Reimagining Business in the Age of the Customer

Reimagining Business in the Age of the Customer
REIMAGINING BUSINESS IN THE AGE OF THE CUSTOMER ISSUE 5
194 – Nigel Vaz, Global Chief Strategy Officer & SVP, Managing Director EMEA, SapientNitro London Today's strategic imperative isn't only to do things right, but also to do the right things. Now is the time for leaders to move beyond incremental change, to reflect and consider the fundamentals of value creation in their business.
3 REIMAGINING BUSINESS IN THE AGE OF THE CUSTOMER As I meet with business leaders about the most pressing challenges and issues they’re facing, I notice a common angst that spans all industries and geographies. They know that they need to evolve their businesses, but they don’t know precisely how or where to turn for help. Technology innovation, shifting customer expectations and behaviors, and unforseen disruptors are creating challenges to existing business models and threats to relevance. The pace of change required feels daunting. Businesses are responding to the transformation challenge. The organization is changing. Roles that existed three or four years ago are no longer relevant, and new roles are being created. Silos are breaking down, and how work gets done is changing. Leading companies, and their partners, are creating transformative experiences and business models. It's a pivotal moment in business and, when we look at the ways we've historically prioritized experience to help our clients realize a better future for their customers and businesses, this feels like a season purpose-built for our teams. For example, our recently announced multiyear partnership with James Cameron’s Light- storm Entertainment and 20th Century Fox is designed to immerse current and future fans in the world of Avatar, and ignite and sustain their passion for the franchise through a next-generation digital experience. These are the types of partnerships that are truly reimagining business for the age of the customer. Another groundbreaking example of reimagining business is our customer journey transformation initiative for a leading financial services client. We’ve been partnering with them to transform how customers engage with the bank and establish a new operating model that can rapidly adapt and respond to future customer needs. To that end, in this edition of Insights we offer valuable research, provocations, and obser- vations. These articles will, we hope, enlighten, guide, and inspire global leaders to reimagine and rethink the fundamentals of their business. You'll find thinking and analysis on a wide variety of topics like customer experience, enterprise information technology, artificial intelligence, digital experience platforms, and more. Don't miss some new research on the retail industry on page 26, and learn from RBS’s eye-opening case study. We even explore business lessons that can be learned from classical art. I invite you to delve into these fascinating areas and I look forward to partnering with you to help lay the founda- tion for what’s next. If you haven’t already, I encourage you to download our Insights app, which is available on iOS and Android. Simply go to the relevant app store and search for “SapientNitro Insights.” I hope you enjoy this book as much as we did putting it together. Alan Wexler SapientNitro CEO
4 5 INTRODUCTION 6 Contributors 10 Helping Clients Reimagine Business in the Age of the Customer RESEARCH 26 Global Retailing in the Digital Age 48 Banks, Brands, and Consumers: A Vision for Mobile, Payment-Driven Change OUR PERSPECTIVES 64 Dispelling 5 Myths About Experience Design 78 The Rise of Digital Experience Platforms 94 Enterprise Startup: Tactics for Thriving in Fast-Changing IT Environments INDUSTRY VOICES & GAME CHANGERS 110 Case Study: Reimagining Banking at RBS TRENDS AT THE INTERSECTION OF TECHNOLOGY & STORY 124 Artificial Intelligence: Applying Big Data, Machine Learning, & Causal Reasoning to Digital Transformation 134 Leveraging Emotion Insights to Drive Experiential Return 146 Conversational UI: Talking Loud and Saying Plenty 158 How Brands Are Changing the Context of Location Marketing THE EYE-OPENER 170 Picture This: How Art Can Help Digital Find Its Soul TABLE OF ONT ENT C
7 CONTRI BUTORS Paul Eisen, PhD Director, Experience Design, SapientNitro Toronto Paul helps businesses transform by creating innovative and powerful experiences. To help clients achieve their goals, he defines experience strategies and robust frameworks that enable ongoing optimization of the value ex- change between brands and customers. Kieron Leppard Creative Director, Experience Design, SapientNitro London At heart, Kieron is an experience de- signer and a lover of all things digital. Since joining SapientNitro in 2010, he has worked for clients like Saks Fifth Avenue, British Airways, and RBS – and has picked up numerous awards along the way. Nathan Chmielewski Senior Associate, Research and Insights, SapientNitro Chicago Nate is a researcher focused on customers’ interactions with brands across all touchpoints. He connects experience, secondary research, and social insights to understand consumer behavior and brand positioning, and identify opportunities to improve the customer experience. Andre Engberts Technology Director, SapientNitro Minneapolis Andre has worked in digital technology for over a decade helping transform global clients such as Dell, Harley- Davidson, Samsung and a large US- based quick-service restaurant chain. His technical experience spans web, mobile, campaign, commerce, and personalization technologies. Daniel Harvey Creative Director & Global Practice Lead, Experience Design, SapientNitro London Daniel is Creative Director & Global Practice Lead, Experience Design at SapientNitro in London. Before that, he was Executive Creative Director at R/GA in New York. He’s led innovative work for clients like HBO, NatWest, and Verizon. Matthew Maxwell Associate Creative Director, SapientNitro London Matthew originally trained as an artist, but found the Internet offered a broader canvas. As a digital creative, his work has helped sell everything from luxury cars and sexual health to gaming platforms, long distance flights, and delivery pizza.
8 9 David Poole Financial Services Center of Excellence, SapientNitro Boston David Poole leads SapientNitro’s Finan- cial Services Center of Excellence which supports a global network of banking, insurance, and wealth management clients in thought leadership, innovation, and customer insight. A change agent with over twenty years of experience, David shares his passion for making it fun to be financially healthy. Melissa Read, PhD Global Emotion Insights Head, SapientNitro Atlanta Melissa’s practice uses cognitive and neural science techniques to assess real emotions in response to brand experiences. Emotion insights help marketers maximize brand engagement, minimize pain points, drive creativity, and quan- tify success. Scott Petry Vice President, Technology, SapientNitro Atlanta Scott drives effective technology solutions as part of a cross-functional team helping brands connect with their customers through experience, media, and technology. He works with great brands like UPS, ADT, MD Anderson, AT&T, Universal Orlando, and Carnival. Nigel Vaz Global Chief Strategy Officer & SVP, Managing Director EMEA, SapientNitro London Nigel leads Razorfish and SapientNitro for EMEA – working closely with the agencies’ combined leadership team to partner with clients to help them realize a better future for their businesses and improve their customers’ lives. Josh Sutton Global Head, Artificial Intelligence Practice, Publicis.Sapient Josh is the Global Head of Publicis. Sapient’s Data and Artificial Intelligence Practice. In this role, he is responsible for leveraging big data tools as well as correlation-based and causal-based AI platforms to help clients transform their businesses. Alan Wexler SapientNitro CEO Alan is responsible for overall leadership of SapientNitro globally, Alan has held a number of key management positions since joining Sapient in 1998, including leadership of the North America, Europe, and Asia-Pacific regions. Alan has also led several industry verticals including media, entertainment, telecommuni- cation, and healthcare, and launched SapientNitro’s mobile practice in 2000. Jemuel Ripley Vice President, Global Retail Lead, SapientNitro New York Jem is responsible for driving key sector initiatives that include retail innovation, original research, talent development, and strategies that guide retailers as they navigate uncertainty, compete globally, and connect always-on consumers to their brands. Zachary Jean Paradis Vice President, Retail Strategy, SapientNitro Chicago Zachary is a strategist, professor, and writer obsessed with transforming lives through customer experience. He acts as co-lead for the firm’s Experience Strategy domain, supports the company’s innovation efforts, and teaches at the IIT Institute of Design. Pawan Udernani Director, Client Services, SapientNitro London Over the last 3 years, Pawan has been leading SapientNitro and RBS’ experience- led digital transformation journey. This successful partnership has resulted in multiple awards, along with increases in RBS’ NPS, digital sales, and employee engagement. Ritesh Soni Vice President, Data Science, SapientNitro Washington, D.C. Ritesh focuses on applying methods in machine learning to opportunities in retail, e-commerce, marketing, and operational optimization. His Data Sciences team combines the latest methods to develop highly scalable systems with machine learning at their core. Sheldon Monteiro Global Chief Technology Officer, SapientNitro Chicago Sheldon leads global technology capabilities, engineering, quality, methods, DevOps, and tools. He sponsors and is a senior faculty member at SapientNitro’s CMTO University, an in-house executive development program to grow Sapient- Nitro’s marketing technologists. Pinak Kiran Vedalankar Director of Technology, Digital Transformation SapientNitro London Pinak leads digital transformation engagements from a technology and engineering standpoint. His specific focus is on scaling agile and engineering for enterprise, microservices, auto- mation, DevOps, commerce, content, social, mobile, and stores/branches.
