A frictionless check-out experience, what does that actually mean?

In today’s design of (software) solutions, providing a frictionless user experience is (and should be) a top priority within every organization.

While payments have already gone through a major evolution eliminating much of the frictions (from cash payments to card payments up to contactless card payments and mobile payments), the entire checkout process at a merchant is still a complex and not very user-friendly experience. And when I talk about the checkout process this includes not only the payment process, but also steps like scanning the products or asking the bill (e.g. in a restaurant), loyalty card scanning, coupon and discount management, handling guarantees (warranties) and delivering the cash ticket (and potentially VAT ticket or invoice generation).

Integrating all those steps into a single, fully frictionless experience should not be that complex, as all technology exists already today. Evolutions need to take into account however security, data privacy, the value of data (many merchants don’t want to expose the data of a customer’s consumption, as this data is considered a valuable internal asset) and legacy infrastructure with dozens of players involved (cash register providers, terminal providers, acquirers, card issuers, coupon wallet providers, PSPs…​).

The advantages of an evolution towards a frictionless checkout process are however numerous both for the merchant and for the consumer:

• Reduces waiting time at the cashier and allows a faster checkout (saving customer’s valuable time) for both physical and online shopping (e.g. avoid having to enter your credit card data for each transaction or input online discount codes). The easier it is to pay, the more customers are going to spend (as there is less thought and consideration given to purchases).
• Allows a more detailed analysis of customer’s spending (e.g. in bank PFM tools)
• Reduces customer’s cognitive strain (no need to remember PIN code, no need to think about loyalty card or coupons, no need to safely store your warranty receipt…​), making the troublesome checkout process less visible and painful.
• Reduces churn and shopping cart abandonment, especially for online shopping (according to SaleCycle, up to 75% of customers abandon their online shopping carts without making a purchase)
• The Covid-19 crisis shows also the need for contactless end-to-end processes, i.e. from scanning products (e.g. with your own mobile), payments, coupons…​ Such a streamlined process not only reduces the workload for the personnel in supermarkets, but also ensures a fully contactless experience, which helps with the hygiene prescriptions.

When purely looking at the payment step at a physical store, mobile payments like Apple Pay or Google Pay, already provide a very frictionless and secure experience. Nonetheless these solutions still pose several issues:

• Only possible on NFC enabled terminals
• Very difficult and costly for card issuers to onboard their card on the Apple or Google platforms (often resulting in extra costs for merchant)
• No solution for vouchers and other niche payment products
• Difficult to select the card you want to use
• For certain use cases (like paying for a single ticket in the metro) the authentication process is still too complex and time-consuming (resulting in queues).
• Still considered as less secure (even when protected via biometric authentication), meaning their usage is usually limited to a specific threshold

Most of these issues are caused by the fact that these payment methods don’t disintermediate the value chain, but instead create an additional intermediary. Unfortunately, without a drastic change in the payment landscape (e.g. via crypto-currencies or Libra-like initiatives), it will be difficult to simplify the landscape.

It is therefore likely that an additional layer of abstraction should be introduced to resolve some of the above issues:

• A first problem to be solved is selecting the right payment method. Today, people have dozens of choices for paying at a merchant, like paying via cash, merchant specific gift vouchers, legislative vouchers, debit cards and credit cards (contact or contactless), mobile payment (via Apple Pay, Google Pay or via QR code scanning like e.g. Payconiq-Banconctact), loyalty cards linked to bank accounts (e.g. Colruyt Xtra card)…​ And many webshops offer even more options, like also direct debits, payment via credit transfer (before or after delivery), PayPal, Bitcoin, iDEAL, Sofort, bank PAY buttons, Klarna…​
  A rule-based intermediary layer (like Curve) could do the selection of the best payment method automatically for the user (e.g. by consuming first pre-paid vouchers with expiration date and then taking a payment methods which give the best conditions for the customer).
• A second problem is the onboarding of payment methods into platforms like Apple Pay and Google Pay. The above described intermediary layer (for selecting payment method) could also play a role here, as this layer could onboard a single virtual card on these platforms, abstracting away all other payment methods behind.
  Remains of course the onboarding of all payment methods in this intermediary layer, but via well-documented open standard APIs, the onboarding could be made freely available for any payment provider to onboard.
• A third problem is to get all necessary information of the merchant (or more specifically its terminal) to apply the rules for payment method selection. While it will be difficult to change the entire payment infrastructure to pass all necessary information about the cash ticket, guarantees/warranties, loyalty card info…​ an easier solution could be that every merchant (or outsourced to a third-party) exposes an Open API, where based on the payment reference, all info can be recuperated in a secure way. This way the existing payment infrastructure does not need to be adapted and information can be automatically retrieved by the above intermediary layer.
• Finally, we have the problem of the authentication. For small amounts, people want a very frictionless experience (maximum 2-3 seconds, but for small amounts this is often still considered too long), but for large amounts, people like a whole payment ceremony, as it gives them a sense of security and comfort.
  Risk-based authentication is here the solution, i.e. based on the amount, merchant and/or customer’s profile (e.g. has the user shopped before at the merchant, typical amounts the user is spending, typical products the user is buying, did the user buy something in the neighborhood earlier…​), the system can strengthen (requiring additional authentications) or loosen the authentication requirements. Via mobile payments, many authentication means are available (like fingerprint, voice and face recognition, PIN code, SMS code verification…​), making it more easy to implement this type of risk-based authentication.
  Good AI-based models are however required to ensure that authentication becomes not too severe, when shopping at a new merchant for the first time, as the first experience is usually the one that makes or breaks the chances of a continued relationship.

