer-term installment loan volume than it does shorter-term, fee-free lending. And its interest rate on the former could be as high as 36%. Pay-in-4 loans made up 19% of Affirm’s gross merchandise volume for the fiscal year ended June 30, according to the company’s annual filing with the Securities and Exchange Commission.

Big players in the market

BNPL’s explosion has drawn a number of competitors from across the world to the market, all eager to grab their share of the pie. That includes pure-play BNPL providers such as Affirm as well as banks, card networks and Cupertino, California, tech giant Apple. 

Afterpay, founded in Sydney and now owned by Block, was the biggest player in the U.S. market for the second quarter, based on Bank of America Securities data for monthly active users, though the data didn’t include PayPal. Globally, Stockholm-based Klarna was the BNPL leader by that measure for the period. 

Also jockeying for a piece of the action are Affirm; San Jose, California-based PayPal; Minneapolis-based Sezzle; and Sydney-based Zip. And some smaller competitors have sought to specialize in certain verticals, such as Uplift in the travel arena.

In the U.S., Klarna was second to Afterpay for the second quarter, averaging 3.31 million monthly active users, while Affirm averaged 3.26 million, according to the July Bank of America report. Monthly active users were those who opened the app at least once during the month.

PayPal declined to provide second-quarter figures, but as of the first quarter, 32 million customers had used the company’s BNPL service since its inception in 2020, a spokesperson said.

Meanwhile, Visa, Mastercard and American Express, and banks like JPMorgan Chase and Citi, typically offer existing cardholders the option to break a purchase into specific payments. 

Apple launched its installment lending service, Apple Pay Later, this year – a move that has the potential to shake up a fast-changing market. Trent expects Apple is already gaining market share because the company is intent on making its service easy to use within its digital wallet. 

Amid an intensely competitive environment, BNPL providers are still proving themselves to investors. They’ve largely posted losses in the past, and are under pressure from investors to post profits.

Consultants and professors have said that could be an uphill battle amid current market conditions. BNPL company job cuts have been widespread as the focus has shifted from growth to profits. Klarna posted a $1 billion loss for 2022, while rival Affirm reported a loss of $707.4 million in fiscal year 2022.

What’s next? 

BNPL is here to stay, but it’s likely to become a more regulated, consolidated industry than it is now, said Ed deHaan, a professor at the Stanford Graduate School of Business. “I think we’ll see the weaker firms die out, other ones get consolidated and some version of the product will certainly emerge and continue to be popular,” deHaan said.

Consolidation has already begun. San Francisco-based Block, formerly known as Square, agreed to acquire Afterpay for $29 billion in 2021. Zip bought QuadPay in 2020, and made an attempt to buy Sezzle last year, but later abandoned the deal.

As far as regulation, the Truth in Lending Act applies to the longer-term, interest-bearing BNPL loans, but it doesn’t cover pay-in-4 loans because it only applies to loans with more than four installments or those that add finance charges.

From a regulatory perspective, “it’s kind of a Frankenstein product,” said Michael Guerrero, a partner at law firm Ballard Spahr.

As the Consumer Financial Protection Bureau has taken notice of BNPL, it has expressed concerns about BNPL users taking on too much debt and BNPL providers engaging in data harvesting. 

In addition, the federal agency has urged credit bureaus to take a standardized approach to BNPL, but most of the installment providers still aren’t reporting their loan information to the credit bureaus. Guerrero expects the agency to clamp down on that BNPL-related issue. 

In pursuit of profits, many BNPL providers have expanded the services they offer, including branching into areas such as marketing or shopping assistance. They’ve also introduced new products like debit cards and pushed their services further into brick-and-mortar commerce.

To grow their share of consumer spending, the BNPL providers are also trying to diversify their customer set, partly by courting older, more affluent consumers.

Given higher interest rates and increased costs to fund loans, BNPL companies may increasingly make interest-bearing loans more of a standard in the industry because they’re more profitable, Guerrero said.