11 In boardrooms around the world, senior executives are discussing a common dilemma: how to create transformative experiences and business models that improve their customers’ lives, drive growth, and boost profitability and efficiency. Regardless of industry or location, businesses are facing a new world. By 2026, the average Standard & Poor's 500 business will last just fourteen years.2 The average business model is sustained for roughly half that: just six years.3 What was once a landscape of five-year strategies, long-lived information technology (IT) investments, and product line extensions is evolving into a rapid series of digital business transformation initiatives, platform thinking, and customer experience. The continued evolution of digital capabilities is pushing businesses to rethink their fundamental views on customers, competitors, products, and partners. For most companies, the strategic imperative should not just be doing things right, more efficiently, or optimally. Leaders must also determine the right things to do. Now is the time to reflect and consider the fundamentals of value creation in the business – to go beyond the immediate, incremental change. How are you serving your customers? Where do you want to fit into their lives? Are your traditional ways of generating value sufficient? HELPING CLIENTS REIMAGINE BUSINESS IN THE AGE OF THE CUSTOMERNIGEL VAZ 1 SapientNitro. Be the Gryphon. http://www.sapientnitro.com/en-us.html#perspective/insights/insights-articles/ be-the-gryphon-digital-business-transformation. 2 Innosight. Corporate Longevity: Turbulence Ahead for Large Organizations. http://www.innosight.com/innovation- resources/strategy-innovation/upload/Corporate-Longevity-2016-Final.pdf. 3 The Boston Consulting Group. “Business Model Innovation.” https://www.bcg.com/expertise/capabilities/strategy/ business-model-innovation.aspx. Successful digital transformation is not a one-off activity, but an ongoing commitment to adapt in line with changing customer needs and expectations.1
12 13 3.1% What are businesses’ ambitions for transforming? Many large institutions, typically incumbents, start with a defense strategy. Yet evidence shows that a more aggressive approach – one that embraces innovation and digital business transformation – can be more effective. FIGURE01 Digital business transformation is widespread and of urgent importance among executives. Both studies reinforced the same point: Digital business transformation is of urgent importance among executives. In fact, our 2016 CMTO study deter- mined that, while nearly all organizations (96.9 percent) are addressing digital in some way, just six out of ten (56 percent) have made DBT a priority (see Figure 2). Comparing and contrasting the adoption and prioritization of transformation This year’s CMTO study revealed the stark difference between the percentage of organizations that are addressing digital and those that prioritize digital business transformation, specifically. It appears from this research that many firms recognize the need to respond to digital, but are failing to make DBT a priority. In fact, nearly 2 of 10 businesses didn’t even know whether DBT is a priority. FIGURE02 New digital pure-plays – companies designed expressly for the digital world – have arrived. Faster, simpler, and better optimized, these businesses are in some ways stronger than the legacy players. From a category disruptor like Airbnb to a new entrant like Under Armour, they are challenging the status quo in long-established industries. Today’s competitive marketplace requires a deeper level of change – a reimagining of every part of the business. More specifically, businesses must invest in product innovation, the integration of technology and frameworks, and open platforms. In light of this new landscape, senior leaders have a quandary (see Figure 1). Do they defend, build upon, and lock in their positions as incumbents? Or do they take risks, disrupt, and potentially expose themselves? To understand companies’ ambitions for transforming, SapientNitro conducted two pieces of research on the nature of digital business transformation (DBT) over the past two years. In the first, Be the Gryphon, SapientNitro partnered with Ovum, a research and consulting firm, to interview fifty global chief executive officers (CEOs) involved in DBT. The second, Digital Business Trans- formation and the CMTO: Leadership in the Digital Age, explores the DBT perspectives of 223 U.S. and Canadian executives in charge of both marketing and technology, a hybrid role called the chief marketing technology officer (CMTO). Most businesses are responding to digital in some way But less than 60% have made digital business transformation a top three priority 60% 50% 40% 30% 20% 10% 0% Customer experience holistically across all channels Operational processes Customer experience with specific channels IT capabilities to be more agile/continuous Business models 56.5% 96.9% of organizations are transforming their businesses in some way Differentiate Defend Disrupt Digital redefines the terms of competition Business benefits The company replatforms marketing, sales & service Delivering new value and experience organizations have made digital business transformation a priority 6outof 10 No significant initiatives in digital 54.3% 49.8% 48.4% 39% Q: Is digital business transformation a top 3 priority? 56% Yes 17.1% I don't know 26.9% No Source: SapientNitro, 2016. Source: SapientNitro, 2016. Source: SapientNitro, 2016. Source: SapientNitro, 2016.
14 15 The reimagining imperative Forces from across technology, consumer behavior, and the marketplace are pushing organizations (and their leaders) to recognize, adopt, and prioritize their need to evolve new ways of doing business. FIGURE03 To respond, we’ve developed an approach called the reimagining imperative (see Figure 3). We define this as the compelling need for companies to embrace change across all aspects of their business, including personnel and leadership, partners, and supply chain. As executive leaders focus on two priorities – the search for further revenue growth and improving profitability by driving down costs and boosting efficiency – we believe a reimagining of fundamental business characteristics and relationships will be necessary. The size of the gap between these businesses' aspirations and their reali- ties is reinforced in this research. The sentiment is that there's still a lack of attention and resources dedicated to DBT. – SapientNitro’s Digital Business Transformation and the CMTO: Leadership in the Digital Age Key DBT research findings Effective digital business transformation strategies will become an underlying survival and success factor in the age of Tesla, Uber, and Airbnb. Rather than digitizing piecemeal, DBT calls upon business leaders to reimagine their entire organizations for the digital world. Nothing short of wholesale transformation will be sufficient to compete. Yet our research shows that companies willing to make this leap are rare. We identified four key research findings across these two studies. 1Leadingcompaniesareexploring businesstransformation,butthe shiftisnascent Leading companies are exploring business transformation, but the shift is nascent – just 22 percent have a formal business document, and 34 percent remain in the “boardroom discussion” phase (see Figure 4).4 Most executives are still in their early stages of planning. In reality, few are “advanced” and most are assessing their strategies. Our research revealed three main stages in DBT concept development: Creating “strategic intent” Having a boardroom discussion and strategy debate Creating a tangible and formal business document that articulates the scope of the challenge, along with the resources and timescale required to execute Our second study, completed in the first half of 2016, found that a majority of businesses (97 percent) are “addressing digital,” but this broad language leads us to conclude that it is likely piecemeal innovation and not wholesale transformation. Most commonly, organizations are focusing on transforming the customer experiences holistically “across all channels” or “within specific channels.” Some are also transforming operational processes. However, just 56 percent believe that digital business transformation is a priority as of mid-2016, much lower than those who are just responding to digital (see Figures 2a and 2b on the previous page). This re- flects the gap between those creating short-term, point solutions and those embracing digital business transformation holistically.5 4 SapientNitro. Be the Gryphon. http://www.sapientnitro.com/en-us.html#perspective/insights/insights-articles/be-the-gryphon-digital-business-transformation. 5 SapientNitro. Digital Business Transformation and the CMTO: Leadership in the Digital Age. Research not yet released. New types of competitors New, emerging business models New technologies The Millennial Generation THE REIMAGINING IMPERATIVE The fundamental need to evolve new ways of doing business Marketplace factors Give rise to Forces of change SAAS Mobile & cloud Wearables The Internet of Things Virtual reality Artificial intelligence Any time, anywhere expectations Content creators & curators Massive data generators Empowered consumers Technology New consumer What is your digital business transformation agenda? FIGURE04 22% Formal business document 34% Boardroom discussion 44% A strategic intent Source: SapientNitro, 2016. Source: SapientNitro, 2016.
16 17 2Successful DBT must be led by the C-suite – and with teams (not just individuals) Such is the importance of reimagining business that among companies with a DBT agenda, all fifty CEO-level respondents considered themselves to be the leaders of their companies’ DBT agendas. And over two-thirds nominated a lieutenant to lead the digital business transformation charge. In nearly half (47 percent) of these nomi- native instances, the chief information officer (CIO) or chief technology officer CMOs and CEOs were most likely to be responsible for DBT While our research in the previous year showed that CEOs considered themselves (or the CIO/CTO) most responsible for reimagining their businesses, this year’s study revealed that CMOs now lead the pack. FIGURE05 3Successful DBT means that marketing and IT must collaborate Closer collaboration between CMOs and CTOs is needed to create strong results for the business. Multiyear, strategic digital business transformation programs require large and phased capital budgeting management – familiar to many CIOs/CTOs, but something that, in the context of IT, CMOs may struggle with. 6 SapientNitro. Be the Gryphon. http://www.sapientnitro.com/en-us.html#perspective/insights/insights-articles/be-the-gryphon-digital-business-transformation. 7 SapientNitro. Digital Business Transformation and the CMTO: Leadership in the Digital Age. Research not yet released. (CTO) was nominated, followed by the chief marketing officer (CMO) with 26 percent of the responses.6 In our subsequent U.S. study, we saw a slightly different pattern. We found that executive responsibility for DBT resides in the C-suite, although across a broader set of roles. Top categories were the CMO (25.5 percent) and CEO (22.5 percent), followed by “other” (17.6 percent) and the CIO/ CTO (12.5 percent).7 Our takeaway is that when DBT is a top strategic priority, it has C-suite leadership and visibility (either a top lieutenant or the CEO). The unique relationships and responsibilities of these roles across companies, as well as regional differences, may also explain some of the variance. Are CMTOs equipped to reimagine their businesses for the digital age? When asked whether they feel equipped to drive change in their organizations, over 90% of CMTOs indicated that they were somewhat or fully equipped to drive change. FIGURE06 CMO CEO Other Not Sure CIO/CTO CMTO CDO 25.5% 22.2% 4.6% 3.7% 17.6% 13.9% Q: Are you equipped to drive change in your organization? 22% Fully equipped 6.7% Not at all equipped 71.3% Somewhat equipped CMOs bring different strengths: a tradition of speed-to-market and oppor- tunistic investment in the fast-moving digital economy. In fact, some companies are going so far as to develop new, hybrid roles such as the chief marketing technology officer (CMTO) or chief digital officer (CDO) to oversee both marketing and IT. We found that over 90 percent of these new leaders feel fully or somewhat equipped to drive change in their organizations (see Figure 6). In the end, both sides – the right and left brains – of an organization must come together to reimagine the business. 90% of CMTOs or CDOs feel fully or somewhat equipped to drive change in their organizations. Q: Which executive is responsible for leading digital business transformation in your organization? Over Source: SapientNitro, 2016. Source: SapientNitro, 2016. Source: SapientNitro, 2016. 12.5%
