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Contactless Payments for Argos UK - Case Study Example

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The paper "Contactless Payments for Argos UK" is an amazing example of a Business case study. 
Retail stores have had a variety of payment options that they can choose from depending on their country. It is important for a retailer to choose an efficient payment option that their clients can easily use to purchase goods and services. …
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IMPACT OF CONTACTLESS PAYMENTS FOR ARGOS UK AND ITS FUTURE: A LITERATURE REVIEW by Student’s name Code+ course name Professor’s name University name City, State Date Contactless payments for Argos UK Introduction Retail stores have had a variety of payment options that they can choose from depending on their country. It is important for a retailer to choose an efficient payment option that their clients can easily use to purchase goods and services. The cashless based system of payments has brought about a variety of benefits and implications both to the retailers and consumers. The contactless payment has been gaining traction ever since its introduction due to the numerous advantages that it presents to retailers and consumers (Bradford, 2005). Argos UK is one of the major retailers in the country that has adopted the use of contactless payments. This move presents numerous implications for the retail firm. The essay will review some of the literature concerning the impact of contactless payments and the future of this mode of payment while using Argos UK as a case study. Contactless payments Contactless payments are a relatively new technology in the retail space that allow consumers to use certain debit, credit and prepaid cards to make payments that amount to less than £30. This new system allows the user to make such payments without having to enter their PIN numbers. While this technology presents a lot of benefits both to the consumers and the retailers, it has also brought about various concerns regarding its regulations and security. Morrell (2013) explicates that one of the main reasons why contactless payments were introduced was to revolutionize the retail market. This system is especially possible in outlets which have a high volume output and low transaction values. Some of these outlets include supermarkets, fast food outlets, high street shops and convenient stores (Morrell, 2013). As much as there has been an increase in the number of contactless payments over the few years that it has been working, only a small number of consumers use the service. A study carried out by ICM Research last year revealed that the payment system was not expanding due to the laxity of retailers in promoting the system to its consumers (Morrell, 2013). Furthermore, these retailers are not supporting this system of payment since they prefer the old modes of payments. The report also found that the contactless system of payment had high awareness among the customers in the UK. Eight out of the Ten people in the research knew what about the new systems of payments. A great number of these people did not know what the symbol meant on their cards, and only about a third of those who had the card were using it (Morrell, 2013). These figures result to about 8% of shoppers in the UK who have the card and use it; this is despite the high turnover recorded through the utilization of the card. Prevett (2014) argues that despite the advancement in technology of the contactless payment system, the contactless payment industry remains fragmented and that the response of consumers is still lukewarm. The implementation of this form of payment has largely been difficult due to the necessary technological upgrades. The companies that offer this type of payment are having difficulties on whether they issue the cards after retailers upgrade their systems or if they should do it after (Prevett, 2014). However, the pressure from consumers to use this form of payment are forcing many retailers to adopt to the contactless form of payments. Among these companies, Argos UK is one of the many retailers that have sought to try the implementation of contactless payments in their stores. Impact of contactless payments on retail stores This new system has brought about a variety of advantages and implications for the retail store. One of the major benefits that contactless payments brings to a consumer is the convenience of using the card without having any cash. The convenient and easy to use function of the contactless card has brought about one major impact for the Argos company in the UK. This impact is the increase in individual spending by customers that use the card. The company has recorded an increase in revenues that arise from the use of the contactless form of payment. Trütsch (2014) studies the impact of contact payments on the spending of consumers. Using data from a national survey that was carried out in 2010 on the consumer payment behaviour, the study finds out the impact of this new mode of payment to retailers. The study revealed that the use of the contactless cards increased the frequency and consumer spending among clients in various retail stores. Customers who use debit and credit cards are more likely to spend large amounts of cash when shopping. Similarly, the use of contactless payments will present the same benefit to the merchant. The consumer will be more likely to prefer the retailer that uses contactless payments over other retailers. It eventually creates customer loyalty among the retailers that use this form of payment. Argos UK has seen more loyal customers following the introduction of contactless payments. Customer loyalty, increased customer spending and a higher frequency of purchase have led to increased revenues for the retail store. Trütsch (2014) explicates that understanding the effect of contactless payments on consumer spending is useful for some reasons. One of this is