Capital One Financial, one of the largest U.S. bank credit card issuers, and retail giant Walmart said in a joint press release Friday that they’re parting ways.

The partners didn’t say when their break-up will affect the services provided to card holders under the rewards program they created in 2019. “Until informed otherwise, cardholders can also continue to use their Capital One Walmart Rewards,” wherever Mastercard is accepted, as well as the Walmart Rewards card for their Walmart purchases, the release said.

“While Capital One and Walmart have ended their card partnership, nothing changes today for cardholders – cardholders can continue to earn and redeem rewards, and previously accrued rewards will retain their value,” the release said.

Walmart was given permission by a federal judge in March to end its credit card partnership with Capital One because of customer service issues, the judge ruled.

The agreement terms between the two “clearly dictate that Capital One’s repeated customer service failures entitled Walmart to invoke the Termination Right and terminate the parties’ ongoing partnership,”  U.S. District Court Judge Katherine Polk Failla wrote in a decision.

Walmart sued Capital One in April 2023, seeking to end its credit card partnership with the McLean, Virginia-based lender. Walmart alleged Capital One repeatedly failed to meet several contractual obligations of the card partnership, including promptly issuing replacement cards to customers as well as processing their payments and posting transactions to accounts in a timely manner.

When asked for further information about the terms of the separation announced Friday, a Capital One spokesperson suggested to sister publication Payments Dive that current Walmart cardholders may receive other Capital One cards. “The parties determined that the best path forward for our customers is to end the current partnership and convert existing eligible Walmart Card customers to one of Capital One’s flagship branded rewards products,” the Capital One spokesperson said by email to Payments Dive. “There are no actions customers need to take today; Capital One will communicate in advance of any upcoming changes to customer account features or functionality.”

The Capital One spokesperson also referred to a filing by the bank with the Securities and Exchange Commission. That filing noted that Capital One retains ownership and servicing rights for the $8.5 billion card loan portfolio, noting about 40% of the loans were originated and underwritten by the bank.

Under the now defunct agreement with Walmart, there was a revenue and loss sharing arrangement between the two companies that Capital One pointed out as affecting its financial results. 

“If the loss sharing arrangement had not been in place for the first quarter of 2024, the Domestic Card net charge-off rate would have been approximately 45 basis points higher and our allowance for credit losses would have been approximately $850 million higher,” the bank said in the 8-K filing. “If the revenue sharing arrangement had not been in place for the first quarter of 2024, Domestic Card revenue margin would have been approximately 45 basis points higher.”

The break-up also follows the announcement by Capital One earlier this year that it would seek to acquire the card company Riverwoods, Illinois-based Discover Financial Services. If completed, the deal would put Capital One ahead of JPMorgan Chase as the largest credit card issuer in the U.S.

A spokesperson for Walmart declined to comment to sister publication Payments Dive beyond the press release.

Tech giant Meta Platform’s investment in payment plays, including a deal with e-commerce retail juggernaut Amazon, could pay off this year for the social media outlet, according to Mizuho Securities analysts.

The analysts predicted revenue growth of 20% this year over 2023 in a Sunday note to investors, pointing to payments opportunities that could contribute. Part of their analysis included the integration of Amazon’s checkout experience into ads on Meta’s social media platforms.

“We believe the in-app purchase integration with the largest ecommerce company globally could represent the tipping point of transforming social media into a transaction platform,” the note said.

Meta’s in-app e-commerce play, referred to as Facebook Shops, has been offered only in the U.S. so far, and generated $2 billion on an annual run-rate basis in the fourth quarter, according to Mizuho’s note. That’s before an international launch that is expected to accelerate growth, the analysts said in the note.

“We believe the partnership with Amazon for in-app purchase could be a major inflection point for social media to become a commerce engine, which could shift more retail media dollars onto the META platform,” the analysts said. “Based on our checks, Meta is testing its user interface to meet high requirements set by Amazon for real-time inventory availability and pricing, and payments using Prime membership.”