18 19 4Conflicting priorities, along with a lack of dedicated resources and organizational alignment, are some of the key obstructions to successful DBT Our research suggests that having conflicting priorities remains the top (39 WHAT IS A GRYPHON? The Gryphon of legend was half lion, half eagle – a dominant preda- tor among all creatures. Similarly, a business Gryphon is also equipped with hybrid capabilities. It looks and behaves differently from any- thing seen before. It causes traditional predators to struggle to adapt to the new rules of the ecosystem. Gryphons are born every day. They disrupt our understanding of the world and instinctively break previously-assumed boundaries to combine the best technologies, services, and experiences (see Figure 8). Gryphon-like attributes can be seen in the rapid advances of businesses such as Uber in transportation, Airbnb in property rentals, Spotify in music (notably, streaming has already disrupted the emergent download market), and BuzzFeed in media. Being a Gryphon organization is not about age or size, but rather about state of mind. Apple is an example of a large organization that conti- nually reinvents itself by creating product lines like the Apple Watch and iPhone that supplant previously successful lines such as the iPod – itself a byproduct of Apple’s con- quest of the music industry. The characteristics of a Gryphon organization A Gryphon organization is one that reimagines its business across the board – covering aspects such as leadership, customer experience, digital integration, internal structure, agility, and talent. FIGURE08 Obstacles in implementation Conflicting priorities, along with a lack of dedicated resources and organizational alignment, are the top obstacles to digital business transformation. One surprise? Just 10% indicate a lack of clear business case as a key obstruction – in which case, why aren’t businesses doing it more? FIGURE07 Q: What are the major obstacles to the successful implementation of your organization's digital business transformation initiatives? Conflicting priorities Lack of dedicated resources Lack of organizational alignment Budget concerns/lack of investment Lack of vision from leadership Inadequate IT capabilities Lack of skills Lack of governance/coordination Lack of plan Lack of a clear business case None Lack of awareness of market forces Regulatory/security concerns Other 38.0% 35.2% 29.6% 26.4% 18.5% 17.1% 14.8% 13.9% 10.6% 10.6% 9.7% 3.7% 8.8% 0.9% 19 COLLABORATIVE STRUCTURE Organizational culture and/or defined processes by which key executive stakeholders and functions unite behind digital business transformation DIGITAL CORE Digital as a core competence not a bolt-on CUSTOMER-CENTRIC Business is built around the belief that consumers and rapid uptake of technology are the drivers of change AGILITY AND SPEED The ability to pivot and the notion of speed itself being a competitive advantage HYBRID SKILLS Marketing and technology skills and roles are increasingly hybrid VISIONARY LEADERSHIP A CEO and leadership team that leads digital business transformation within the organization and drives ongoing change and improvements DISRUPTIVE CULTURE A willingness to challenge norms and disrupt itself in order to enter new markets and categories ALL-EMBRACING APPROACH A holistic, company-wide commitment to reshape and retool for a digital future ONGOING COMMITMENT TO CHANGE Recognize that change is iterative and permanent percent) obstruction to the successful implementation of an organization’s digital business transformation. This is perhaps reflective of the 40 percent of organizations that haven’t made DBT a top three priority for their company. Similarly, the next three obstacles – a lack of dedicated resources (35 percent), organizational alignment (30 percent), and investment (26 percent) – suggest a lack of vision around the comprehensive organizational change required for successful business transformation (see Figure 7). Just10% indicate a lack of clear business case as a key obstruction to DBT – in which case, why aren’t businesses doing it more? One surprise? Source: SapientNitro, 2016. Source: SapientNitro, 2016.
20 21 Key steps to successful reimagining LARGE ORGANIZATIONS URGENTLY NEED TO BEGIN A BOARD-LEVEL REIMAGINING DISCUSSION The data is stark: Just 22 percent of companies have a formal plan for digital business transformation. And just 56 percent have made DBT a top three priority. To create a digital business transformation strategy and intent, large incumbents (in most industries) need to move faster to embrace digitally-led transformation. Defend, differentiate, or disrupt: Regardless of strategy, the transformation priority affects every aspect of businesses, including business strategy, the business model, data, internal processes, and culture. All of these are materially influenced by the digital priority. Furthermore, for many companies, quality board-level discussions around reimagining the business may not be possible without a new level of executive digital savvy and awareness, even as organizations cultivate these skills throughout their ranks. People and talent, as ever, are key pieces of the puzzle. RETHINK HOW THE BUSI- NESS GENERATES VALUE FOR ITS CUSTOMERS For many organizations grappling with its potential, digital business transformation represents a once in a decade opportunity to rethink the core levers involved in generating value for customers. Contextualizing your business and its value – not based on where it has been in the past, but rather where it should be in the future – is an urgent priority. In our experience, a focus on the customer journey – and your part in it – is a good place to start. Ultimately, though, DBT involves rethinking the entire value proposition of the enterprise. To that end, successful DBT initiatives should be focused on the customer journey, should be owned by the CEO, and must be supported and implemented by an executive team or task force. For most organizations, this means close involvement and collaboration between the CTO and CMO. ENABLE THE RIGHT CULTURE AND INCENTIVES To thrive in this fast-changing, technology intensive environment, leaders need to ensure that their organizations reinforce values that will help them succeed. To that end, organizations should endeavor to build and maintain cultures that prize innovation, constant change, and evolution. Rather than being process-oriented, organizations must select and train for flexibility and agility. Executives should ensure people’s incentives and alignment, evaluate systems and structures, and design a culture consistent with these traits. Culture too often is viewed as an out- come of business transformation. On the contrary, culture should be an input in the transformation process – one as important as organizational changes or the value-generating aspects of the business model. EMBRACE INNOVATION AND CONSTANT CHANGE There is no steady state. Forward- thinking leaders know that constant reinvention is the key to medium- and long-term success. There is no “one and done” in business transformation today. Consider Netflix’s continued evolution from DVDs to streaming services, and now content production. They have used technology as an enabler with every step. For most companies, a strategic reimagining is becoming ever more urgent given the current pace of disruption, new entrants, and changing consumer behaviors. TECHNOLOGY & MARKETING ARE DIFFERENTIATORS, NOT SUPPORT FUNCTIONS In this new era, both technology and marketing are playing new roles in generating value. Technology is no longer just supporting the business or enabling operations. Rather, it is a strategic weapon and differentiator. Similarly, forward-looking companies think of marketing not as a broadcast center or passive lead generation machine, but rather as an area to generate insights and define the proposition to the customer. 1 2 3 4 5
22 23 Conclusion The world has shifted from allowing brands to simply state their missions, visions, and promises, to requiring them to demonstrate their intentions through tangible and sustainable actions. There are several organizations in particular that have reimagined their business to remain relevant in the digital age. Lightstorm Entertainment is in the process of transforming the entire world of Avatar into a multiyear, multichannel digital platform for fan engagement – a platform that uses advanced analytics to evolve with each sequel release. And in financial services, RBS embraced digital business transformation to deliver on its promise of “Helpful Banking.”10 Now, the need for leaders is to consider how they go about transforming their entire organization for a digital world. By reimagining the business and embracing technology, it’s possible for every company to become a Gryphon. Nigel Vaz Global Chief Strategy Officer & SVP, Managing Director EMEA, SapientNitro London nvaz@sapient.com Now, the need for leaders is to consider how they go about transforming their entire organization for a digital world. By reimagining the business and embracing technology, it’s possible for every company to become a Gryphon. WHAT S-CURVES TELL US ABOUT REIMAGINING BUSINESS Theories of disruptive innovation have long been used in technology intensive businesses to understand the dynamics of competition. But as all businesses become technology intensive, the model’s applications and relevance have broadened.8 In particular, we’ve found the s-curve model of technology diffusion helpful to both reinforce the need for constant reinvention and to spot inbound disruptions from other industries. Several characteristics of the theory of disruptive innovation, and its associated s-curve model, are relevant to the boards and executives that are reimagining their businesses: Success in a non-linear business environment means forcing your business from the status quo onto new, fast-growing platforms before they're mainstream. FIGURE09 The nature of competition is that a technology or company, not initially seen as a direct threat, will evolve over time and possibly outperform an existing technology. There are many examples in the history of business, including the development of mini-mills in the steel industry; the growth of Amazon in the retail industry; Airbnb’s innovation in the hospitality industry; and the software disruption brought on by Apple’s iTunes Store. With today’s competition being based on platforms, technology, and agility, it is evident that we live in an increasingly non-linear world. Non-linear functions reward early adopters and fast-movers, while punishing large, slow-paced organizations that can see the ground beneath them shifting dramatically. To ride these repeating waves of innovation, companies must rein- vent themselves continuously, often through strategic partnerships or acquisition strategies. A case-in- point is Facebook’s aggressive acquisition of WhatsApp and Oculus. Studying the s-curves in other industries – particularly ones with a greater competitive intensity and more technology – can provide the opportunity to spot new disruptions before they hit your market. For example, the digital shift of both the music and publishing industries pre- saged that of telecoms and financial services, as well as the automotive industry’s leap toward autonomous and electric vehicles. By understanding s-curves and their associated theories, business leaders can mitigate some of the risk of operating in a modern landscape – one where (as we noted in the introduction) the average lifespan of the S&P 500 is fourteen years, and business models need to be reinvented in half that time.9 8 Clayton M. Christensen. The Innovator’s Dilemma: The Revolutionary Book That Will Change the Way You Do Business. 2011. 9 Innosight. Creative Destruction Whips through Corporate America. http://www.innosight.com/innovation-resources/strategy-innovation/upload/creative-destruction-whips-through-corporate-america_final2015.pdf. Performance Prepare Path of a Gryphon organization Switch Harness Transition Time 10 See “Case Study: Reimagining Banking at RBS” on page 110.
