Retailers have been battling COVID-19 for months. Many traditional brick-and-mortar stores closed. Workforces were scattered — either furloughed or required to work from home. Meantime, online sales have provided a lifeline, as dramatic e-commerce spikes helped firms navigate these trying times.
Now, with physical stores starting to reopen, more disruption is on the way. Retailers need to consider how to fully integrate their offline and online shopping experiences while preparing for the full enforcement of PSD2 and its strong customer authentication (SCA) requirements for online sales.
As vendors deal with the “new normal,” many are tracking towards an early autumn deadline to ensure that they have their SCA solutions in place. Even though the European Banking Authority has set December 31 as the deadline for merchants and their banks to have SCA solutions up and running, retailers do not want to revamp their payment systems during what they hope will be a busy holiday rush. And, while British retailers won’t see strict enforcement until September 2021, the reality is that if UK firms want to sell cross-border in Europe, the earlier deadline will apply to those sales.
In short, retailers in the UK and Europe are powering through one of their most challenging times in history. Notwithstanding this, right now also happens to be the moment for retailers to step up and build a bigger customer base by creating safe in-store environments and secure, seamless online SCA experiences. To understand where this is all going, let’s review how we got to this point.
A snapshot of what’s going on in retail
Retail sales figures were in drastic decline as a consequence of the pandemic lockdown measures. In April sales fell by a record 18.1%, following a strong monthly fall of 5.2% in March 2020, according to the Office for National Statistics (ONS). In May, ONS points out that sales volumes partly rebounded, with an increase of 12%, when compared with the record falls experienced in the previous month.
The lockdown also contributed to a stark increase in the amount of retailers that have gone bust and who filed for administration. We saw the department store, John Lewis, make the decision to close several of its shops as it transitions towards, and favours, an online sales environment. Further, well-known brands like JD Sports’ Go Outdoors, Oasis, Warehouse and Laura Ashley all now face existential crises too.
It’s not just retailers or businesses that are feeling financial strain, of course. Months of lockdown and job losses are weighing on many consumers, too. If consumers rein in their spending or avoid shopping in stores for fear of getting sick, retailers would find themselves with another worry on their hands.
The one bright spot in all this has been e-commerce. Online sales saw an historic surge in the second quarter of the year, given that many physical stores were closed down. Even as stores re-open, e-commerce continues to see big sales gains.
In May, e-commerce sales were trending nearly 100% above where they were in the pre-pandemic period, according to Signifyd’s e-commerce Pulse data. The increases have cooled somewhat, but online sales are still hovering at 32% above where they were at the beginning of March.
Some retail experts suggest that the lockdown has accelerated the ongoing shift from in-store to online sales. Indeed, ONS revealed that the proportion spent online soared to record high in May, reaching 33.4% of all sales, up from 30.8% in April.
Still, with conditions changing so quickly and variably, depending on the sales channel and retail vertical, it’s understandable that some retail leaders might find themselves at a loss when it comes to strategy.
Here’s a thought though: Go for it. Despite the upheaval, this is a moment in retail when merchants can capture new customers while reassuring loyal shoppers who have been on the sidelines in the pandemic. The strategy can be executed on two fronts: in store and online.
The importance of safety in-store
It’s hard to imagine an in-store environment in the Covid-19 era that would live up to the fun, almost recreational, experience that shoppers once enjoyed. Instead, consider that customers will look for reassurance. They will want safe-distancing markers on the floor. They will want to see frequent cleaning and contactless payment options. They’ll expect plexiglass partitions at the till and plenty of hand sanitiser. In short: Safety is the new experience.
Within this environment, e-commerce must continue to form a crucial part of a wider omni-channel shopping experience. It needs to demonstrate safety, too. It is evident that consumers have embraced the channel. But, it needs to be secure and work seamlessly, so that shoppers have a choice: They can buy online when they want to and they can visit a store for those things they’d truly like to touch and see. Additionally, retailers must enable fast receipt and collection of goods. Meaning they need to offer traditional delivery, click-and-collect, in-store and curbside pickup, ship from store and order by phone.
Preventing e-commerce fraud
Several of these options bring us back to SCA. Juniper Research predicts that e-commerce merchant losses to online payment fraud will exceed $25bn (£18.8bn) in 2024, from just $17bn (£12.8bn) in 2020. The new SCA requirements, of course, were instituted to better protect consumers (and retailers) from fraud.
Even so, since the requirement was first proposed, retailers worried that the extra security would bring extra friction. But that doesn’t have to be the case. A recent report by Forrester Research makes it abundantly clear that doing PSD2 right can actually be a big customer experience win.
“However, if implemented well, change need not be disruptive and aspects of the regulation can unlock new opportunity, innovation, and potential cost savings for retailers and their customers,” the report says.
The report details how the technology that implements the new rules can provide ways for merchants to migrate customers to payment options that save the retailer money. And it points out that PSD2 allows for a new kind of payment entity, called a payment initiation service provider (PISP). A PISP is allowed, with a consumer’s permission, to use a bank’s infrastructure to request payments directly from a shopper’s bank account. The new regulation allows retailers to become PISPs, which gives them far more control over their payment stack and the payment experience they provide.
Meantime, others have noted that the delays in enforcing SCA have given innovators time to come up with new machine-learning solutions that can protect merchants from fraud today, while preparing them to adhere to SCA as soon as the requirement kicks in.
“We need to recognise that and have a fresh look at the fraud tools that we already have and new analytics and prevention tools,” Paul Rodgers, chairman of Vendorcom and a leading expert on SCA regulation, said in a written statement. “There are plenty of solutions providers out there that can make those available.”
It’s no secret that retailers are trading during extremely unsettling times. Despite this – and after months of lockdown and worry about Covid-19 – consumers expect retailers to keep them safe and secure both in-store and online. As retailers wrestle with this challenge, they must continue to explore how to serve customers and build loyalty through an omni-channel strategy, while keeping the deployment of SCA at the top of their agenda. Those who can achieve this will likely come out of the pandemic stronger that they went into it.
Ed Whitehead, MD EMEA, Signifyd