Meta’s Facebook social media platform had about 3 billion active monthly users worldwide as of the end of last year, according to the company’s most recent earnings presentation.

News of the partnership between Menlo Park, California-based Meta and Seattle-based Amazon first broke last November, according to a report from technology news outlet TechCrunch. 

When asked about the partnership, an Amazon spokesperson emailed a statement the company gave last year. “For the first time, customers will be able to shop Amazon’s Facebook and Instagram ads and check out with Amazon without leaving the social media apps,” the company said in the statement.

In addition to the Meta-Amazon partnership, Mizuho analysts pointed to the company’s WhatsApp messaging service, with about two billion users, as a “significant opportunity” for future revenue growth. The note pointed to India, which comprises about 30% of all WhatsApp users, as a “meaningful opportunity.”

“In India, WhatsApp’s largest market, META has partnered with PayU and Razorpay to add support for payments via cards and online banking,” the note said. “ We believe the enhanced payment support in WhatsApps’ largest userbase could boost revenue as more users shop and attract more businesses on WhatsApp.”

Meta’s efforts on partnerships for payments come after a string of failed attempts to enter the space. The company had experimented with a live shopping feature on Facebook, but shut that project down two years ago. It also tried to enter the world of cryptocurrency in 2019 with its Libra project, later referred to as a Diem Association effort, but after facing pushback from lawmakers it shut that down in 2022. Meta also tried to launch a digital wallet known as Novi in 2021, but that effort fizzled a year later.

Meta did not immediately respond to questions about its partnership with Amazon.

A major trade group, the National Retail Federation, objected Friday to a landmark litigation settlement some merchants reached with the card networks Visa and Mastercard last month over past overcharges.

The NRF, which represents thousands of U.S. retailers, told the judge overseeing a long-running class action that the settlement reducing fees charged by bank card issuers and the networks falls short of needed remediation. “Financial relief offered by the proposed settlement is meager and temporary,” the NRF contended in the April 26 letter to U.S. Chief District Judge Margo Brodie.   

As part of the settlement, Visa and Mastercard would lower the fees they charge merchants for credit card transactions and cap those charges for a period of five years. The pact, which is still subject to court approval, would also revise the networks’ rules with regard to transactions and surcharges. 

The two card network giants have been battling the merchants in court for nearly two decades, fighting billions of dollars in claims that they overcharged merchants when consumers swiped their credit cards to pay for products and services. Some of the biggest retailers in the U.S. have been involved in the litigation, including Home Depot and 7-Eleven as well as merchants such as Starbucks, but not all of their lawyers supported the settlement.

In a press release highlighting the letter to Brodie, NRF Chief Administrative Officer and General Counsel Stephanie Martz called the settlement a “backroom deal” struck without input from major retailers and their associations. NRF, along with the major retailer Walmart and another trade group, were given permission in 2021 to intervene in the case.

The NRF argued that the proposed temporary rate reduction would only save merchants $6 billion annually, on average, compared to the $100 billion in credit card swipe fees collected by Visa and Mastercard last year.

The settlement is expected to provide at least $29.79 billion in savings over five years to merchants as a result of the lowered fees and temporary cap, according to lawyers representing the plaintiffs.

NRF also cast doubt on the appropriateness of the settlement following a courtroom loss for the credit card company defendants “when the case is on the (relative) eve of trial after years of litigation.”

“To cram down a settlement with minimal relief after the Defendants’ recent summary judgment defeat is deeply unfair,” the NRF explained in the letter.

The settlement pertains to all merchants who accepted Visa and Mastercard debit or credit cards since December 18, 2020 though it stems from a 2005 lawsuit brought by the merchants. The injunctive relief obtained here follows on a $5.54 billion settlement for all merchant class members approved by the Second Circuit Court of Appeals in March 2023, according to a March 26 press release from law firms that brokered the agreement.