RESEARCH Global Retailing in the Digital Age Jemuel Ripley, Zachary Paradis, Hilding Anderson & Nathan Chmielewski Banks, Brands, and Consumers: A Vision for Mobile, Payment-Driven Change David Poole 26 48
RESEARCH 27 The third annual study of retailers’ use of mobile, e-commerce, and in-store experiences Current state The retail industry remains poised on a knife’s edge. Dropping foot traffic, new online-only competitors, and profound changes in customer preferences have buffeted the industry for a decade or more. Yet the same technology disrupting retail may also be its salvation. Click and collect in-store. Mobile apps. E-commerce. Instagram. Beacons. In this, our third annual retail study, we’ve tried to take a fairly comprehensive look at how retailers are responding to this new environment. How effectively are retailers weaving together mobile apps, e-commerce platforms, and in-store innovations? What does the current state of retailing tell us about the future? GLOBAL RETAILING IN THE DIGITAL AGEJEMUEL RIPLEY, ZACHARY PARADIS, HILDING ANDERSON & NATHAN CHMIELEWSKI
RESEARCH28 29 Retail stores are seeing roughly half of the foot traffic they saw 6 years ago.1 2010 1 SapientNitro estimates based on data reported by the Wall Street Journal, RetailNext.net, and Shoppertrax.com. 2 Mintel. Online Shopping US 2015 Report. http://www.mintel.com/press-centre/nearly-70-of-americans-shop-online-regularly-with-close-to-50-taking-advantage-of-free-shipping. 34.3 billion visits Key findings3 Four leaders: This year, we selected four retailers as our leaders, based on the strength and quality of their customer experience. Apple, Sephora, Argos, and Home Depot earned their spots by integrating digital and rethinking their store environments more significantly than any others in our study. Stores are increasingly focused on the entire customer journey, with new innovations in the pre-visit and post-visit stages. Starbucks’ pre-purchase, Walmart’s Savings Catcher, and John Lewis’ click and collect were notable. Mobile payments continued to be a hot topic this year, with widespread use in the UK and slower adoption in the U.S.4 Just three retailers in our study enabled sales associates to check out customers remotely, however. Reimagining the store: We’re still early in the reinvention of the store. Argos, Sephora, and Apple were among the notables that have truly rethought the store. Future opportunities This crucible of consumer change and technology transformation must be met with a similar transformation amongst retailers. For most retailers, the easy steps of pilots, testing, and point solutions are largely done. What is left is more fundamental – retailers must reimagine their business in the age of the customer (see Figure 1). These steps include rethinking the role of the store, IT operations, merchandis- ing, and even the supply chain. The fundamentals of competition are changing. For marketers and retailers, this is no longer the challenge of digitalizing retailing. It is the challenge of retailing in a digital age. As part of Publicis.Sapient, SapientNitro works with our partners Digitas, Razorfish, Rosetta, and Sapient Consulting to drive digital-at-the-core thinking. Together, the P.S platform offers a digital transformation platform purpose-built for today's digital world, helping companies transform existing business activities from digital as an extension to digital as the core of the enterprise. FIGURE01 Experience Customer-focused > Experience-led Enterprise IT Industrial > Multispeed Products & services Individual projects > Service ecosystems Organization Silos > Collaborative Marketing Mass > Precision Commerce Point solution > Omnichannel Data Backward-looking > Real-time impact • • • • 3 For full details, see “About our research” at the end of this article. 4 For more on mobile payments, see SapientNitro’s “Banks, Brands, and Consumers: A Vision for Mobile, Payment-Driven Change.” http://www.sapientnitro.com/en-us.html#perspective/insights/insights-articles/banks-brands-and-consumers-a-vision-for-mobile-payment-driven-change. 15.1 billion visits 33% shop online every week 69% shop online at least monthly Dropping foot traffic MORE DIGITAL2 2011 24.6 billion visits 2012 20.6 billion visits 2013 17.6 billion visits 2014 16.1 billion visits 2015 2016 14.2 billion visits Source: Publicis.Sapient, 2016.
RESEARCH30 31 Introduction to the research To assess retailing in the digital age, we studied retailers with physical stores to see how the use of mobile, e-commerce, and in-store technology has evolved (see Figure 2). Our hypo- thesis was that retailers were already adapting to this changing environment. We wanted to understand how they were adapting and explore how sub- segments (luxury, apparel, mass mer- chandisers, etc.) have developed and were competing. We covered four major global cities during the research: New York, Chicago, Toronto, and London (see “About the research” for details). In reviewing ninety-nine retailers, we, of course, discovered major variances in competitive intent, degree of vision, and quality of execution. There is no one-size-fits-all here, and not every innovation is appropriate for every business. Each marketer has to evaluate the fit to their specific business — to learn from the best and decide what makes the most sense for their needs. In fact, our big realization is that retailing in the digital age doesn’t mean introducing “digital” (e.g., kiosks or tablets) to the physical space. Instead, it means redefining your entire business around operating in a digital world. Brands must follow the customer’s journey across touchpoints — only some of which will include digital tools at all. A touchpoint might be defined by a smile or the feel of a linen shirt. A mirror image of you dressed in the new style of the iconic Burberry trench coat. The smell of a store as you enter. Operating in a digital world requires integrating the physical and digital, hand in hand. Our big realization is that retailing in the digital age doesn’t mean introducing “digital” to the physical space. Instead, it means redefining your entire business around operating in a digital world.OUR RESEARCH We evaluated three categories of retail experiences: mobile, e-commerce, and in-store. FIGURE02 25% Mobile app effectiveness overall and in-store Visibility Content Functionality Brand 20% E-commerce effectivness (BOPIS/ROPIS, ratings & reviews, store location finder, etc.) 55% Store experience 12.5% 15% 15% 12.5% Source: SapientNitro, 2016.
RESEARCH32 33 Rules for creating retail experiences How do you go about defining the best combination of physical and digital for your brand? Our research uncovered five overarching rules to keep in mind when designing the future of your retail experience. 1Retailers must become more flexible, immersive, and fit for purpose Digital extensions — a great interactive kiosk, mobile app, or sales associate tool — are no longer enough. Retail brands must reimagine their business in the age of the customer. Digital transformation is on the agenda of retailers and their boardrooms. According to a 2015 International Data Corporation (IDC) study, nearly two-thirds (64 percent) of Western European retailers are currently under- taking a formal digital transformation 5 IDC. “64% of Western European Retailers Currently Undergoing Formal Digital Transformation Effort, While Further 21% About to Start by End of the Year, Says IDC.” https://www.idc.com/getdoc.jsp?containerId=prUK25829515. program, while a further 21 percent were expected to have started one by the end of 2015. They note that a “race to digitize [is] taking place among the largest retailers in Europe.”5 Our research shows that more transformation is sorely needed. If there is one overarching finding from our study it is this: The examples that we saw in market do not go far enough toward rethinking the retail business for the digital age. Based on our research, we see the top reimagining priorities to be centered around three main questions: You’ve been matched: the output of the ColorIQ process Sephora’s ColorIQ measures skin color, sets up follow-up purchases of various foundations, and also offers a hands-on experience in the store. FIGURE03 1HOW CAN YOU IMPROVE FLEXIBILITY? Retailing in the digital age should be more flexible than in the past. This means omnichannel and visibility; click and collect; mobile ordering; ship-to- home; and all the permutations. Our leaders — Apple, Argos, and Sephora — have all made significant progress in this area (see Figure 3). In the UK, specifically in the cities, click and collect/ reserve has been credited with stalling the decline in footfall. In fact, at one leading UK retailer, it accounts for the majority of orders via online platforms. 2HOW CAN YOU MAKE THE EXPERIENCE MORE IMMERSIVE? On the less frequent occasions that customers do go to the store, they need to be greeted by great experiences. Museum quality if you’re selling tech hardware. Dynamic changing rooms and great customer service if you’re in apparel. Smaller spaces. Better tools. Faster service. 3HOW CAN YOU MAKE YOUR RETAILING PROPER- TIES FIT FOR PURPOSE? Retailing properties (mobile, e-commerce, and physical) should be fit for purpose. Retailers in the digital age need inventory, but they don’t need as much inventory. Endless aisle tools, smartphones, visibility of inventory, and sales associates (You do have visibility, right?) all mean more flexibility. Reduce square footage, invest in community events, and make the store and brand be more connected to humans. Look to recent trends in bookstores and banks — fewer, smaller, and more beautiful examples with higher sales per square foot.
