As the pandemic continues and more people turn to online shopping versus running into local convenience stores, the industry has seen a decline of almost 2 percent since 2019. Consumer spending habits changed drastically as everyone tries to stay safe.
Fortunately, smart tech helps keep convenience stores relevant in society by thinking outside the box and helping stores offer services they didn’t offer before.
How are Convenience Stores Changing?
With fewer people commuting and/or fewer people making traditional brick-and-mortar purchases, merchants are finding ways to meet customers where they need it.
For example, 7-Eleven and other large convenience stores implemented delivery services. Some partnered with companies like Shipt and DoorDash, while others offer their own delivery services within a specific radius.
Convenience stores also offer contactless payments for their credit card customers and self-checkout choices for consumers who want as little contact as possible.
Some convenience stores in large areas, such as airports, are utilizing Amazon’s ‘Just Walk Out’ technology which recognizes the items a customer takes and charges the purchases to their credit card. Amazon has used the technology in their retail stores for a while and convenience stores are taking advantage, too.
Focus on How you can Instill Convenience
The name of the store says it all – ‘convenience.’ It’s why millions of people subscribe to Amazon Prime – they can have what they need/want to be delivered the next day usually. They don’t have to leave their home and still have the convenience of what they need in hand.
As the pandemic continues and the convenience store industry sees almost a 2 percent decline, it’s important to think outside the box.
How can smart technology help you give your customers the convenience they desire?
Credit card processing is big. While most stores already accept credit cards, instilling contactless payment methods is the key. Customers want as little contact as possible. When they feel safe shopping in your store because of the minimal contact, they’re more likely to shop at your store.
Smart apps and mobile payments are another great option. Whether you partner with a delivery company like DoorDash or you do your own thing – providing customers with contactless delivery gives them the option to stay loyal and safe.
If delivery isn’t an option for your convenience store, consider curbside pickup. This offers your customers another way to get the products they need without unnecessary contact.
Think Outside the Box
Today, it’s all about convenience and safety. Customers are even willing to pay more in certain situations if they know their safety is protected.
Show your audience you care about their wellbeing and will do whatever is necessary to keep them safe while providing the products they know and love.
As the pandemic continues and the industry continues declining, it’s about who stays in front of the issues, utilizing smart technology and giving customers alternative ways to shop and pay so they have the products they need and continue to patronize your business.
As we near the one-year anniversary of the pandemic, it’s apparent that the latest payment trends that took place at swift speeds are here to stay.
The most common changes businesses are implementing include contactless payments, ‘buy now, pay later’ options, and increased security protection. In short, small and micro businesses need to cater to customers in the areas they need it most – they want to stay safe, yet still conduct business as usual.
According to the Visa ‘Back to Business Study,’ more than 80 percent of small and micro businesses changed the way they accepted payments and/or did business. The study also found that business owners are still looking for ways to implement new strategies to protect consumers from fraudulent transactions, accept contactless payments, and offer additional payment opportunities.
What Most Businesses are Doing Today
Contactless payments – The largest surge of payment changes are how merchants collect payments. In-person swipe or chip cards aren’t nearly as common as contactless payment options. In the summer of 2020, only 20 percent of small businesses offered contactless payments. Today, that number is at 40 percent of businesses and climbing.
Increased digital payment options – Many small businesses also reported meeting customers where they are – online. Most customers want to do business digitally to avoid unnecessary contact that could put them at risk. Whether that means curbside pickup or home delivery options, many small businesses are adapting to what consumers need.
Protecting against fraud – Protecting against fraudulent transactions is the key to successful business transactions. Many businesses still have a long way to go in this department, but many businesses are going in the right direction.
Why Contactless Payments are so Important
Many businesses focused first on mask use in-store, which is a large concern. But consumers have more concerns than the airborne risk not wearing a mask poses. They want to know they’re protected from all shared devices which include pens, credit card machines, and handling cash.
Offering contactless payment options for credit card processing keeps your customers safe and gives them a reason to come back. If they don’t feel supported or validated in their concerns, they’ll take their business elsewhere.
What Else are Businesses Doing?
Besides the precautions taking place in the store with credit card processing and avoiding shared devices, customers want an online shopping option too.
Businesses that didn’t sell anything online are now online. According to the Visa study, in the summer of 2020, only 27 percent of small businesses jumped online, while by winter of 2020 43 percent of businesses are online and the number keeps growing.
Small businesses that want to see their business through to the end of this pandemic must meet the customer where they are. The trends that the pandemic started aren’t going to go away when the pandemic dies down. Instead, it will be the ‘new normal’ for most consumers, so the sooner you jump on the bandwagon, the more your business will grow.
Venmo started as a fun way for peers to pay one another, but it’s quickly becoming the payment method of choice at retailers too.
Venmo has become a household brand – it’s the brand consumers trust when paying friends and family, and now they want retailers to use it too. While contactless payment options are more available than ever before, consumers don’t trust all of them, but Venmo is an exception.
Venmo Has an Incredible Following
Over 65 million people use Venmo to send and receive funds. Much of the audience is the younger generations, but it also includes affluent and educated older generations who’ve embraced contactless payments today.
Venmo users love the versatility Venmo offers including splitting the bill with family and friends. It’s a natural transition to use it to pay retailers, especially in restaurants when out with a group, and splitting the bill always causes that award silence everyone hates.
Consumers Want to Change Their Habits
At the start of the pandemic, consumers shopped mostly online as many retailers were closed while the entire country was shut down. The trend continued for a while, but slowly, retail trends indicate that consumers are shopping in-store again.
