The relationship between retailers and consumers is changing, with brands expected to anticipate customer needs to provide meaningful friction and exciting experiential moments. How does this align with new payment methods, emerging technologies, and the ongoing search for trust and security in our digital-first world?
Amidst a surge in ecommerce, high streets are facing a number of challenges linked to changing consumer behaviour. In the UK alone, it’s estimated 38 stores closed each day in 2024 – and this picture is mirrored across other countries. Is the high street dying, or simply evolving?
Digital wallets and other alternative payment methods (APMs), the rise of open banking, and even pop-up stores on mountain tops are reshaping how – and where – we shop. But with trust and human connection paramount, there is still a role for physical stores. It may just be a different one.
And as more transactions are made online, people are looking for meaningful payment experiences with the right protection in place, raising questions about the role of digital identity, artificial intelligence (AI), and biometrics.
So, what exactly does the future hold for retail?
The changing face of physical space
“The main street – or high street, depending on where you live – is still there, it’s just changing,” said Chris Skinner, a prominent ‘finfluencer’ and the CEO of Finanser. “It’s become more experiential, shifting from stores trying to distribute goods to stores that actually present goods you then buy through apps or other services afterwards.”
Skinner also highlighted how physical stores will continue to provide that human touchpoint. “When you deal with everything digitally, you can’t complain to someone when there’s an issue,” he explained. “What you need is some form of human connection at some point to present the future, and the main street will continue to provide that connection.”
There’s a growing sense that retail stores should not be constrained by four walls anymore; rather they need to predict people’s meaningful moments.
“It might be a vending machine when you’re walking into a train station that provides exactly what you need at that moment, or it might be a pop-up from The North Face when you’re climbing a mountain and have ripped your jacket,” said Kate Nightingale, Chief Behavioural Officer, Humanising Brands.
“It’s like human relationships, and this is how our brain perceives brands. If we always have to be the one to go to a brand, and tell the brand what we want, then that’s not a relationship. This means the retail portfolio of brands is changing massively – yes, there’s space for flagships or brand museums, but there’s also space for bonkers experiential moments.”
Exploring the concept of meaningful friction
With brands having to adapt to where the consumer is, the same can be said for payments.
“Generally speaking, what we’re seeing in the payments ecosystem is that traditional payment methods are becoming cannibalised by the newer players, such as BNPL services and wallets,” said Pedro Bennasar, Head of Payments, Vestiaire Collective.
“We’re also seeing the bigger new players, like PayPal and Klarna, becoming an in-store payment method as well, bridging the gap between pure e-commerce and offline payments. They’re becoming omnichannel solutions.”
PayPal, which payabl.’s recent report revealed to be Germany’s most popular payment method, is aiming to crack the country’s high streets by launching a contactless mobile wallet that lets users pay in-store and in installments at the tap of a phone.
This highlights the well-documented consumer appetite for frictionless payment flows. However, not all friction is necessarily a bad thing.
“Everyone talks about frictionless and I’m going to break that whole thinking,” said Nightingale.
“I have this concept of meaningless friction and meaningful friction. Meaningless friction is those things that annoy you, like slow loading times. But extra steps can be considered a form of meaningful friction, if they add value. For example, adding another step or questions at checkout is actually extremely useful for individuals with certain neurodiverse conditions like ADHD, because they suffer from a considerable impulsivity and often spend money they shouldn’t be spending.”
This can be considered another way in which merchants must start anticipating customer needs more as retail relationships evolve.
Another example of meaningful friction is when sustainability or ‘recommerce’ focused merchants ask whether a consumer wishes to round-up their purchase for a charity donation. This may require more time and cognitive effort from the consumer, but it also emphasizes the values that have attracted them to that merchant in the first place.
Security and the prospect of paying with a smile
Trust and security will continue to underpin the future of retail. And they are much easier to achieve in the physical world.
“We need to sort out the mess of digital,” said Skinner. “There’s so many hacks, scams, and rip offs. And at the core of this is the fact the internet was designed for the transfer of information, not the transfer of money.”
“We’re trying to overlay on that original structure, and I think we’re failing miserably. The bottom line is we need to introduce a stronger digital identity at the core of transactions so that I can know that you are you, and you can know that I am me.”
There are a number of regulatory initiatives underway that aim to rebalance trust between the physical and digital worlds. This includes the European Digital Identity (EUDI) Regulation, with Member States expected to be required to offer at least one EU Digital Identity Wallet to all citizens and businesses by 2026.
As well as the push towards digital identity, a number of other technological developments are set to impact the future of retail.
“The whole movement towards biometric payment is inevitable,” said Skinner. “We’re not far away today with face ID and touch ID, but it’s going to become far more pervasive, particularly from what I’ve seen in China. You’ll soon be able to pay with a smile.”
“AI is definitely going to land in payments as well,” added Bennasar. Right now it’s evolving in customer service support with chatbots but it’s going to start being picked up by first movers in the payments ecosystem. I believe there’s strong potential there but there’s risks as well, such as deep fakes, which could lead to a major blow up across the ecosystem.”
Like with the integration of any new technology, agentic AI-led payments will need to be handled carefully. Check out our recent Pay it forward podcast episode to find out more about the forces that will shape the future of retail.