RESEARCH34 35 2Thinkexperience-ledandmobile first:Mobile as the gateway to the brand If experience is the combination of interactions (the tools that you use) and perceptions (how you feel about the brand), then the leaders in our study thought more deeply about both. We observed multiple techniques to enhance the experiences of guests, as each retailer made choices for their discrete target audience. Mobile as the gateway to the brand For most retailers, smartphones are now the gateway to the brand. Mobile is how they start and sustain customer relationships. Forty-four percent of smartphone- owning U.S. online adults (ages 18+) have used their phone to research products online while shopping in a physical store in the past three months. The most common, reported activities include comparing prices (48 percent), looking up product information (41 percent), and searching for coupons (37 percent).6 It is how people find their local store, explore the inventory, reserve the product that they want (30 percent of Sams Club’s e-commerce sales in 2015 involved in-store pickup), and, increasingly, pay for their products.7 Mobile is now a primary touchpoint for retailers. In our study, we commonly noted barcode scanners (to pull up reviews/ ratings and place orders), store loca- tors, the ability to shop (m-commerce), and wish list/save-for-later features (see Figure 4). Top-scoring retailers are pushing the boundaries even further with voice capabilities, image search, live chat, and mobile in-store maps. With a buy button on more digital platforms, m-commerce is more widespread than ever. FIGURE04 FIGURE05 Mobile is becoming an essential channel in the store, with image search, wayfinding, mobile payments, and voice-based search being offered. As we'll see in later sections, it is also a key channel pre- and post-visit. Among grocers, Walmart packs an industry-leading mobile app with notable tools including the Savings Catcher, items’ aisle locations, pharmacies, registries, wish lists, weekly ads and rollbacks, m-commerce with click and collect, and Apple Watch support for grocery lists. Waitrose has taken a contrasting approach to Walmart with a single-task mobile app. The “Pick Your Own Offers” mobile app puts the customer in control of couponing: Customers choose ten items to link to their myWaitrose card and automatically save 20 percent every time they buy them, both in-store and online. In North America, features like Macy’s image search, Home Depot’s voice- based search, and Apple’s EasyPay make the phone a more powerful tool in the store, and reduce the workload in-store (see Figure 5). In the UK, we found fewer smartphone innovations. Waitrose and John Lewis impressed with their mobile payment app and “price match claim request,” respectively, discussed elsewhere. Waitrose, Marks & Spencer, and Boots all supported Apple Pay. 6 Forrester. Consumer Technographics North American Retail And Travel Online Benchmark Recontact Survey 1, Q3 2016 (US). https://www.forrester.com/go?objectid=SUS3275. 7 eMarketer. “In-Store Pickups Account for Significant Ecommerce Sales.” http://www.emarketer.com/Article/In-Store-Pickups-Account-Significant-Ecommerce-Sales/1013503. For most retailers, smartphones are now gateways to the brand. Mobile is how they start and sustain customer relationships. Facebook Instagram Pinterest Twitter WeChat Macy’s image search Home Depot’s voice-based search Apple’s EasyPay Waitrose’s mobile payment app Buy button
RESEARCH36 37 Mobile payments Both retailers and mobile providers are entering the mobile payment space. We noted a few stores which offer their own payment technologies — Neiman Marcus, Apple, and Starbucks, for example. In the UK, the touch-to-pay function (NFC) for small purchases under thirty pounds was nearly ubiquitous in London. And mobile payments are growing more widespread. By 2018, IDC pre- dicts that 60 percent of omnichannel retailers will have launched customer mobile payment initiatives.9 According to NFC World, over 10 percent of UK card payments are contactless, up over 300 percent from the previous year.10 Grocery in the UK leads the way, with 30 percent of all transactions paid through some form of contactless payment.11 According to research from Barclaycard, one in three merchants in the UK accepts contactless payments. Contactless payment options in the U.S. are just being introduced by the likes of Apple Pay and Samsung Pay, but banks and retailers have yet to buy in – only 23 percent of big box retailers offer Apple Pay in-store.12 Argos – a UK variety store – replaced their traditional catalogs with tablets and enabled mobile-based payments for click-and-collect. FIGURE08 FIGURE06 Neiman Marcus offers a novel in-store payment mechanism with QR codes tied to cards on file and their loyalty program. This allows an easy mobile checkout process. Walmart recently introduced “Walmart Pay,” a new feature on their existing app that lets shoppers pay in-store using their smartphones — replacing a traditional credit card swipe or writing a check.13 Joining Apple, Samsung, PayPal, and Google, Walmart is positioning itself for a stake in the growing U.S. mobile payment market, which, according to Forrester Research, is anticipated to handle $142 billion in transactions by 2019.14 We also saw some new innovations in payments. Neiman Marcus’s app offers a QR code feature, linked to an existing card or account, which allows you to use your smartphone to check out (see Figure 6). And effective use of mobile payments by Apple and Sephora helped bolster their scores. Sales-associate-based mobile checkout in the U.S. was also noted, but only at Apple, Sephora, and Neiman Marcus (see Figure 7). In the UK, the story is more compelling. Self-checkout is now common across all supermarkets in the UK and also in home improvement stores, large news agents, and chemists/pharmacies. Leaders in our study include Tesco, Argos, John Lewis, and Waitrose (see Figure 8). Sephora offers a clienteling app, allowing sales associates to check out customers in the aisle. FIGURE07 60% By 2018 of omnichannel retailers will have launched customer mobile payment initiatives8 8 IDC. IDC FutureScape: Worldwide Retail 2015 Predictions — It's All About Participation Now. http://www.idc.com/research/viewtoc.jsp?containerId=252327. 9 Ibid. 10 NFC World. “One in Ten UK Card Payments Now Contactless.” http://www.nfcworld.com/2016/01/04/340840/one-in-10-uk-card-payments-are-now-contactless/. 11 Barclays Bank. “Reluctance to Introduce Contactless Payments for Christmas Leaves Merchants Out in the Cold.” https://www.home.barclaycard/news/reluctance-to-introduce-contactless-payments-for-christmas-leaves-merchants-out-in-the-cold.html. 12 NFC World. “One in 10 UK Card Payments Where Contactless in 2015.” http://www.nfcworld.com/2016/05/23/344954/one-10-uk-card-payments-contactless-2015/. 13 Fortune. “Walmart Launches its Own Mobile Payment System.” http://fortune.com/2015/12/10/walmart-mobile-payment/. 14 Forrester. Five Payment Trends North American eBusiness Professionals Should Watch: 2016 To 2018. April 2016. https://www.forrester.com/go?objectid=RES129571. The Argos mobile app allows you to pay now or pay when you pick up an item.
RESEARCH38 39 3Focusonthefullcustomer journey By broadening the aperture of experience beyond its traditional focus in retail — the store — leading brands are creating a new competitive battle- ground and winning sales before someone even arrives at a physical property (see Figure 11). According to Forrester, 41 percent of U.S. online adults (ages 18+) discovered a retail product that they recently purchased through an online source. And 68 percent of online adults who did research prior to a recent purchase used two or more sources of information in the process.15 And these customers are more valuable. According to a study by IDC, omnichannel shoppers have a 30 percent higher lifetime value than those who shop using only one channel.16 The Samsung store had a dedicated kids’ play area. FIGURE09 15 Forrester. Consumer Technographics North American Retail And Travel Customer Life Cycle Survey, Q1 2016 (US). https://www.forrester.com/go?objectid=SUS3172. 16 IDC. IDC FutureScape: Worldwide Retail 2015 Predictions — It's All About Participation Now. http://www.idc.com/research/viewtoc.jsp?containerId=252327. 17 Mobile Commerce Daily. “Starbucks’ Mobile Ordering Program Drives 20 percent of Transactions During Peak Hours.” http://www.mobilecommercedaily.com/starbucks-earnings- call-shows-significant-adoption-rates-for-mobile-order-and-pay. 18 GeekWire. “Starbucks Mobile Order-Ahead Usage Doubles from Last Year, Now Up to 8M Transactions per Month.” http://www.geekwire.com/2016/starbucks-mobile-order-ahead- usage-doubles-last-year-now-8m-transactions-per-month/. Experience-led, community-oriented, and subtly enhanced by digital In our study, it was clear that the store has become, in turns, a distribution hub, customer service zone, training area, and community spot. Stores are being reconceptualized. For example, Waitrose is the click and collect leader in the UK. Microsoft and Samsung stores offer training areas and customer service (as well as a bar, in Samsung’s case). Under Armour has a treadmill and jump zone to let you try out their shoes and outfits on the move. H&M even has a virtual runway that lets you strut in front of cameras and a green screen, and then lets you post the finished product online. Increas- ingly, new experience-led versions of stores are being built within the context of the digital age. Community orientation was also evident. Samsung, in its store in New York’s Village, has a “kids section” with a low table, comfortable seats, and apps preloaded on their devices (see Figure 9). Digital should be a subtle experience enhancer, rather than “in your face” screens and kiosks. For example, Sephora’s use of beacons — one of the few in our study — is done well. Warby Parker’s only digital solution — their photobooth — provides entertainment, drives mobile activity, and adds to the try-on and store experience. In the end, retailers are growing wiser in their investments into the customer experience. Gone are the “Me-Ality” full-body scanners that occupied valuable floor space. Retail should be the center of your customers’ passion points (see Figure 10). Provide the customers more reasons to increase their dwell time. Pre-visit Starbucks was a highlight of capturing pre-visit sales. Pre-orders (with their “Mobile Order and Pay” app) account for 10 percent of all U.S. store transactions, jumping to 20 percent of transactions during peak hours.17 Twenty-four percent of all transactions are paid using Starbucks’ mobile app.18 This presents multiple benefits: reduced wait time for the customer, higher throughput, and improved working capital for the store. It also buttresses their loyalty program. Starbucks is not alone in this, however. About one-third of U.S. retailers covered in the study have click and collect (BOPIS/ROPIS), while about three-quarters of the UK retailers that we reviewed had click and collect (see Figure 12). Click and collect is practically ubiquitous in UK, with retailers investing in operations for next-day pickup (e.g., at TopShop, order in-store by 5 PM and pick up from 12 PM the next day; or at John Lewis, order by 8 PM and collect after 2 PM the next day). Waitrose offers self-checkout and click and to collect in their London stores. FIGURE12Samsung/Best Buy virtual reality promotion For example, in our testing, Best Buy's Gear VR demo (left image) was unavailable in our first three visits to stores. And, when we did ultimately sit down with the headset, several elements were missing: no secondary screen (for friends to watch the headset video), a non-swiveling chair, and a lack of separation from the noisy environment. The Samsung store (right image) had all of these elements, which resulted in a better experience. FIGURE10 Foot Locker allows shoe fans to send emoji versions of the latest sneaker releases to their friends. FIGURE11