When they do, they want options to stay safe and that includes contactless payment options, of which Venmo is a top choice.
Since consumers are already comfortable with it, they don’t have to learn a new platform or discover if it’s safe or not. They know Venmo is safe. With consumers able to add funds to their Venmo account and/or pay their balance over time, Venmo is quickly the most popular choice.
What Troubles Would Retailers Face?
While consumers are on board with paying for retail purchases via Venmo, the platform itself isn’t quite ready.
While some retailers use Venmo, they are few and far between. It’s primarily a peer-to-peer app that doesn’t need to consider taxes or fees. With the onslaught of changes accepting retail payments would offer, Venmo’s platform would have to change considerably to handle the pressure of accepting retail payments.
As the pandemic continues, consumers want contactless payment options. It creates the best of both worlds for consumers – they can shop safely, in person, and not have to worry about touching shared devices or even exchanging payment with the cashier.
The more hands-off the shopping experience can be, the better off we’ll be in the end. Not using cash and using phones to pay is the epitome of cashless spending. You can check out with ease, shop in person, but not have to worry about the risk the virus poses with shared devices.
Will Venmo Jump on Board?
The jury is still out if Venmo will become the way of the future. But one thing is for certain, all consumers want contactless credit card processing systems. Whatever you can do to make that happen in your store will help increase your sales.
The Paycheck Protection Program is back and supposedly better than before, helping small businesses stay open during the pandemic. If you didn’t make the first cut or were confused by what was required and/or offered, here’s your second chance to get funds to help you stay afloat. Here’s what you need to know.
The Requirements
Businesses eligible for the second round of PPP loans must meet one or more of these requirements:
Proof of at least a 25 percent revenue deduction in any 2020 quarter versus your 2019 revenue for the same quarter
Proof you expended all or most of the first round of your PPP loan if applicable
Proof you have 300 employees or fewer
If you didn’t receive a PPP loan in 2020, the requirements differ slightly:
Proof you started your business before February 15, 2020
Prove you have no more than 500 employees
Proof you are still open and operating despite the pandemic
Proving the 25% Revenue Reduction
Businesses have two ways to prove the 25 percent revenue reduction, which is a requirement if you received the first round of PPP loans:
Prove your gross annual revenue was at least 25 percent lower in 2020 than in 2019
Choose a specific quarter from 2020 versus 2019 and prove the revenues decreased at least 20 percent for that quarter
How can you Use the PPP Funds?
The first round of PPP funds was limited to payroll, rent, and utility expenses.
The second round of PPP loans has looser guidelines and may be used for:
Operating expenses
Property damage costs (e.g., from public disturbances)
Supplier costs
Purchase of PPE for employees
Loan Forgiveness
The loan you receive and the amount that’s forgivable may vary. The forgiveness rules for the second round are similar to the first.
You must use at least 60 percent of the funds for payroll and your staffing level must be similar to the staffing levels before the pandemic. Any remaining funds beyond the 60 percent used on payroll must be spent on eligible operating expenses to keep the business running.
Businesses must apply for forgiveness when they expend all loan proceeds and before the loan’s maturity date. Businesses that don’t apply for forgiveness within 10 months of the covered time must make payments on the loan.
You apply for PPP forgiveness through the lender providing the PPP loan.
Ensure you Qualify Before Applying
The first PPP round was questionable as many businesses who claimed were ‘small businesses’ technically didn’t qualify for the loan.
The second round has tighter restrictions for qualifying and threatens an audit and legal trouble if the loans were taken under false pretenses.
If you’re a small business struggling and you meet the above requirements, contact your local bank authorized to offer the PPP loans and see if you qualify. It’s the best way to keep your company afloat while we navigate the rest of the pandemic throughout 2021.
The pandemic has been harsh on our financial infrastructure and has brought sea changes in the fintech industry. Fintech companies started coming to the forefront since the previous year, helping to shape digital payments.
In the previous year, people have taken to online shopping in large numbers, and today, almost every buyer is looking for contactless payment modes. As 2020 was approaching its end, the next one has already begun forming a new era with a promising future for the fintech world.
According to research conducted by the deVere Group, the coronavirus pandemic has been a major cause of the rapid growth of fintech apps, the usage of which increased by 72% in Europe.
The situation is similar in the US too, where around 73% of Americans are now viewing fintech tools and solutions as the new normal, as per another report. What’s more, 67% of the American shoppers have planned to continue using fintech apps for managing their day-to-day finances even in the post-COVID-19 period.
Experts have predicted the acceleration of the more fintech trends that are believed to impact every financial area, ranging from making transactions to banking. Some of the top fintech trends for 2023 are:
Digital-Only Banks
The rise of digital-only Fintech banks is one of the recent trends that made headway in 2020. Digital-only banks is the name given to those banks that offer several virtual banking solutions. These include crypto payment gateways, P2P transfers, contactless MasterCard providing free transaction fees, international remittance, and the ability to purchase different cryptocurrencies, such as Bitcoin, Litecoin, Ethereum, etc.
Digital-only banks are extremely convenient to consumers as it eliminates waiting in long queues, tedious paperwork, and the need to make frequent visits to the bank. This trend is expected to gain momentum in 2023, which in turn, would reduce the number of bank visitors.
Because of this new trend in banking, the number of people visiting banks physically is predicted to drop by 36% from 2017 to 2023. Some of the top reasons to go digital-only with your banking are:
You can reset pins right from your home.
You can manage your expenses conveniently.
They offer quick balance review features.
Enjoy instant bill payments on-the-go by snapping pictures.
Digital-only banks come with real-time data analytics.