In the end a frictionless checkout process can be reduced to 2 distinct end-user steps, i.e. identifying the person doing the purchase and providing consent to exchange info and value.
Via the identification, the account number can be derived and security can be enforced, while the consent step gives the payment provider the authorization to retrieve the money, but also to store all associated information in your personal vault.

The target is a frictionless, even invisible, checkout process of which several real-life examples, already come close:

• Amazon Go Store shop (Amazon’s Just Walk Out Technology), where the customer is automatically identified when entering the store (via facial recognition), where the products the customer takes are also automatically identified and where the entire checkout processes is automatically executed (as the customer’s identity is linked to a digital account, in which his payment details are stored)
• Uber: one of most important reasons for Uber’s success is the frictionless payment process. Paying a taxi driver used to be a hassle, but via the Uber app this can be done fully frictionless.
• Parking garages scanning automatically your license plate (upon entry and exit) and charging automatically to your linked payment account
• Fuel stations, which identify your arrival automatically based on geo-location services. The user just selects the pomp number on his mobile and can start fueling.
• Employers and some hotels and amusement parks using the access card/badge/band not only to gain access, but also to manage payments
• Restaurants: pay in-app, eliminating the need to wait for a waiter or waitress to bring the check and execute a payment.
• IoT device payments, like fridges ordering and paying itself. Similar are the voice-controlled devices like Google Home (Google Assistant) or Amazon Echo (Amazon Alexa), which can order and pay products automatically.
• Chatbot payments and payment buttons in social media websites
• Joyn in Belgium offers a digital loyalty card for small merchants and has integrated Payconiq and Monizze as payment methods, allowing to execute the collection of loyalty point and payment in 1 step on your mobile phone.
• The Colruyt Xtra card in Belgium combines coupons/discounts, payment, ticketing (details of spending is available online) and loyalty points in 1 card transaction, which can even be done mobile via the Colruyt Xtra app.
• Merchants setting up their own apps, allowing to place orders, pay for them, but still collect the order in a physical shop. This creates a strong relationship with the customer and removes costs of intermediaries, but requires the customer to install the app and onboard a payment method (and this for every merchant app). E.g. Starbucks Rewards app (Starbucks has over $1.2 billion in deposit on their pre-paid cards), Tesco Pay or Walmart Pay app.
• Super-apps, which offer a lot of third-party services integrated in the app, for which payments can be done directly in the app. The advantage for the customer is that he only needs to install 1 app and onboard only once for executing payments. Example: bank apps like KBC or Belfius, Alipay, WeChat…​

In order to make the checkout process fully frictionless, we should however not only consider the end-to-end checkout process, but also all processes post-checkout, which are impacted by the way the checkout process is managed. Easy and complete (i.e. deliver all necessary data) integration with tools facilitating these processes is essential.

For customers, this consists of processes like:

• Automatic handling of cash-backs
• Retrieving all details of an acquisition, so that your PFM tool can properly allocate all expenses (allowing to manage and optimize budget plans)
• Easy handling of refunds in case of issues
• Storing ticket/guarantees/invoices/VAT ticket for future reference
• Easily finding back guarantees in case of issues
• Expense management for employees to get reimbursed by their employer
• Split-bill or refund colleagues, friends, family…​
• Tax declaration (personal declaration or submitting all info to accountant)

For merchants, this includes processes like:

• Matching invoices and payments (and reconciliation) and identification and follow-up of missing payments
• Collecting money from different payment providers (and reconciliation if 1 transaction is partially paid via different payment methods).
• Global recovery of funds and forex handling
• Cash management, e.g. cash pulling and sweeping
• Direct Debit mandate management (onboarding, sending payment instructions and follow-up of failed direct debits)
• Automatic loading of payments in accounting systems (with necessary details to do proper tax management, like VAT calculation and recuperation)
• Automatic stock management based on executed payments
• Automatic collection of money from manufacturers when processing coupons
• Automatic handling of reversals and cash refunds
• Automatic validation and pay-out of cash-backs
• Liberating goods/services when payments are done
• …​

Often this end-to-end value chain is not fully considered by a merchant choosing his payment infrastructure (like cash register, terminal, PSP, bank…​). E.g. many merchants opt for a collecting PSP, as this offers better rates, but forget that this leads to issues for customers afterwards (in PFM apps, for cash-backs, for understanding transactions) as payments are all happening with the PSP as counterpart.

When we really want to get a frictionless checkout experience, all players should consider every step in the process both for themselves, but also for other stakeholders in the process.

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