RESEARCH40 41 As we noted earlier, click and collect has been credited with forestalling a decline in footfall in major UK cities. Click and collect accounts for a majority of orders placed via online platforms at one large retail store, as well as helps drive revenue growth, according to Matt Bradbeer, UK Retail Executive. Over the past two years, there have been signs of similar levels of investment by U.S. retailers. In 2015, Target invested $1 billion in strengthening its e-commerce offerings, which include everything from grocery delivery, to ship from store, and click and collect.20 Home Depot claims that over 40 percent of online sales involves physical stores.21 Walmart’s click and collect was used the most during the holiday period in the U.S., followed by Best Buy, Target, Kmart, and Macy’s.22 Yet, by some measures, North Ameri- can stores underperformed with their pre-purchase experiences during the latest holiday season (2015-2016). One study found that 50 percent of those who opted to buy online and pick up in store encountered problems in 2015.23 Throughout our study, we wit- nessed this first-hand. Missing signage, poorly organized, poorly located, and too-small pickup rooms were common — at least in some stores. Click and collect only works if stores are ready for it (see Figure 13). Much of the click to collect infrastructure in the U.S. is still under development, as we saw in our site visits. Shown below is an in-store pickup booth at a major retailer. FIGURE13 19 JDA Software Group 2015 Study, as cited in Fortune. “Why ‘Buy Online, Pickup in Store’ Isn’t Working for Retailers.” http://fortune.com/2015/11/05/online-store-pickup/. 20 Fortune. “How Target Fended off Walmart and Amazon During the Holiday Season.” http://fortune.com/2016/02/24/target-ecommerce-holidays/. 21 Internet Retailer. “Mobile sparks Q4 sales at Home Depot.” https://www.internetretailer.com/2016/02/24/mobile-sparks-q4-sales-home-depot. 22 Yahoo Finance. “This Growing Trend is Changing the Retail Business.” http://finance.yahoo.com/news/growing-trend-changing-retail-business-172004348.html. 23 JDA Software Group 2015 Study, as cited in Fortune. “Why ‘Buy Online, Pickup in Store’ Isn’t Working for Retailers.” http://fortune.com/2015/11/05/online-store-pickup/. Try-on and tryout option innovation Another pre-visit aspect is try-on. Inno- vative examples include Warby Parker’s Home Try-on program — which is also one of the best advertising platforms for the brand. It lets customers try on five pairs of eyeglasses at home, and encourages them to post images of their experiences on social networks. Trunk Club enables an in-person meeting with your personal stylist, but also has a video conferencing option. BMW’s i3 Extended Test Drive extends the period you can try your new car on the roads you know best, thereby matching Tesla’s offer. Post-visit innovation But even more important, in our opinion, is post-visit activity. This is important because it drives repeat visits from someone who is a known purchaser, and adds value for both the customer and the store. Post-visit, we saw innovation in our study from three companies in particular — the UK’s John Lewis price match claim in their mobile app, Target with their Cartwheel App, and Walmart with the Savings Catcher (see Figure 14). John Lewis’ “Never Knowingly Undersold” promise extends to their mobile app with a feature that allows customers to submit a request for matching another retailer’s price for an item. The competing retailer must have a high-street shop, and cannot be online only (no price-matching Amazon). FIGURE14 Neiman Marcus’ mobile app provides visibility into employees at your local store. You can FaceTime, text, email, or call them during their working hours. FIGURE15 50% of those who opted to buy online and pick up in store encountered problems in 2015.19 24 Money Nation. “How to Save Money With Walmart Savings Catcher.” http://moneynation.com/save-money-walmart-savings-catcher/. The Savings Catcher app lets you scan your receipt with your mobile phone camera, and Walmart will automatically send you a gift card (that can only be used at Walmart) with the difference in price between what you paid and any lower price offered by competitors in the area. It has generated over $2M in customer savings and also collected a wealth of customer data.24 This supports the retailer’s low price positioning and drives increased store foot traffic. Neiman Marcus also impressed in the post-visit phase with its mobile app. The app identifies sales associates with FaceTime, email, text, and voice options for immediate contact (see Figure 15). Again, making it easy for someone to restart the purchase process. Designing for the post-visit stage of the journey — whether with follow-up emails, texts, savings catchers, or other communications — is a significant opportunity missed, or poorly executed, by many retailers in our study. And since it requires close coordination across all three of the core channels — mobile, e-commerce, and in-store — it is an excellent measure of whether a firm has embraced digital-at-the-core in its operations.
RESEARCH42 43 4Movefromdataandreportsto intelligenceaboutperformance andyourcustomers A fourth area of innovation is the growth of new instrumented sensors. These sensors are used to optimize endcap performance and overall traffic flow throughout the store (typically monitored via infrared) (see Figure 16). Instrumented sensors are placed throughout a store to enable the measurement and optimization of foot traffic. FIGURE16 In fact, a March 2016 Forrester Report noted that in-store analytics “are gain- ing a foothold.”25 Indeed, technology firm Brickstream noted that 71 percent of retailers said that they use or plan to use people-counting technology in their stores, while 68 percent said that they are looking to introduce in-store Wi-Fi and loyalty systems.26 Facial recognition (which can reliably identify gender and age) carts with GPS trackers, and smartphone mo- nitoring systems are additional inputs into a network of measurement and analytics (see Figure 17). In our study, the only obvious examples of data and analytical awareness occurred during our visits to Apple and Sephora — both welcomed the visitor to the store on their mobile phones and prompted the use of the beacon technology. We saw no examples in the UK. All told, these sensors can generate huge quantities of performance and analytics data. For example, the evaluation of these data can lead to major revisions in an understanding of customer behavior. Executives might find that store dwell time was significantly different than they thought, or that smartphone usage was primarily for entertainment, not “showrooming,” or that it was used primarily as a communication tool. These and other insights can lead brands to increase (or decrease) investment into mobile apps, as well as in-store use of digital endcaps (see Figure 18). Retail in the digital age requires optimization of store environments. SapientNitro’s IONOS solution combines in-venue wayfinding with real-time analytics, facial recognition, and touch-screen functionality. FIGURE17 Optimization of store layouts and flow using real-time analytics is now possible and affordable. In one study, an innovative endcap received fewer visits, but had 10 times the total dwell time than the adjacent, unlit endcap. FIGURE18 25 Forrester. Analyze This: Web Style Analytics Enters the Retail Store. March, 2016. https://www.forrester.com/go?objectid=RES115390. 26 Brickstream. Retail Analytics: What’s In Store? http://www.ics.com.ph/wp-content/uploads/2014/09/In-Store-Analytics-Survey-Report.pdf.
RESEARCH44 45 Lowe's experimental robot, shown here in its test store in Palo Alto, California, offers wayfinding, voice recognition, and product information. FIGURE21 5Keepinmindthatstoresarefar fromirrelevant Our study confirmed that the role of the store is changing. And you can’t contemplate the changing retail environment without noting Amazon and its recent opening of digitally-enhanced bookstores. Innovations in store format One of the big surprises from brands in our study was that online pure-play leaders — Bonobos, Warby Parker, and Trunk Club — didn’t weave together their physical and digital experiences. For example, none offer click and collect functions or in-store inventory visibility. In the UK, we saw in-store innovations from mass merchandiser Argos, which is in the process of revitalizing its 700+ stores with tablets replacing traditional print catalogs, LED screens placed on the walls for dynamic signage, and dedicated counters for fast click and collect service. Argos delivers larger “hub” store stock to nearby smaller stores, enabling customer access to the full range of stock in a few hours or overnight. A second example in the UK was Made.com, a small-footprint furniture showroom, which includes Instagram- ready markers on the floor, self-service tablets with scanners for in-store shopping, and the collection of emails through the tablet tool (see Figure 19). In addition, projectors are used for in-store signage, the store has a startup feel (with glass walls to peer behind the scenes at Made.com employees), and private consulting rooms are available. The Samsung pop-up shop in the UK’s Westfield Mall ably showcases future technology with hands-on demonstrations of mobile, virtual reality (VR), and wearables. They offer Gear VR roller coaster, ski jump, and surfing sections. A premium experience with white-gloved employees allows try-on of wearables and experimentation with mobile devices (see Figure 20). Bonobos’ mobile experience, on the other hand, is a responsive website, not an app, preventing any in-store functions. In addition, the Bonobos store checkout was handled through their consumer e-commerce site on a standard Apple laptop placed on a table. Is this due to a belief that those experiences aren’t relevant? Or reflective of the difficulty in getting them right? Or maybe they’re more in tune with the needs of the Millennial shopper. (If this is the case, it suggests a bleak world indeed for stores with large physical locations.) On balance, we believe the cause to be that retailers have only just started to develop their in-store channels. The value of the store experience — tactile engagement, a full 360-degree experience, and of course a sales force — makes it a difficult channel to replace or shut off. In fact, retailers in our study are seeing more uses in more ways than ever before: human interaction, tactile engagement, entertainment, and fulfillment flexibility (see Figure 21). Stores remain just a part of the total retail experience. Great companies are broadening the aperture of experience. Made.com, a furniture showroom, uses digital projectors and store tablets to merchandise and sell products. In Palo Alto, California, digital tools offer wayfinding, voice recognition, and product information. FIGURE19 Samsung's pop-up experience at the Westfield Mall includes multiple VR demonstrations and a white-glove, high-quality experience. FIGURE20
46 Conclusion Retailers are on the verge. Too few retailers successfully blend the three main channels — mobile, e-commerce, and stores — together in a way that is optimized for customer experience. Instead, like many legacy organizations, retailers have focused on point solutions and worked within channel silos. The time for this type of thinking has passed. Retailers must now consider a wholesale reimagining of their business. To succeed over the next decade, retailers must fundamentally transform themselves, touching every area from organizational structure to the products and services that they offer. Our research reveals five main points: The need for a vision of a future retailer; the importance of mobile; the opportunities in the pre- and post-visit phases of the purchase cycle; the importance of analytics and optimization; and, finally, the continued, central role of the physical store. Jemuel Ripley Vice President, Global Retail Lead, SapientNitro New York jripley@sapient.com Zachary Jean Paradis Vice President, Retail Strategy, SapientNitro Chicago zparadis@sapient.com Hilding Anderson Director, Research & Insights, SapientNitro Washington, D.C. handerson@sapient.com Nathan Chmielewski Senior Associate, Research and Insights, SapientNitro Chicago nchmielewski@sapient.com The brands that succeed in this environment will be the ones that transition and evolve quickly enough to get ahead of the changes in their core business. About the research The intent of this survey was to evaluate the full retail experience created by major U.S., Canadian, and UK retailers. To what extent were they offering an effective and intertwined customer platform for business in the digital age? To that end, we conducted unannounced visits to online, mobile, and in-store properties of ninety-nine U.S., UK, and Canadian retailers. We audited English- language mobile apps and websites, stores in at least one location, and primarily flagship stores in London, New York City, Chicago, and Toronto. The research was conducted over a full year, starting in the second half of 2015 and concluding in the first half of 2016. We evaluated three main areas: mobile app effectiveness overall and in-store (25 percent of the weighting), the store experience (55 percent), and e-commerce effectiveness (including click and collect, and ratings and reviews) (20 percent) to determine our top performing brands overall. We also compared our results to our previous evaluations conducted in 2012 and 2013.