The NRF is part of a coalition that has also been pushing Congress to pass a bill that would enact the Credit Card Competition Act, requiring bank card issuers to offer competing card networks as alternatives to Visa and Mastercard for the processing of credit card transactions. The bipartisan-backed bill has seemingly stalled for the moment, but Sen. Dick Durbin, one of the sponsors of the legislation, is keeping a spotlight on the issue, calling for testimony on the topic from the card companies’ CEOs.

As small businesses pursue international expansion, their evolution might involve adopting new payment tools, a recent survey from card network company Visa revealed. 

Small and micro-businesses envision a cashless future, and they’re investing in payment technology as part of their growth strategies, Visa’s survey results showed. In the card network’s global survey of 2,250 small and micro-businesses and 1,500 consumers, more than a third (35%) of business owners surveyed said they are considering accepting new forms of payment as a critical way they can improve their businesses.

About 95% of small business owners planned to become cashless “someday,” and more than half (51%) anticipate going cashless in the next two years.

“Our previous data has shown that small businesses that embraced digital payment technologies over the last few years were more resilient and better able to compete than those who did not,” Jeni Mundy, global head of merchant sales and acquiring at Visa, said in an emailed statement.

To be sure, Visa has an interest in businesses being more digital in their payments schemes because credit and debit cards are often used in those channels. In any case, the COVID-19 pandemic super-charged a worldwide trend toward increased digital payments.

Nearly eight in 10 business owners said they are expanding to new markets to drive growth, Visa said. Among other measures small business owners expect to fuel growth are: bolstering their social media presence (44%), offering new products or services (41%) and increasing marketing investments (40%). 

“It used to be that only big businesses could scale to access customers across the country or around the world, but today’s small business owner can be virtually borderless,” Mundy said in the release. “At Visa, we’re seeing the small business mindset shift from survival mode to growth mode, as SMBs harness the power of digital payments to improve efficiencies, reach new audiences and simply thrive in today’s increasingly digital world.”

The shift toward accepting new payment technology is partly driven by changing consumer behavior, Visa’s survey suggests. More than half (55%) of consumers surveyed said they expect to use digital payments more in the coming year.

Among the factors driving consumers to adopt cashless technology are the convenience and speed they offer as well as the ability to track expenses, Mundy said in the statement. While small and micro-businesses want to integrate new payment forms into their operations, they may face hurdles such as cost, lack of training and security concerns, Mundy added. 

Although nearly half (49%) of consumers told Visa they planned to shop more locally, 72% of shoppers are comfortable shopping with international merchants, the card network reported.

Visa’s latest survey builds upon previous research indicating that small businesses are counting on digital payment acceptance to further growth. The card giant released a survey last year showing that 82% of small and micro-businesses planned to accept digital payment options that year.

Other research has illustrated the decline of cash and the ancillary impact of dwindling cash use. 

A Gallup survey released last year found that 13% of respondents use cash for all or most of their purchases, down from 28% five years earlier. Plus, June data from Euromonitor International indicated ATMs declined to 451,500 last year from 470,000 in 2019.

Though business owners want to transition to cashless, legislators are weighing whether to prevent them from doing so. In June, Congress members introduced bills in the House and Senate to prohibit businesses from refusing to accept cash for in-person transactions.

The legislation is meant to prevent discrimination against unbanked and underbanked Americans who rely on cash to pay for their essentials, according to bill authors Representatives Donald Payne Jr. (D-N.J.) and John Rose (R-Tenn.) and Senators Bob Menendez (D-N.J.) and Kevin Cramer (R-N.D.). 

Meanwhile, local government officials are having a similar debate. In Atlanta, for example, Atlanta City Council members met Wednesday to discuss a proposal that would require retail businesses to accept cash payments, The Atlanta Journal-Constitution reported.