Blockchain
The cutting-edge technology of Blockchain has transformed the fintech world completely. Since one can make payments faster and more securely, financial institutions like banks can confidently adopt Blockchain technology to stay ahead of the competition. It also comes with low processing fees and has a global reach.
According to a Business Insider Intelligence report, nearly 48% of the banking representatives believe that Blockchain technology will significantly impact the banking industry in 2021 and the years to follow.
The US and China are the leading users of Blockchain technology, which ensures its fast adoption in other markets across the world. Blockchain makes sure that all cross-border payments and the data stored are safe and secure.
One vital aspect of Blockchain is its new philosophy of decentralized finance that works on minimizing centralized procedures. The reason why Blockchain is so popular is its highly protected environment. Once your data is recorded into its system, it is extremely difficult for hacklers or malicious users to modify or access that data.
RPA
Robotic Process Automation, or RPA, refers to the process automation technology that uses digital workers or software robots to automate several tasks, thus saving time and human labor. RPA is designed to manage repetitive business processes using software robots that can fully or partially replace manual operations.
Since the process involves software robots and other digital workers, it is error-free, fast, and more accurate. The RPA technology has been largely beneficial for the financial service industry, as it improves the entire organizational efficiency in a more cost-effective manner.
Additionally, financial institutions can automate several back-end office tasks, including customer onboarding, security checks, trial balancing, account maintenance and closing, mortgage processing, credit card processing, and the list is endless! With RPA, banks can automate their core processes, thus saving time to focus on other vital areas.
Artificial Intelligence and Machine Learning
Banks across the world have started embracing AI to handle their day-to-day operations. According to Autonomous Research, AI is predicted to reduce 22% of the operational expenses of financial institutions by the year 2030. In short, banks will be able to save around $1 trillion by incorporating Artificial Intelligence technologies into their processes.
Artificial Intelligence and Machine Learning go hand-in-hand, since the algorithms of both have the ability to record each transaction with utmost preciseness and accuracy. What’s more, AI can be used to manage and mitigate the increasing cybersecurity risks and threats, as it can identify fraudulent activities immediately.
Besides, AI and ML, together, have tremendous capabilities of managing your customers through top-notch client service solutions, such as Chatbots. With such rapid growth in AI technologies and their increasing adoption by numerous industries, banks, and other financial institutions will soon implement them for better customer service.
Biometric Security Systems
In the face of rising cybercrime cases, customers are looking for more secure payment environments, since digital transactions are more of a necessity than a trend in this pandemic crisis. Therefore, companies in the fintech industry are implementing new ways to offer more secure payment infrastructures, such as biometric security systems.
Biometrics like fingerprint authentication, facial recognition, etc., is the best way to add an extra layer of protection and security to one’s payment solutions. Biometric systems help consumers to be confident while making digital transactions.
Since the current COVID-19 restrictions have made it necessary to go contactless, or more specifically cashless, biometrics is the need of the hour. However, contactless biometrics like face ID recognition is having a higher adoption rate in COVID-19 times, while the touch-based fingerprint reading market is witnessing a downfall.
Open Banking
Open banking is a revolutionary technology that enables users to manage their money more efficiently and get the best deals on products and services. It helps consumers make smarter and more cost-effective buying decisions while also accessing all their accounts in one place.
Open banking is a practice of sharing one’s financial information between authorized service providers at the users’ consent. The technology enables banks and Fintech companies together, allowing seamless data networking across multiple institutions.
Experts and industry leaders predict that open banking will reshape the banking sector as we know it. In fact, a report has proven that open banking has already generated $7.29 billion in the year 2018. The numbers are expected to hit $43.15 billion by 2026!
Open banking has the potential to benefit various banking and other financial institutions, consumers, fintech workers, API industry figures and app developers, and even underserved markets.
According to new research, open banking users are expected to double up and reach 40 million by the end of 2021. On the other hand, payments are predicted to hit $9 billion by 2024.
Juniper Research has predicted that the total number of API technology users aggregating bank accounts and gaining access to new services would rise from 18 million by the end of 2019 to 40 million in 2021.
Another report named, “Open Banking: Opportunities, Challenges & Market Forecasts 2020-2024” found that the pandemic was a reason behind the increasing demand among consumers to aggregate their accounts.
The main motivation behind such a change in behavior was to gain better insights into one’s financial health and how to manage one’s money more efficiently. Since the COVID-19 outbreak people have become more conscious about how and where to make expenses, and how to cut down on their costs by making only the best purchases.
What is Open Banking?
Open banking is the practice of securely sharing the consumer’s financial information with service providers, to help them provide better user experiences. The process enables you to bring all your accounts into a single place.
For instance, open banking can let consumers view account information, and even access their funds across multiple banks, all without switching platforms.
However, none of your sensitive information would be shared with any third party without your consent. You will never be asked for login details or passwords. The shared data enables service providers to develop and innovate better apps and solutions around banks and other financial institutions.
Open banking has shown consumers new ways to spend and manage their money and purchase more responsibly and cost-effectively. The practice of open banking has been incredibly beneficial for startups, SMBs (small- and medium-sized businesses), financial institutions (like banks), and consumers.
Additionally, open banking can also help businesses explore new revenue streams, have an extended market reach, and have better operational efficiency. It is a more sustainable service model, specifically for the underserved markets. App developers, too, can find it much easier to work with open APIs, saving time and labor.
Since open banking apps have proper access to your financial data, these solutions can recommend you the best products and services to save your money. This improved user experience provided by open banking tools boosted momentum for adopting open banking technologies and principles.