RESEARCH 49 DAVID POOLE With contributions from Greg Boullin BANKS, BRANDS, ANDCONSUMERS: AVISIONFORMOBILE, PAYMENT-DRIVEN CHANGE Retail banks, financial technology startups, and merchants have all been caught in a whirlwind of new technology and shifting consumer preferences. Bitcoin. Alipay. Apple Watch. NFC. Google Wallet. Payment options are changing. And the trends driving the change in payments are powerful: Substantial funding: $3 billion+ in venture capital (VC) funding drives a massive proliferation of startups1 Shifting technologies and their applications: mobile, cloud, artificial intelligence (AI), software as a service Evolving consumer behavior: empowered, smartphone-equipped, with anytime and anywhere expectations For banking executives, these changes represent a profound transformation, and, we believe, a profound opportunity. • • • 1 $3.8B in 2015. CB Insights. “Financing to Payments Startups on Track for a Second-Straight Record Year.” https://www.cbinsights.com/blog/payments-tech-funding-statistics-and-growth/.
RESEARCH50 51 The evolving consumer is perhaps the biggest single driver for change. This new, global consumer — connected, smartwatch-wielding, and always on — is having a profound impact on the banking ecosystem. To better understand this new behavior, we surveyed approximately 500 U.S. smartphone- using consumers to understand how frequency, convenience, and security are playing a role in reshaping the mobile payment market. Our research reveals extensive usage of mobile payments. The survey found that mobile payment usage continues to grow year after year, with more than half of respondents (56 percent) now using mobile payments. More significant, consumers are using mobile payments more than ever before. Eighty percent of mobile payment users engage this technology in-store at least a few times a month, up from just 36 percent a year earlier.3 This is a global phenomenon. Asia Pacific is set to lead mobile payment growth.4 For example, China’s mobile payment users increased from 216 million to 276 million in the first half of 2015.5 This represents about half of mobile Internet users in that country. And according to China Central Bank, the total value of mobile payments stood at $4.2 trillion in the second quarter of 2015 – up 445 percent (2014 to 2015).6 Chinese mobile payment users in 20182 of consumers use mobile payments at least a few times a month 36% 80% 2015 2016 704million 2 CNBC. “Tencent’s Charges for WeChat Pay Users Kick in Amid Fight for Mobile Payment Market Share.” http://www.cnbc.com/2016/03/01/tencents-charges-for-wechat-pay-users- kick-in-amid-fight-for-mobile-payment-marketshare.html. 3 SapientNitro. Informing The Mobile Banking Experience with Behavioral Data. February, 2016. http://www.sapientnitro.com/en-us.html#perspective/insights/insights-articles/informing-the-mobile-banking-experience-with-behavioral-data. 4 yStats.com. “Mobile Payments Continue to Grow Worldwide.” https://www.ystats.com/mobile-payments-continue-to-grow-worldwide/. 5 yStats.com. “Security Remains the Main Concern of Global Mobile Payment Users.” https://www.ystats.com/ystats-com-security-remains-the-main-concern-of-global-mobile-payment- users/. 6 China Internet Watch. “China Mobile Payment Reached $4.19 Trillion, up by 445% in Q2 2015.” http://www.chinainternetwatch.com/14808/mobile-payment-q2-2015/. 7 yStats.com. “Infographic: Global Mobile Payment Methods: First Half of 2015.” https://www.ystats.com/infographic-global-mobile-payment-methods-first-half-2015/. In Europe, Italy (with 27 percent) leads in mobile payment users, while Spain and France are tied for second (with 17 percent). Germany and the UK stand in third place at 15 percent.7 According to our research, banks – with higher consumer trust (43 percent) than any other player in the ecosystem – hold strong potential for growth and leadership. Despite the proliferation of payment startups, most transactions still run through the traditional bank networks of Automated Clearing House, wire, and cards – thereby directly compensating banks in the process. To avoid being sidestepped by novel players (e.g., technology startups) entering this lucrative space, banks will need to take several steps. They must: Partner more closely with retailers and technology companies who offer direct payments. Develop unified payments, integrated reward and loyalty programs, personalized offers, and even GPS and in-venue navigation, all in a single and compelling payment experience. Place the customer in the center when designing user experiences and be more agile in order to better engage new generations of payment customers. • • • 8 The study data was collected in February 2016 and February 2015. See “About the survey” on page 61. 9 Among respondents who say that they’ve used mobile payments. The survey had 498 respondents, of which 56% (276) reported using mobile payments. Only those who have used mobile payments could answer the question around how often they used their smartphones for in-store payments. N = 276. 1 Section 1 Today’s consumers use mobile payments more frequently As was noted in the introduction, mobile payment usage has increased significantly. Among the 56 percent who now use mobile payments, in-store adoption jumped from 36 percent to 80 percent from 2015 to 2016 – a growth that is most likely linked to increasing feasibility, access, and comfort (see Figure 1). More important, the percentage of people who rarely use mobile payments in physical stores decreased drastically. The figure, which stood at 49 percent only a year before, dropped to just 6 percent in 2016. RESEARCH FINDINGS: HOW CONSUMERS ARE USING MOBILE PAYMENTS In early 2016, we surveyed nearly 500 smartphone users in the U.S. to understand the evolving usage of mobile payments.8 We also looked at secondary data from markets in Europe and Asia Pacific to see how similar findings varied in other regions. Among respondents who say that they’ve used mobile payments, we saw a large increase in usage – from 36 percent to 80 percent (for those who use it “a few times a month” or more). The percentage of respondents who “rarely” use mobile payments, on the other hand, dropped to just 6 percent. FIGURE01 Q: How often would you say that you currently use your mobile phone to pay for things in physical stores?9 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Very frequently (daily) Frequently (2-3 times a week) Occasionally (a few times a month) Seldom (every few months) Rarely (a few times a year) 5% 27% 39% 14% 6% 2015 13% 12% 19% 15% 49% 2016 Source: SapientNitro, 2016. Source: SapientNitro, 2016.
RESEARCH52 53 10 The New York Times. “Why Apple Pay and Other Mobile Wallets Beat Chip Cards.” http://www.nytimes.com/2016/05/05/technology/personaltech/in-the-race-to-pay-mobile-wallets- win.html. 11 ING International Survey. The Rise of Mobile Banking and the Changing Face of Payments in the Digital Age. April 2015. http://www.slideshare.net/ING/ing-mobile-banking-2015- report. 12 Tencent Penguin Intelligence, as quoted in eMarketer. “Convenience, Promotions Drive Mobile Payments in China.” http://www.emarketer.com/Article/Convenience-Promotions-Drive- Mobile-Payments-China/1013081. 2Convenience is the key usage driver According to our survey, convenience is the number one reason why respondents use mobile payments (see Figure 2). As a new alternative, developers and merchants must increase the accessibility and acceptance of mobile payments if they want to capture those consumers looking to make the switch from their traditional cash and credit methods. This may be more evident in Convenience was the number one reason to use mobile payments, garnering a mention from 77% of respondents. FIGURE02 Q: What motivates you to use mobile payments instead of other forms of payments, like cash or credit cards? Convenience Rewards, discounts, or promotions Security Other (specify) 77% 31% 2% 3Security is the leading barrier to adoption While some of our survey respondents understand that mobile payments have arguably better security, other consumers do not. Security is often cited as a major barrier to mobile payment adoption, and it was the most frequently cited barrier in our study, followed by acceptance/availability (see Figure 3). Global preferences are generally aligned to what we found in our study, with Ipsos’ Chinese surveys finding that more than two-thirds of smartphone users, including both those who were and were not using mobile payments, had security concerns.13 Similarly, TSYS’s survey of Germany’s smartphone-owning consumers indicated that security and fraud protection would attract them to using mobile payments.14 Mobile payment users prioritize security, with 53% of respondents citing the importance of this factor. FIGURE03 Q: Finish this sentence: I will use mobile payments more if... It is secure More retailers accept mobile payments I receive exclusive offers and discounts All of my payment cards, loyalty cards, and coupons are in one app My purchase details are kept private It is easy to use None of these It has social features, like being able to share my purchases 53% 43% 40% 36% 34% 31% 8% 3% 13 Ipsos. Ideas: Ipsos in China. Sep, 2014. http://www.ipsos.com.cn/sites/default/files/09.2014EN_1.pdf. 14 TSYS. 2015 German Consumer Mobile Payment Study. http://tsys.com/Assets/TSYS/downloads/rs_2015-german-consumer-mobile-payments(English).pdf. the U.S. where the – albeit perceived – slower transaction time of chip cards is highlighting the convenience of mobile payment alternatives.10 A secondary motivation (after convenience) was rewards, discounts, or promotions. The U.S. findings are largely mirrored globally. For example, in Europe, ING International reported that 50 percent of consumers use mobile payment apps because “it’s quicker,” while 42 percent cite ease-of-use as another driver.11 Similarly, in China, 54 percent of users who tried mobile payments did so because of convenience, while 49 percent also cited promotions as another major reason for use.12 At MasterCard, we are looking at innovative ways to balance security with consumer engagement. Selfie Pay does just that, allowing the consumer to securely identify themselves for mobile payments. – Karen Pascoe, Group Head for Experience Design, Digital Payments & Labs at MasterCard Worldwide Source: SapientNitro, 2016. Source: SapientNitro, 2016. 45%
RESEARCH54 55 4Consumers trust banks more than retailers Our survey found trust to be the major impediment to retailers and technology companies becoming go-to sources for mobile payments. Only 1 percent of 15 ING International Survey. The Rise of Mobile Banking and the Changing Face of Payments in the Digital Age. April, 2015. http://www.slideshare.net/ING/ing-mobile-banking-2015- report. For retailers and technology companies, trust has proven to be one of the leading barriers to consumers’ acceptance and usage of their bespoke mobile payment options. FIGURE04 Q: Who do you trust the most to provide mobile payment services? 43% 14% 11% 10% 6% 5% 4% 3% 2% 1% 1% 16 Vibes. 2016 Mobile Consumer Report. http://www.vibes.com/resources/2016-mobile-consumer-report/. Section 2 A LOOK AT MOBILE PAYMENTS IN THE RETAIL EXPERIENCE Consumers are using mobile payments more than ever before, but it is helpful to explore a few examples from retailers to understand the future (see Figure 5). The typical retail payment app leaves much room for improvement. However, selected retailers have overcome trust and complexity challenges to deliver great payment experiences. These retailers are increasingly offering rewards integration, valuable in-store tools (e.g., product reviews and auto- matic payment method selection), and post-visit features. Rewards represent one of the top drivers for using retail apps – and one of the top motivators for using mobile payments (consider revisiting Figure 2). Therefore, the integration of rewards programs and mobile payments is critical. Wallets themselves represent a powerful marketing platform, with the “add to wallet” features of mobile ads making it easy to store personalized offers — a notion further supported by the nine-in-ten mobile wallet users who are likely to save them.16 Future retail payment experiences will automatically recognize when consumers enter the store, allowing them to browse peer reviews, shop, wayfind, connect socially, manage coupons and rewards, and — of course — pay for goods and services through bespoke mobile apps. The device itself will determine the right payment method and currency, ensure the highest security, Waitrose supports Apple Pay and also offers rewards/promotions on ten products of your choosing as part of their “Waitrose: Pick Your Own Offers” app (pictured on the left). The Starbucks app (pictured on the right) offers mobile ordering and payments, integrated with rewards. In fact, it is the #1 retailer app for mobile payments and accounts for 25% of the company’s transactions. FIGURE05 and stay on top of what each consumer can afford. Furthermore, consumers will be rewarded in line with their preferences and in real time every time they engage in a transaction — not to mention having automatically-organized records of each payment. Mobile apps play a strong role in the post-visit consumer experience, as well. For example, we’re seeing retailers such as Walmart and Target sustain significant digital engagement activity with their Savings Catcher and Cart- wheel apps, respectively. respondents cited retailers as the most trusted, while banks led the pack with 43 percent, followed by alternate payment service providers (such as PayPal and Square) (see Figure 4). This holds true in Europe also. Among Europeans who have not used a mobile payments app, 42 percent say the reason is lack of trust. And banks are trusted the most by Europeans to offer mobile payment solutions. In fact, 84 percent of Europeans would trust their banks the most to offer mobile payments.15 My bank or other established financial institutions Alternate payment service providers, like PayPal, Square, etc. Credit card providers It doesn’t matter who provides the service as long as I get what I want Amazon No one Google Device manufacturers, like Apple, Samsung, or Motorola A mobile phone carrier, like Verizon, AT&T, or Sprint A retailer, like Walmart, Target, or Starbucks Other Source: SapientNitro, 2016.