As interest in the metaverse has taken off, interest in digital currency has also grown. The crypto market has seen a whirlwind of change, with many retailers beginning to accept digital currencies in recent years. In 2022, companies like DTC retailer Alo Yoga and Gucci expanded their payment options to include cryptocurrency. 

The crypto hype struck enough of a chord that some retailers began to recruit specialists in the space. Just a year prior, Walmart was in search of a leader for digital and cryptocurrency products. The job posting described the position as someone who would focus on digital currency strategy, identify customer needs and search for related investments and partnerships. 

Despite interest in crypto, some retailers have put an end to their crypto offerings or backed away. Many retailers expanded their payment options to include crypto last year, but the discussion around the payment method has since quieted, with fewer announcements from brands.

Martha Bennett, vice president and principal analyst at Forrester, said that crypto still remains volatile. The market has little broad interest with almost no new money coming in, Bennett says.

“[Cryptocurrency] didn't solve any problems in payments,” Bennett said. “People will always say, ‘Yeah, but it's instant, and everything,’ but that's much more easily and cheaply replaced with a real-time payment system.”

“So, there isn't really a reason for retailers to even say you can pay with cryptocurrency here, unless they can see an uplift from the cryptocurrency community and I don't think there's so much of that,” Bennett said.

After a rocky few years of crypto in retail, here is what three retailers' approach to the technology says about the market.

Pacsun

In 2021, Pacsun dubbed itself the first youth fashion retailer to accept cryptocurrency through Bitpay, a blockchain payment provider. 

Pacsun’s decision to accept crypto stemmed from its target consumer Gen Z. The company also noted at the time of the announcement that its digital sales doubled from the previous year. Gen Z’s proficiency with tech and social media platforms means the generation is often one of the first to hop on digital trends. 

Not every retailer targeting Gen Z also accepts crypto. American Eagle, another retailer in the young adult fashion sector said it would not accept crypto for NFTs in 2022. At the CommerceNext conference in June last year, Chief Marketing Officer Craig Brommers said its 15- to 25-year-old customer wasn’t ready for cryptocurrency.

When asked if the retailer still accepts cryptocurrency, Pacsun declined to comment. A list of payment methods on the retailer’s website includes a passing mention to BitPay, but it is not specifically listed as an available payment option.

As some retailers back away from crypto, it’s possible Pacsun’s target audience wasn’t a match.

When asked about the demographic of typical crypto users, Bennett said the data shows males aged 25 to 35, noticeably older than Pacsun’s target audience. Bennett noted that Gen Z is less interested than the next generation up, though it's hard to get samples of statistical significance on crypto users.

“Almost stereotypical,” Bennett said. “I mean, yes, there are sprinklings quite widely around the age groups. It's often those that do use cryptocurrency for making a payment, it is mainly males between 25 and 35 and some in the next 10-year age group.” 

GameStop

Even some retailers that dove head-first into crypto have since backed away. For companies with other financial distractions, an investment in crypto isn’t certain to provide a return.

GameStop beta launched its digital asset wallet, dubbed GameStop Wallet, in May 2022. It allowed consumers to store, send, receive and use non-fungible tokens and cryptocurrency. The company launched the beta version of its NFT marketplace a few months later in July 2022. 

Now-CEO Ryan Cohen initiated the company’s push to transform into a technology business during his role as board chairman. Cohen bought a financial stake in GameStop in 2020 and became an activist investor in 2021 with a mission to turn the retailer into a tech company after a history of what Cohen called “secular decline.”

This June, GameStop’s former CEO Matt Furlong was terminated and Cohen was named executive chairman before becoming CEO in September.

In August, however, the electronics retailer announced its decision to end support for its crypto wallet, “due to the regulatory uncertainty of the crypto space.” On Nov. 1, all crypto wallets through the retailer are set to be removed.

GameStop has struggled financially over the years, with sales in 2022 down 1.38%. However, for the first time in two years, the company posted a quarterly profit in March this year. For the second quarter, it reported net sales of about $1.16 billion, up from $1.14 billion year over year.