Key Points to Know About the New Research
Juniper reported that the rapid growth seen in open banking practices was pioneered in Europe. In Europe, regulators pushed beyond standardization and minimized the barriers to entry. The reports further showed that the practice was later taken up and advanced by the Chinese and the Far Eastern markets.
The principle of open banking originated from the 2015 European Union reforms, which were designed to help consumers switch between banks more seamlessly. The technology that supports and enhances this also enables users to make faster and easier real-time money transfers or payments. This alone has boosted the rise of numerous digital payment solutions and so-called “challenger banks.”
In the Juniper Research release, Nick Maynard, Juniper analyst, said, “Banks must embrace open banking” to capitalize and accelerate their ongoing digital transformation endeavors. Maynard further said that the practice of adopting open banking could enable banks to introduce more innovative services to their consumers backed by open APIs. Otherwise, they might risk their market position in the face of increasing, digitally agile competition.
The research company also states that payments will be vital for accelerating the growth of the industry. In fact, the total volume of payments to be made through open banking technology is predicted to be around $9 billion by the year 2024. It is mostly because open APIs are promising enough to facilitate more secure and protected “direct from account” payments.
Further, the report said debit and credit card providers should also adopt the new open banking practices and technologies to avoid falling behind in the market competition during this vital shift.
Previously in 2020, Juniper had already reported that open banking “has made significant progress,” in spite of the challenges faced due to the pandemic outbreak.
The report added that providing an enhanced open banking experience can be a compelling selling point that differentiates and labels the service provider as a part of a superior digital app experience.
Juniper researchers believe that open banking can create a high-level playing field across several markets in which regulatory intervention has resulted in the deployment of open banking practices.
However, Juniper highlighted that open banking can be both an opportunity and a threat for many traditional banks and other financial institutions. It is an opportunity because it offers improved consumer experiences and helps them get better deals while efficiently managing their money. It’s a threat because open banking exposes users’ financial information, which can be a boon for potential competitors gaining access to it. And the report states that this threat can be equal for all the players in a specific market.
Hence, established banks must build more innovative and advanced open banking services to provide high levels of security. They must offer better benefits to attract users from the still-developing or less innovative markets.
The Future
With the increasing popularity of open banking technologies, the practice opens doors to several other innovations to be made in the digital payment industry in the upcoming years. It is expected to cause rapid growth in the financial service industry as well, which is keen on taking consumer experiences to the next level.
Besides bringing financial freedom to customers, open banking is also expected to redesign the entire financial service industry and revise the current user flow to eliminate any potential friction points. This is why it is supposed to add value to the consumers while improving their financial lives in the years to come.
FinTech companies and banks have got a new opportunity and way to improve their services, and fix issues such as:
Outdated banking solutions,
Unintuitive user interfaces,
The hassle of switching multiple accounts, and
Lack of resources to bring innovative tools and technologies to the forefront
It’s clear how the adoption of the open banking model by the financial industry can positively impact the future of online banking. If the financial institutions’ transition to open banking becomes successful, then that day is not far when the banking infrastructure or the security and ownership of consumers’ data would not be a decisive factor anymore.
The factors that will matter are a smoother and more convenient user interface, and faster and more secure payment. The banking industry’s transparent future promises to offer seamless access to different accounts, payments, financial data, etc., through any third-party financial solution that can offer limitless financial freedom to users.
The past few months, especially since the pandemic outbreak, saw rapid development in contactless payments. The rising need to accept or adopt cashless or contactless payment modes was mainly in response to preventing the spread of coronavirus.
Nowadays, more advanced and smarter technologies are being deployed across several mobile devices, mostly due to factors like convenience, flexibility, and speed. And this is the reason why contactless payments are gradually being moved to the cloud.
With that, the card brand, MasterCard announced on January 11, 2021, that it has partnered with payments gateway NMI, financial tech company Global Payments, and IT services provider CEG (Computer Engineering Group) to launch its first pilot for the new cloud-based point of sale (POS) technology, called Cloud Tap on Phone.
Their aim is to broaden the acceptance of contactless payments for merchants since today’s consumers prefer paying for their purchases using mobile payments on their smartphones. In addition to enhancing and expanding its point-of-sale solutions, MasterCard is also working on improving its cloud POS systems.
The card network’s goal is to make its Cloud Tap on Phone openly available across various cloud-based environments. It will empower different solution providers and ecosystem partners to build their own cloud POS offerings by integrating newer features, tools, and functionalities. The process, therefore, is also expanding the acceptance of this new cloud-based payment and POS technology.
Nili Klenoff, Senior Vice President, Global Acceptance Solutions at MasterCard, revealed that the pilot for their new cloud POS system is based on three major dynamics in the marketplace:
The digital shift, which she believes won’t change soon, even if the pandemic recedes.
The acceleration in the need for adopting a contactless infrastructure within the retail industry.
The advantage of switching to cloud solutions, which Klenoff believes is democratizing access to digital payments solutions and apps.
MasterCard has further said that in Q3 2020, contactless payments accounted for 41% of global in-person transactions. This was a significant increase from the previous year’s 30%. It indicates that amid the pandemic situation, this new offering received much popularity and acceptance.
As a result of this launch, other payment players have innovated their digital POS solutions to make them more widely accessible.
For example, towards the end of 2020, Visa came up with its Tap-to-Phone solution across several global markets. Just like MasterCard’s Tap on Phone solution, Visa provides businesses with a mobile POS solution that one can deploy without requiring any additional hardware.
Klenoff reportedly said that the company’s new cloud solution is designed to help users develop and expand the entire payment ecosystem. This is mainly targeted at enabling businesses to enhance their customer engagement and improve their shopping experiences.