RESEARCH56 57 1 Section 3 FOUR WAYS THAT BRANDS CAN PREPARE FOR THE PAYMENT (R)EVOLUTION No single brand has solved for every aspect of the payment experience. But, as technology and business model innovation change, bank executives must develop solutions that prioritize more real-time, convenient, contextual, and intelligent functionalities. The following is a Fantasy Payment Team made up of the best-in-class payment solutions from each category. FIGURE06 FANTASY PAYMENT TEAM Social Venmo Point of Sale Square Wallet Wallaby Brand PayPal Open API Visa Developer Bank Danske Bank Merchant Starbucks Empire Alipay Compatible SamsungPay Messaging WeChat E-commerce Stripe Inclusive M-Pesa Selfie Pay MasterCard Transparency Bitcoin Anticipate needs and provide contextual experiences YESTERDAY Reactive and generic financial advice was provided to customers based on preconfigured spending thresholds (e.g., a low balance alert). TODAY Personalized financial guidance and product offerings focus on disinter- mediating core financial activities by being better, faster, and cheaper than traditional banks (e.g., investments focused on robo-advisors, tax and fee harvesting, and peer-to-peer lending). TOMORROW Financial experiences will leverage artificial intelligence to learn customer needs, adapt over time, and provide proactive personalized shortcuts that help maximize customers’ lives in real time. Banks can learn from leaders in each category, and integrate those features that matter the most to their customers in a way that’s true to their brands (see Figure 6). Here we highlight four key trends from across the board. In early 2014, Amazon patented “anticipatory shipping” — shipping goods to a warehouse before consumers buy them.17 Google continues to invest in its predictive “Now” technology. While using data and algorithms to better serve customers is nothing new, the field of predictive analytics represents a potential holy grail for the businesses and brands that crack the code on predicting what customers actually want before they know it themselves. Proac- tively serving up payment experiences that help steward customers to make smarter decisions in real time would represent a valuable concierge service. Indeed, triggering contextual experiences based on where and who people are, and what and how they are doing, will elevate the value that payment solutions can provide. For example, contextual mobile intelligence can be leveraged to automatically send restaurant recommendations and promotional offers to customers visiting new cities. The largest opportunity is for brands to target a behavior we call “down-timing,” when customers transition between experiences, whether “captive” on a bus or simply unwinding at the airport. This could involve serving up welcome reminders to complete financial tasks and make the most of “dead” travel time, triggered as a location-based service. 17 Forbes. “Why Amazon’s Anticipatory Shipping is Pure Genius.” http://www.forbes.com/sites/onmarket- ing/2014/01/28/why-amazons-anticipatory-shipping-is-pure-genius/#6d5bf9c42fac.
RESEARCH58 59 2 3Move faster and be nimbler with payment investments YESTERDAY A multistep, payment process that was hard to complete on mobile. TODAY A mobile-first, app-based approach that is more social. TOMORROW An invisible user interface that will be facilitated by voice payments or seamless integration with third-party apps or sites to enable contextual payments (e.g., Pinterest's “buy now” button or Facebook's “buy” feature on the News Feed.) 22 Forbes. “Kik Battles Facebook with Bots in the New Messaging Wars.” http://www.forbes.com/sites/parmyolson/2016/02/10/kik-bots-messaging-facebook- wechat/#52923d8c2571. 23 Andreessen Horowitz. “When One App Rules Them All: The Case of WeChat and Mobile in China.” http://a16z.com/2015/08/06/wechat-china-mobile-first/. Join the conversation YESTERDAY Physical banking and trusting an advisor (more than a secure AI bot) to make payments on your behalf. TODAY The emergence of cashless payments, with Apple and Android Pay identifying the best card for each transaction (like the Wallaby app does based on rewards, fees, interest rates, and other financial data), and integrating coupons and loyalty programs into a unified wallet (as Walmart has done). TOMORROW Messaging platforms (like Facebook Messenger) delivered through voice interfaces (like Amazon Alexa and Viv) that consumers trust enough to make payment transactions on their behalf. Voice payments could combine two steps, serving as both the interface and the method of authentication with the security of voice biometrics. What if, instead of investing all that time and energy in persuading customers to download your app, you could have an instantaneous, seamless, and personalized way to engage them in conversation? With over 2.1 billion active users on messaging apps like Facebook Messenger, Line, and WeChat, the promise of a conversational user interface is already here.22 Indeed, Facebook has just launched “M” – its bold answer to Siri and Cortana – that augments its AI algorithm with actual people to provide your very own conversational personal assistant.23 WeChat, on the other hand, is the pioneer of messaging payments with at least one-in-five active users already set up for WeChat payments. In fact, it’s growing so quickly that WeChat is now experimenting with offline payments, bill payments, the splitting of bills, shopping, wealth management, and Bitcoin trans- fers — all through the messaging app. As messaging platforms threaten to become the new “operating system” — the one app to rule them all — other payment providers need to quickly decide how they will partner, compete, or integrate these new (and inevitably dominant) payment distribution channels. THE HALO OF APPLE PAY 18 European Commission. “Payment Services Directive: Frequently Asked Questions.” http://europa.eu/rapid/press-release_MEMO-15-5793_en.htm?locale=en. 19 Over 1,100 banks have partnered with Apple Pay in the U.S. as of March 2016. Apple. “Apple Pay Participating Banks and Store Cards.” https://support.apple.com/en-us/ HT204916. 20 L2 INC. Retail Innovations: Mobile Payments. January, 2016. https://www.l2inc.com/research/retail-innovations-mobile-payments. 21 Apple. “Apple Pay.” https://developer.apple.com/apple-pay/. Fueled by venture capital investment, payment apps today are better, faster, and cheaper than generic white label payment solutions. For example, banks must make payments easier with fewer steps and less attention required. Potential tactics include biometric authentication (e.g., fingerprint, voice, or facial), conversational interfaces like chat bots and natural language recognition, and predicting needs through machine learning and saved preferences to automate decisions and make better recommendations. Lastly, we expect more payments innovation spurred by recent regulatory changes in Europe like the Payments Services Directive (PSD2) and the global banking trend toward open payment application programming interfaces (APIs). Both make it easier for banks to collaborate with nimble fintechs and merchants.18 58 Banks in the U.S. jumped on board with Apple Pay.19 User experiences on the iPhone, the Apple Watch, and in-app are elegant and easy. Banks partnering with Apple benefited from the halo effect of being associated with a beloved lifestyle brand, and one that conveyed innovation. The challenge with Apple’s closed system, however, is the lack of merchant acceptance, with just 23% of big box merchants accepting payments as of January, 2016.20 While the list of merchants and apps is growing, consumers cannot practically rely on the iPhone for all payments. Banks in China may see even more challenges with Apple Pay, given how much further along their market is in mobile payments. With Apple Pay available in the Safari browser across devices in September 2016, Apple will compete directly with PayPal when the consumer checks out online, with the added security of authentication using the nearby iPhone Touch ID. Apple’s closed system makes it at best one more option, rather than a PayPal replacement working across browsers. In contrast, Apple’s effort to open up Messages to external developers like Square promises to make payments within the Apple ecosystem increasingly viable.21 The other leading consideration for consumers is the store rewards card — with Walgreens being the first to fully integrate Apple Pay — so that when they pay, consumers have the peace of mind that they are rewarded.

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