Like GameStop, Overstock is another retailer that took a part in crypto but has since backed away a few years ago. Overstock was the first online retailer to accept cryptocurrency bitcoin in 2014, an initiative pushed by company founder Patrick Byrne. 

After the company lost millions of dollars betting on blockchain, Byrne left in 2019. His replacement, company veteran Jonathan Johnson, turned the retailer’s attention away from blockchain initiatives and back to just selling furniture. 

Tag Heuer

Luxury retailers were big on accepting crypto and Tag Heuer joined that crowd in May 2022. With the brand’s announcement, Tag Heuer, owned by LVMH, began accepting 12 cryptocurrencies on its U.S. website.

The brand also invested in NFTs through its digital watches. According to the company’s site, customers can display their digital asset collection on a Tag Heuer Connected watch with verified proof of ownership by connecting their crypto wallet to the watch. The digital watch displays the artwork at the owner’s direction.

Around the same time Tag Heuer made the move, Kering announced that Balenciaga and Gucci would also accept crypto payment options.

Tag Heuer is still accepting crypto, according to the terms and conditions on its site. 

Bennett said the luxury sector is more likely to accept crypto, given its customer base. Especially if a company is gold-backed, meaning its digital assets are backed by the equivalent price in physical gold.

However, some luxury companies have stepped away from crypto. Bennett gave Tesla as an example of a luxury retailer that has somewhat backed away from crypto. The company invested $1.5 billion in bitcoin in February 2021, according to sister publication CFO Dive. 

Tesla CEO Elon Musk and CFO Zach Kirkhorn even added the titles “Technoking of Tesla” and “Master of Coin,” respectively, to their titles at the time.

Currently, Tesla only accepts Dogecoin and only on eligible items with the cryptocurrency logo, according to its site. In 2021, the retailer was accepting bitcoin for car purchases but suspended the initiative citing the rapid increase of fossil fuels used for bitcoin mining. 

Retailers are still investing in the metaverse and crypto despite active skepticism and challenges in the space. In Bennett’s opinion, there are still uses that exist for crypto, but the technology needs more regulatory clarity.

“I think there needs to be some decisions about what [crypto] wants to be,” Bennett said. “Because we keep going round and round in circles with this, we need regulatory clarity… it sounds really boring but it needs to clean up its act… we need to get away from this illusion that technology alone can solve some really hard issues… so it's getting away from some of the, in some cases, it’s just idealism or utopianism.”

Crypto has had a chaotic year. 

“I think after the market rout in the last week or two, I’m not sure any of us are truly ready for cryptocurrency,” said American Eagle Outfitter’s Chief Marketing Officer Craig Brommers at the CommericeNext 2022 conference last month. The retailer made the decision not to accept cryptocurrency as a form of payment when it was developing an NFT collection last year.

The crypto market crashed in May, with extremely volatile trading trends. Consumer Financial Protection Bureau Director Rohit Chopra even cautioned businesses, telling Bloomberg that stablecoins might not be ready for payment. Nonetheless, plenty of retailers have announced they are accepting crypto as payment. Brands such as Gucci, Balenciaga, Alo Yoga and Tag Heuer are some notable companies that entered the crypto game recently.

Even brands within the same arena are thinking about digital currencies differently. Pacsun and American Eagle Outfitters are both betting big on digital transformation as a way to attract and retain a youthful audience. Both brands have been involved in virtual shopping and gaming experiences by launching initiatives in Roblox. Pacsun released mall rat-themed non-fungible tokens this year and auctioned some off at the immersive virtual shopping event ComplexLand 3.0. American Eagle Outfitters also released an NFT collection last year, and recently created an apparel collection with designs from NFT creators. 

The key difference in both brands’ NFT launches: Pacsun sold them in exchange for crypto and American Eagle Outfitters did not. 