This new system from the card company can be especially beneficial for SMBs (small- and medium-sized businesses), who are affected by the pandemic outbreak. Hence, the cloud-based POS solution might also accelerate the global expansion and evolution of digital transactions.
MasterCard Contactless Payments – Key Points
Cloud Tap on Phone is one of the card network’s next-gen innovative acceptance products. Furthermore, the software is hosted on the powerful Azure Cloud platform from Microsoft.
Microbusinesses and SMBs can gain access to a more cost-efficient contactless POS system without investing in any external hardware. MasterCard’s Cloud Tap on Phone can help businesses with fewer resources for purchasing additional POS hardware.
During the COVID-19 crisis, 34% of SMBs have adopted contactless payment solutions to optimize their checkout processes. This was a result of a study conducted by Paysafe that analyzed several SMB checkout processes used in various countries like the US, UK, Italy, Canada, Austria, Bulgaria, and Germany.
The Tap on Phone solution from MasterCard is also designed to expand the acceptance of contactless payments across global markets.
By introducing this cloud-based POS system, SMBs can also keep pace with larger enterprises that provide a number of different payment modes. It further enables MasterCard to increase their volume of payments.
Since the company’s new offering is spreading across numerous countries, businesses operating in markets where digital transaction infrastructures are developing, such as parts of Asia and Africa, are expected to gain access to this cloud POS system. It will further push contactless payment acceptance forward, thus accelerating MasterCard’s payment volume potential.
For instance, micromerchants running in India who have seen significant growth in cashless payments are more likely to take up the card network’s offering. Therefore, it will expand the overall acceptance of contactless payments in the near future.
Using the Tap on Phone solution, businesses, irrespective of their size, can deliver the best-in-class contactless payment expenses to their consumers via their own smartphones.
MasterCard’s new cloud system democratizes POS technology by converting an Android device into an acceptance device. It enables businesses to implement more contactless payment systems at checkout, while cutting down costs on external hardware terminals and other tools or features.
The system will help merchants to provide better curbside pay on delivery or pickup facilities for faster checkouts at the store, thus eliminating long queues. It’s a convenient, touch-free, cash alternative for consumers.
MasterCard’s cloud POS has become a new channel for businesses to provide more meaningful and value-added services to their consumers.
At present, MasterCard’s Tap on Phone software has been rolled out across 16 markets, including Asia Pacific, Europe, Latin America, North America, Africa, and the Middle East. Additionally, pilots are occurring with respective partners in Hong Kong, Costa Rica, Poland, Romania, Kazakhstan, Russia, Canada, the UK, Belarus, Turkey, and several other markets.
The card network’s new product development wing, MasterCard Labs, spearheaded the development of the cloud POS technology and its new cloud-based Tap on Phone product. The pilot working with CEG is following product testing sessions on the New York campus of MasterCard’s Purchase.
The product, Cloud POS, is a result of the company’s multi-cloud strength, meeting several businesses, financial institutions, partners, and consumers in the Cloud using innovative solutions and applications.
MasterCard has been planning this transition to contactless digital transactions for years. The rising demand for faster, safer, more convenient, and flexible methods to make payments has been a driving force behind this transition.
Today, consumers are willing to use this touch-free transaction experience permanently, even after the pandemic ends.
The COVID-19 pandemic has been tough for a whole lot of industries, and in fact, some have yet to recover from the hurt inflicted. However, the previous year has unexpectedly accelerated the growth of some sectors, including the direct-to-consumer (D2C) markets.
A majority of the e-Commerce market is occupied by the D2C sector, mostly in response to the need for maintaining social distancing norms. For example, D2C brands like Casper and Warby Parker have been flourishing continually for quite some time now.
What is the D2C Business Model?
As opposed to the B2C (business-to-consumer) model, D2C companies manufacture and deliver their products directly to the end-user without involving any middleman or traditional stores.
B2C companies manufacture the goods and pass them over to a retailer who then delivers them to the customers. In B2C models, there is typically an intermediary retailer, such as Walmart or Amazon, who sell the products of various manufacturers.
The best part about D2C models is that buyers can enjoy a more simplified and streamlined shopping experience. Moreover, retailers no longer need to worry about meeting another company’s policies and standards or stocking up their shelves.
As a result, D2C merchants can develop more meaningful relationships with their customers and build a stronger brand image. This new business model also enables retailers to receive instant feedback on their products and services, thus creating more positive reviews and testimonials.
The Rising Popularity of Online Shopping
The pandemic has greatly accelerated growth in online sales and the D2C movement. After the WHO declared COVID-19 a global pandemic in March 2020, e-Commerce stores and retailers have witnessed a surge in online shopping.
In May, some businesses started reopening, which further gave a significant boost to page views and order counts. The next month saw a steady growth with order count and page view up by 57% and 75% respectively over the previous year.
Since people avoided stepping out, and most of them were working from home, they were ordering their daily essentials online. Since consumers were shopping online and didn’t have to worry about limited cash issues, they were spending more while purchasing online. And this was a huge plus point for retailers, especially the D2C businesses.
Why 2020 Was a Year for D2C Brands
The obvious answer to this is that brands are realizing the benefits of creating direct sales channels to connect with their consumers better. D2C strategies focus on enhancing customer relationships by offering more personalized solutions.