that it is an effective method of understanding the impact of these contactless payments to the retailer and some of the benefits that will accrue from its use. The retailers can use this information from such a study to choose whether to invest in these new systems. The benefits that the retailers would get from the contactless mode of payment will vary with the type of business and services that they offer to their clients. Retailers that offer highly priced products and services in the UK do not need to incorporate this new system of payment since there is a limit on the amount of money that can be used by the contactless cards. The adoption patterns and usage statistics of the contactless payments will also be useful for financial intermediaries that offer these services (Yu, 2012). They can use the information to manage the issuing of the cards, for promotional services and in determining their revenue models. The increasing transactions that they get from contactless payments will increase their income streams through the fees that they get from these services (Trütsch, 2014). Furthermore, such information may prove to be important for policy makers who institute the legal and regulatory frameworks for the use of the cards (Weiner and Wright, 2005). Wakamori. and Welte (2012) asserts that one of the significant implications for retailers who use the contactless mode of payment is an increase in costs. The retailers will have to cater for the expenses of interchanging the virtual money into real cash. Since contactless payments target low-cost goods, the cost of interchanging these payments into cash becomes significantly more in comparison with the amount of products that shoppers purchase in these retail stores. Trütsch, (2014) asserts that a cheap and efficient mode of payment is crucial for the sound operation of the economy. According to Wakamori. and Welte (2012), one of the primary reasons that people use credit and debit cards is due to the high level of efficiency that it presents over the use of cash. Contactless payments offer a similar degree of efficiency that these cards give. The use of contactless payments saves the amount of time that customers spend in queueing up in a retail store. Retailweek (2012) estimates that the use of contactless payments reduces the amount of time that a person queues in a retail store line by up to 15 seconds. Retail stores have some of the longest lines especially at peak times when there are many customers in the retail store. A reduction of this period presents benefits to both the retailers and the consumers. Clients are likely to shun stores that are known for long waiting lines and thus having shorter lines would increase the customer base. Furthermore, the retailers would also benefit from this since there will be a higher transaction frequency due to the increased prices. Argos continues to benefit from the increase in clients due to the elimination of the long waiting periods that many customers dread. Another advantage that retail stores have incurred is the increase in operational efficiency and customer satisfaction. The stores that use contactless forms of payments do not need a large number of personnel since it is an easier and efficient method (Alliance, 2004). The consumers have a high degree of control over the payment process, and there is less intervention needed from the merchant on site. Handling cash is an expensive process that may result in pilferage. This process is reduced by the use of contactless payments thereby presenting numerous benefits to the retailer. A reduction in overhead costs, little handling of cash and a decrease in the interference of the payment process reduces the overhead expenses of the business and increase operational efficiency. Alliance (2004) further argues that cash-based methods of payments do not offer any data to the merchant unlike the contactless mode of payments. The data that contactless methods of payments offer are critical to the retailers that want to analyse customer behaviour and trends. This data can be useful when the merchant is creating sales strategies that will satisfy the customer and make them loyal clients. Argos UK has been using the data and feedback that they get from contactless payments to restructure their business strategies and to offer better services to their customers. Each contactless device has a unique number, and the retailers can use this to institute loyalty schemes for their clients. Argos UK has been able to achieve a competitive advantage over other retailers that do not offer contactless payments. One of the most efficient retail strategies for companies is to create a competitive differentiation among one's competition (Alliance, 2004). Firms that offer contactless payments will create loyal customers who prefer this mode of payment. Furthermore, the use of contactless payments widens the scope and payment options that the retail stores have over their competitors. The use of these cards also increases the brand's visibility when the financial companies that offer the services advertise them as one of their partners (Alliance, 2004). This form of brand recognition improves the customer base for the clients while also creating strong customer loyalty. Factors affecting the adoption of contactless payments The adoption of contactless payments by the consumers is affected by a variety of factors. Trütsch (2014) argues that one of the major determinants of the adoption of contactless payments is the level of education of a client. College graduates are less likely to adopt contactless methods of payments, debit or credit cards as opposed to high school graduates. The disparity between these two groups of people arises due to some factors such as the predisposition to information, debt levels and the preferences of the person. College graduates are more likely to be in debt than their high school graduates; this arises from the loans they take to finance their education. A high level of debt