In October of last year, Pacsun started accepting crypto as payment through BitPay, dubbing itself as the first “youth fashion retailer” to do so. 

"The Gen Z audience, our primary consumer, is very tech oriented, and we dedicate a lot of our efforts towards social media and ecommerce to align with their lifestyles and resonate with them on a more personal level,” Michael Relich, co-CEO at Pacsun, said in a statement at the time. “Seeing their increasing desire towards cryptocurrency, it was clear that we needed to adjust and offer BitPay as another payment option, to further instill their confidence in us as one of their go-to retailers that truly listens." 

American Eagle Outfitters thinks otherwise.

“When we thought about our 15- to 25-year-old customer, the reality is they were not ready for cryptocurrency,” Brommers said at CommerceNext.

Who is using crypto? 

Data paints the picture that usage of crypto, whether for investment purposes or as a form of payment, is very different across gender and age.

A survey released by the Pew Research Center in November 2021 showed that men are twice as likely to say they have used crypto compared to women. Looking at the age group of 18- to 29-year-olds, 43% of men said they’ve invested in, traded or used crypto. This compares to only 19% of women in the same age group.

Crypto currently attracts a younger audience for both men and women, which is likely of interest to Pacsun and American Eagle Outfitters. Thirty-one percent of 18- to 29-year-olds surveyed have used crypto in some capacity, compared to only 8% of those 50 to 64 years old.

Using crypto for investment purposes or through the purchase of an NFT is quite different then using it as a form of payment, though. A May 2022 report by The Federal Reserve Board says that crypto used for financial transactions or purchases is much less common than its usage for investment. 

The report found that in 2021, only 2% of U.S. adults used crypto for payment over the prior 12 months. Those who used crypto only for investment purposes tended to have a higher average income, had a relationship with a traditional bank and had retirement savings compared to those who used crypto for payment purposes. 

But this is the current demographic, and won’t necessarily stay the same over time.

“When we look at the totality of the research, no doubt that the group that has been more active in adoption of cryptocurrencies and stablecoins has skewed younger,” Deloitte U.S. Banking and Capital Markets Payments Leader Zachary Aron said in an interview with Retail Dive.

“And there's also a correlation that the younger demographic ... tends to have been more underbanked overall as well,” said Aron. 

When asked about how retailers should consider that data in their decision making, Aron said, “I wouldn't necessarily evaluate it just on the premise of accepting crypto or not, but really on the premise of who's my customer base that I'm trying to attract.”

Deloitte recently released a report on its survey of 2,000 senior executives at U.S. retail companies to examine interest and investment into crypto as a form of payment. The report found that 64% of merchants surveyed indicated that their customers have a significant interest in crypto payment options, and 83% expect that interest to grow over the next year.

Based on this data, many companies are looking at the long-term role of crypto in retail transactions, perhaps expecting the current user demographic to grow and change over time.

Crypto users aren’t too swayed by market fluctuations, according to a study by Gartner’s Software Advice. Its 2022 Cryptocurrency in Ecommerce Survey, which surveyed 596 U.S. consumers who have used crypto as a payment type once per month in the past year, found that over half of respondents plan to spend more using crypto in the next year. Only 29% of respondents who intend to spend more with crypto in the coming year are deterred by its value fluctuations.

That said, the report cautioned small- and medium-sized businesses from jumping into crypto payment too soon, stating that some perceived consumer benefits for this payment type don’t necessarily help retailers. For example, the idea that crypto transactions are private isn’t completely true since businesses need to report any changes in crypto value as they are subject to capital gains taxes. Additionally, the idea that transaction fees are low doesn’t always remain true for merchants since the fees change over time, per the report.

American Eagle Outfitters’ Brommers appears to be taking the short-term view though, based on what is known about the current active crypto audience and how volatile the digital currency market has been this year. Pacsun, on the other hand, is likely looking at the long-term potential of widespread crypto adoption.