Further, the new business model is encouraging the development of more advanced recurring revenue systems, such as through subscription payments. Some of the key reason behind the success of D2C include:
Creating customized experiences. Direct-to-consumer business models are flexible enough to offer more personalized services to buyers. One can have complete control over the entire experience chain, be it product delivery, sending personalized messages, or offering a seamless website browsing experience. In short, D2C brands aim at providing more value-added services by building an emotional appeal around them.
Improvement of profit margins. D2C brands are now able to cut down distribution costs by eliminating all intermediaries. This further enables them to have greater control over their profit margins.
Taking control of data. If you are maintaining an excellent customer relationship, then you probably have access to all your buyers’ data in real-time. For example, tracking and analyzing vital consumer data like purchase histories, patterns, behaviors, trends, unique needs and preferences, etc., allow you to understand your shoppers better.
Since you know your customers’ tastes and have an idea about what they are likely to purchase next, you can explore new strategies to address their requirements at the right time. For instance, you can implement new marketing automation tools and workflows or try clustering new audiences.
Digital-first marketing opportunities. D2C brands are exploring various opportunities and possibilities of the digital world, getting global control over all their channels. They are working on regulating their brand and merging all their conversion efforts under one funnel. The journey towards D2C models might be through the development of more intelligent workflows throughout the product cycle.
Some Tips for a Better Future!
Now that D2C is going to take center stage for at least the next few months, here are some tips you can try to grow your D2C brand.
1. Don’t Close Your Physical Doors Entirely
Although online portals have a stronger presence within your target group, there are ways you need to improve your customer relationships. Offering efficient services and quality products at your brick-and-mortar store is among them. In fact, some brands are also providing the option of order pick-ups from a nearby retail store.
2. Cultivate the Right Talent
Adopting the new D2C model might mean a shift to a new business environment, mindset, and even talents. Whatever your strategies and upgrades, make sure each of your plans is centered around your customers. Use the right talent and hire the right teams to create engaging customer experiences.
3. Look Beyond SEM and Social Media
No, we are not saying that you must abandon special media marketing and SEM strategies altogether. In fact, try to look for better ways to promote your brand side-by-side, making social media strategies.
For instance, try to tie up with the latest streaming and smart TV services to attract your audience better and in more engaging ways. These advertisers are able to reach wider audiences than expected due to the pandemic.
4. Have a Specific Purpose
The pandemic crisis and lockdown restrictions have forced people to explore new hobbies and talents, which is why the previous year has seen a drastic change in customers’ behaviors and buying trends. Also, people have started to go for less expensive options and alternatives.
So, try to have a specific purpose, a unique value proposition, and a stronger way to engage your consumers.
Frequently Asked Questions
Are direct-to-consumer (DTC) brands growing?
Yes, DTC brands have experienced significant growth in recent years and continue to thrive. In 2020, they witnessed a surge in popularity, and the trend is expected to continue in 2021 and beyond. This growth can be attributed to various factors such as changing consumer preferences, advancements in e-commerce, and the ability of DTC brands to establish direct connections with customers.
Why are direct-to-consumer brands growing?
DTC brands are witnessing a surge in their expansion for various compelling reasons. Firstly, they provide customers with a seamless and tailor-made shopping journey, cutting out the middlemen typically found in conventional retail channels. Secondly, DTC brands prioritize delivering superior products at pocket-friendly prices, striking a chord with budget-conscious consumers. Lastly, the advent of social media and digital advertising has empowered DTC brands to efficiently connect with and captivate their desired customer base, cultivating brand allegiance and propelling revenue.
What are direct-to-consumer (DTC) brands?
DTC brands are enterprises that directly sell their goods or services to consumers, circumventing the involvement of middle entities such as wholesalers, retailers, or third-party distributors. By eliminating intermediaries, DTC brands have full command over the entire customer experience, encompassing production, distribution, and marketing. They predominantly operate through online platforms, harnessing the power of e-commerce and digital promotional tactics to connect with their intended clientele. DTC brands encompass diverse sectors, including fashion, cosmetics, culinary delights, household items, and beyond.
What are the benefits of direct-to-consumer (DTC) brands?
DTC brands offer several advantages both for businesses and consumers. For businesses, DTC eliminates the need for costly distribution networks and allows for direct customer feedback, enabling faster product iteration and improvement. It also provides greater control over brand messaging, customer experience, and data insights. For consumers, DTC brands often offer competitive pricing, unique product offerings, and personalized shopping experiences. Additionally, the direct relationship between DTC brands and customers fosters a sense of trust, transparency, and community engagement.
How do direct-to-consumer (DTC) brands benefit consumers?
DTC brands bring numerous advantages to consumers. Firstly, they help save money by cutting out the extra costs typically associated with traditional retail channels. This enables DTC brands to offer top-notch products at more reasonable prices. Secondly, DTC brands prioritize enhancing the customer experience by providing personalized recommendations, hassle-free returns, and prompt customer support. Thirdly, DTC brands often place a strong emphasis on sustainable and ethical practices, allowing consumers to make informed choices that are transparent and mindful. In summary, DTC brands empower consumers by offering greater convenience, value, and alignment with their preferences.
Are direct-to-consumer (DTC) brands limited to specific industries?
No, DTC brands are not limited to specific industries. While they gained initial popularity in sectors like fashion and beauty, the DTC model has expanded into various industries, including health and wellness, home goods, food and beverages, electronics, and more. The DTC approach is adaptable and can be applied to almost any consumer product or service. As long as there is a demand for direct purchasing and a brand can establish an online presence, DTC brands have the potential to succeed in different market segments.
The pandemic has been hard on almost all business owners and consumers across the world. With people losing their jobs and expenses rising, millions of consumers have been going through a financial crisis for the last 10-12 months.