“We certainly think that there are attitudes around digital currencies that are obviously influenced by the investment side of the digital currencies space,” Deloitte’s Aron said. “Businesses are taking that longer-term view, they do recognize that there will always be short-term ups and downs. But the longer term aspect of digital currencies being a part of the payment space and how it can enhance the customer experience is something that likely is going to endure.”

Dive Brief:

E-commerce giant Amazon said it is expanding its buy now, pay later offering beyond its website and app, by making it available through the Amazon Pay tool on other retailers’ sites, according to an email sent to sister publication Payments Dive. A spokesperson didn’t immediately respond to a question on when that change occurred.

“Amazon Pay merchants now have yet another way to seamlessly reach new customers, offering them more choice and convenience in how they pay,” Amazon Pay Director Omar Soudodi said in the email.

Customers can use Amazon Pay’s equal monthly payments option for online checkout purchases of $50 or more and split payments over six or 12 months with 0% interest. This BNPL option is only available to customers using Amazon’s Visa credit cards.

The equal monthly payments offering is now available at tens of thousands of other online stores, including Lenovo, Tennis Express and Authentic Watches, according to the email. The company first began offering BNPL financing in 2018, according to a spokesperson.

Millions of customers have used the BNPL option when it was available only on Amazon.com, according to the company. The new feature doesn’t require any change to e-commerce sites currently using the Amazon Pay checkout button.

The Seattle-based online retailer has a suite of existing payment plan options. In 2021, it allowed BNPL company Affirm as a checkout option on the Amazon website.

Coming soon to more physical stores will be Amazon’s palm recognition and payment system. Last month, the company announced plans to roll out its Amazon One biometric service to every one of its Whole Foods grocery stores.

Payments company Klarna on Wednesday introduced 13 new developments to improve shopping on the app, according to a company press release. The company added a shopping lens and a barcode scanning feature, and expanded shoppable videos to Europe.

Klarna’s shopping lens allows users to take a photo and see where to buy the items in the photo. AI translates what’s in the image to a searchable term and displays the results. With the search and compare tool, the app will also look for the best deal online. The app also shows users similar items to what’s in the photo available online. 

Users can also now scan barcodes to see product information in the Klarna app. For about 10 million products, users can scan the barcode and find customer reviews, different colors and variants of an item available online and price comparisons. With the app’s camera scanning feature, customers can also pay by scanning a QR code at integrated retailers.

Klarna launched the new features as a part of its Spotlight Fall launch, the company’s bi-annual product showcase. Klarna also added a cashback program, an enhanced purchased protection policy, sustainability search filters and more.

“Just like the internet gave everyone access to information, AI gives everyone access to intelligence, context and personalization,” Klarna CEO and co-founder Sebastian Siemiatkowski said in a statement. “At Klarna we’re using this to bridge the gap between the physical and digital world, connecting how humans get inspired with how computers search.” 

The expansion of shoppable videos builds on the company’s previous AI initiatives, such as when it added a discovery shopping feed to the app. The feed now includes shoppable videos including unboxings, reviews, product drops and tutorials from brands and creators. Items featured in the video can be shopped directly from there.

Klarna said its AI-powered recommendation engine has contributed to an increased average viewer time of 60% and increased click-through rates of 25% for users in the United States.

Retailers are featuring AI more as the tech advances in popularity and capability. Walmart is a key retailer using AI. CEO Doug McMillon in a Q2 earnings call said that the company’s AI strategy includes personalization for customers, associate operations and supply chain optimization, sister publication CIO Dive reported.

The company kept its word and announced last week that it had incorporated generative artificial intelligence to improve its search capabilities, assist shoppers with complex purchases, help customers prioritize product features and show review summaries. Walmart is also using AI to test a spatial design tool to help customers design rooms based on budget, theme and more.

Google Cloud also introduced tech powered by AI allowing retailers to use imagery to track items on store shelves.