Such wide economic gaps are compelling buyers to trim their shopping lists and finding better ways to save. Consumers are also seeking more flexible payment options, especially contactless payments, to prevent the spread of coronavirus.
As a result, the past few months have witnessed a drastic change in people’s purchasing trends and patterns, along with a massive shift in their interests and preferences. For example, according to research, about 4% of Americans preferred the ‘Buy Now, Pay Later’ option during the Black Friday season.
This is why installment payment providers gained significant traction during the past few months all over the US market. COVID-19 has been unexpectedly favorable for these companies and has opened doors for them to grow further.
As mentioned earlier, more shoppers are going for budget-friendly and more flexible purchases. Therefore, numerous merchants are pursuing several methods to accelerate their sales by offering more convenient payment options to their customers.
During lockdown restrictions imposed in various countries across the globe, consumers relied more on e–Commerce stores, which naturally gave a significant push to the growth of online sales for merchants. Another aspect that online shopping gave rise to is installment payments. These are the major causes of the rapid growth seen in M&A activities.
The new ‘Buy Now, Pay Later’ (BNPL) trend is an extremely convenient method for customers, so much so that a study shows that most of them are not willing to buy from merchants not providing this solution. The trend is not only popular in the online shopping platforms, but also in stores, especially during holiday seasons such as Black Friday.
What are Installment Payments?
Installment payments refer to the method by which a customer pays a bill in small parts over a fixed period of time. These kinds of payments are arranged and agreed upon between the buyer and the seller. Examples include ‘Buy Now, Pay Later’ models and point-of-sale financing, which provide buyers with the flexibility to pay their purchase bills over time as per their convenience.
Some merchants even offer installment payment solutions without charging any interest. This is convenient for customers and merchants as well, who get paid by installment providers, thus increasing their conversions and average order values (AOVs).
For this reason, installment payments are most suitable for merchants who are in the high-AOV categories, including furniture, electronics, travel, fashion, and apparel. This is why several market players are occupying the entire installment payments industry. Some popular names among them are PayPal, Afterpay, Credit, Klarna, Affirm, etc.
Benefits of Installment Payments
Some of the top advantages of installment payments for both buyers and sellers include:
For customers:
They help customers keep track of their finances.
Buyers can stay within their budget limits.
They allow consumers to stretch the cost of the purchase through a longer time period.
Customers can make low monthly payments easily.
For sellers:
You can provide more shopping flexibility for your customers.
You can regulate and stabilize your cash flows.
You can bring in more sales and boost your profit margins.
How to Track Installment Payments?
One excellent way to record or track your installment payments is through invoicing software, which ensures that your customers are paying their monthly installments on time. Two best methods to record installment payments are via recurring invoices per installment or partial payments for a single invoice.
If you use recurring invoices, you can set that up for every installment amount. The process will be smoother if you have your customer sign a payment contract, explaining to them the payment plan.
If you prefer partial payments, you would first need to generate the invoice for the particular consumer, ensuring you state the installment periods and payment terms clearly on the invoice. Next, when the time comes for the client to pay the first installment amount, you will need to add a partial payment to the created invoice.
Some software will have the option to update the status, such as partially paid, and the remaining amount to be paid.
The Current Status and Future of Installment Payments
For quite some time now, installment payments have been extremely popular in various markets, such as Australia and Europe. However, the trend has gradually been increasing in the United States for the last 12-18 months. The overall 2019 spending in the installment payments markets has been $623 billion.
The adoption of installment payment options has been especially prominent among Millennial and Gen Z customers. According to 451 Research, more than 1 out of 3 buyers within the age group of 18-37 believe that the availability of a flexible and convenient installment option has been a major factor affecting their buying decisions positively.
This is why merchants are noticing a rising demand in this trend and more successful order completions. Gradually, more than 40% of merchants from various industries have started offering this option during checkout, which has also reduced cart abandonment rates.
However, another 43% of the online-centric merchants are considering making the change or are discovering the benefits associated with it. A study in 451 Research’s Q2 2020 Voice of the Enterprise (VotE) revealed that among the top initiatives taken by merchants since the COVID-19 outbreak include adding flexible payment methods to their e-Commerce portals.
Some well-known merchants providing options for flexible installment payments in the US include Sunglass Hut, Walmart, Abercrombie, Peloton, Warby Parker, etc.
The mutual benefit that installment payment plans have for both consumers and merchants means that buyers will be more willing to return to your business and continue to make recurring purchases in the future.
Frequently Asked Questions
What was the purpose of installment plans?
The purpose of installment plans is to provide consumers with a flexible payment option for purchasing goods or services. Installment plans allow customers to pay for their purchases over time, breaking the total cost into smaller, manageable installments. This makes expensive products or services more accessible to a wider range of consumers who may not have the means to make a full upfront payment. The goal is to increase affordability and enable individuals to enjoy or benefit from a product or service immediately while spreading out the financial burden.
What are the benefits of installment payments?
Installment payments offer several benefits to consumers. Firstly, they provide a more budget-friendly approach, allowing customers to spread out the cost of a purchase over a set period. This can help individuals manage their finances more effectively and avoid the need for significant upfront payments. Secondly, installment plans often come with low or no interest rates, making them an attractive alternative to credit cards or loans. Additionally, installment payments provide convenience and flexibility, giving consumers the option to choose a payment plan that aligns with their financial situation and cash flow.
How do installment payments work?
Installment payments typically involve breaking down the total cost of a purchase into equal or predefined amounts to be paid over a specified period. When purchasing with an installment plan, the consumer agrees to pay a down payment (if required) and signs an agreement outlining the installment terms. The remaining balance is divided into regular installments, usually paid monthly, until the full amount is cleared. Depending on the arrangement, installment payments may be managed by the merchant directly or through third-party financing companies.
What is the history of installment plans?
The concept of installment plans has a long history, dating back to the early 20th century. Installment buying gained prominence in the 1920s when it became popularized as a way to make consumer goods more affordable. This approach revolutionized the retail industry by allowing customers to purchase items like automobiles, appliances, and furniture through installment payments. The availability of credit and the rise of installment plans fueled consumer spending and contributed to economic growth. Over time, installment plans have evolved and adapted to changing consumer needs and technological advancements, becoming a common feature in various industries today.
Congress finally passed the much-awaited bill of further COVID-19 relief, which is especially beneficial for small businesses. This second stimulus bill was passed this week and included a second round of PPP loans to support all the affected range of small businesses.
The bill is also quite favorable to PPP borrowers as it comes with loan-forgiveness rule changes. This second round of PPP loans made to help small businesses are known as “second draw loans”. However, the law is still awaiting President Trump’s signature.
Although the rules for these second draw loans are quite similar to the original one, and businesses would be quite familiar with it, there are some drastic changes compared to the original program. Therefore, lenders and small businesses need to speed up to get hold of the process.
The legislation, further, includes some favorable changes to the loan forgiveness taxation rules. It has also added a simplified single-page loan-forgiveness application eligible for loan amounts of $150,000 or less.
How Significant is the Second Draw PPP Loans for Small Businesses? How to Qualify for It?
The second draw of PPP loans is considered to be the most significant development in the US legislation, particularly for the small business owners. Besides, the new legislation bill allocates approximately $284 billion. Under this scheme, the new loans are termed as second draw loans.
The loan limit allowed is $2 million. Also, the amount a particular business will be qualified to draw is estimated by taking the average monthly payroll in the previous year, which is then multiplied by 2.5. This means that with the help of the second draw of PPP loans, you can get funding to support 2.5 months of your payroll expenses.
Furthermore, the bill has special provisions and calculations for food businesses and restaurants. For them, the legislation has offered a larger loan amount, which is estimated by taking the average monthly payroll of 3.5 months.
For instance, if you are a small business owner having an average monthly payroll of $100,000 in 2019, then it would qualify for a loan amount of $250,000. And if you are a restaurant or a food chain owner with the same average monthly payroll last year, then you would qualify for a loan amount of $350,000.
As per the eligibility criteria, to qualify for this second round of PPP loans, you must have less than or equal to 300 employees. This has been reduced from the 500 employee threshold seen in the first round. Next, being a small business owner, you must have already used or are planning to use your original funding.
As seen in the first draw, small businesses can use their loan proceeds within 24 weeks. Additionally, they can use the borrowed funds for rent, payroll, and mortgage expenses.
The good news is that the bill has added some new expenses to their original list of “qualifying expenses.” These include workplace protection costs to safeguard one’s employees from COVID-19, operating expenses, and property damage cover.
Additional Criteria: 25% Revenue Loss
A small business applying for the second draw of PPP loans must prove and certify that it has lost a total revenue of 25% or higher in order to get qualified. This new feature is quite different from the original rules set up for qualifying for PPP loans.
In this rule, the small business just needs to state that its financial instability and uncertainty have made the owner go for the PPP loan. Under this 25% loss-of-revenue estimation, small businesses will need to compare their 2020 quarterly revenue, that is, their gross receipts, with the first, second, and third revenue quarters in the previous year.
To qualify for the second round of PPP loan, a borrower must show a loss of 25% revenue or more from a minimum of one quarter of this year compared to that particular quarter last year.
Besides, the second round of PPP loans is forgivable. However, one must spend 60% of the funds on payroll costs. Also, a majority of the small businesses will likely be using 60% of the loan amount on their payroll costs, since the amount depends upon 2.5 months of average payroll. And because they can utilize the funds over a period of 24 weeks.
When Forgiven, PPP Loans Won’t Be Taxable
As per the new legislation, the forgiven PPP loans won’t be taxable for the small business owner. It is applicable to all the existing PPP loans that fall under the original CARES Act, while also including the new second draw ones.
Previously, before the legislation was framed, the IRS (Internal Revenue Service) used to levy taxes on small businesses for their PPP loans. One good news for all small business borrowers is that their PPP loan will be forgiven while still being capable of deducting all their qualifying expenses, such as payroll.
Further, the new law states that emergency EIDL Grants and Advances will also not be taxable to the small businesses. The emergency EIDL Grants and Advances don’t need repayment in most cases and are considered forgiven.
The Simplified Forgiveness Application
The legislation further said that the SBA needs to create a simplified version of the PPP forgiveness application form suitable for small businesses requiring less than $150,000 PPP loans. This simplified application should be designed in a way to fit in one page.
The application will also include loan information, along with a valid certification from the small business owner, wherein s/he must declare and prove that the funds were appropriately used for the purposes and expenses qualified for. However, the certification should not include any calculations or any other additional or unnecessary information.
In fact, the SBA (Small Business Administration) already launched a single-page simplified PPP forgiveness application for all borrowers requiring a loan amount of $50,000 or less. Moreover, it is quite likely that the SBA will be using a similar application for other borrowers with less than $150,000 loans.
After the President signs the law, which is likely to happen as indicated by the White House, the Treasury and SBA are responsible for offering detailed and interpretive guidance and forms associated with the updated forgiveness rules. They are also tasked to provide thorough guidance on loan guidelines and application processes for the second draw of PPP loans.
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