would reduce the need for debit, credit and other forms of contactless payment modes (Trütsch, 2014). The age of the consumers will also determine their propensity to adopt contactless forms of payments. Younger retail clients have been found to be more receptive to the idea of having a contactless form of payments as opposed to their older counterparts (Trütsch, 2014). This receptiveness is brought about by the school of thought that young people are more receptive to technological changes than other age groups. The income of an individual is also an important factor that is driving the adoption of contactless forms of payments. In general, persons with lower income are likely to adopt the use of contactless payments than the high-income individuals. Since these cards have a limitation on the amount of payments that one can make during a transaction, clients who make small purchases are likely to embrace the payment systems than other consumers. The adoption of retailers will also have a large impact on whether a high number of customers will adopt the new payment systems. If a large number of retail stores accept this mode of payment, then it is more likely that consumers will also have to adopt it. However, if merchants shun from using the new methods of payments, then clients are less likely to use it. In the case of Argos UK, the adoption of these modes of payments has led to a good reception of the payment system from their loyal customers and new clients. The future of contactless payments and whether Argos UK customers would like to see it in the future Retail week (2012) reports that the reception to contactless payments by Argos UK consumers has been relatively positive. However, these users raise some issues that may affect the future adoption of this mode of payment in the future. A significant number of these clients are satisfied with the contactless system of payments and addressing their issues would see a more positive review of the mode of payments. One of the major issues that consumers have is the security of the contactless system of payment (Emms & van Moorsel, 2011). It is imperative to note that this system of payment offers clients the ability to pay for goods without necessarily inputting their PIN. Most consumers are worried about the use of the cards in case they lose it. Many countries are solving this issue by requiring the users to use their PIN numbers if the money crosses a certain threshold. Emms & van Moorsel (2011) assert that this issue can also be addressed by deactivating the card if they do not intend to use it and activating it when shopping. Increasing the limits of the cards will also improve the customer experience of the clients while also creating new customers. A significant number of countries have removed the restrictions on the contactless systems of payments allowing shoppers to pay for goods worth any amounts (Retail week, 2012). Alternatively, other jurisdictions require their clients to use PIN numbers for goods worth a certain sum of money. Argos UK can petition the bodies that create the regulatory frameworks of the system of payment to increase this limit. A decrease in the costs that customers incur would also improve the reception of the contactless systems of payment. The retailers incur costs of using the system of payments which are transferred to the consumers. Reducing these costs to retailers would reduce the fees that they pay and also reduce the total cost to the consumers. A reduction in these expenses would mean that the users would pay less. Furthermore, the retailers can use incentives to lure new customers in accepting the new systems of payments. Loyalty programs and other gifts can be useful in improving the acceptance of this form of payments. Conclusion There is a myriad of implications that contactless payments present on retail stores. Various scholars explore this topic with numerous studies analysing this impact both on the retailer and consumers. Some of the implications found include increased customer spending, a rise in revenues and customer loyalty, better operations efficiency and the use of data and statistics. Consumers are satisfied with the use of this mode of payment, but there are a number of key concerns that the literature review addresses. Addressing these key issues will improve the customer reception to this form of payment and enhance some of the benefits that retailers receive. References Alliance, S. (2004). Contactless payments: delivering merchant and consumer benefits. In EPRG Contactless Forum, Federal Reserve Bank of Boston. Bradford, T. (2005). Contactless: the next payment wave? Payment System Research Briefing. Emms, M & van Moorsel, A. (2011). Practical attack on contactless payment cards. In HCI2011 Workshop-Heath, Wealth and Identity Theft. Morrell, L. (2013), We have contact. Retail systems: First choice for technology purchasers in multi-channel retail. [online] Perspective Publishing, pp. 22-23. Available at: http://www.retail-systems.com/pages/interactive_download_2012/RS_Feb_March2013.pdf [Accessed 12 May 2016]. Prevett, H. (2014). Tipping Point. Retail systems: First choice for technology purchasers in multi-channel retail. [online] Perspective Publishing, pp.17-18. Available at: http://www.retail-systems.com/pages/interactive_download_2012/RS_feb_mar_2014.pdf [Accessed 12 May 2016]. Retailweek, (2012). How will the contactless payment threshold impact retailers?. Retail Week. Retrieved 12 May 2016, from http://www.retail-week.com/analysis/retail-surgery/how-will-the-contactless-payment-threshold-impactretailers/5038157.fullarticle Trütsch, T. (2014). The Impact of Contactless Payment on Spending. International Journal of Economic Sciences, 3(4), 70-98. Wakamori, N., and Welte, A. (2012) Why Do Shoppers Use Cash? Evidence from Shopping Diary Data, Working Paper 2012-24, Bank of Canada. Weiner, S. and Wright, J. (2005) Interchange fees in various countries: Developments and determinants, Review of Network Economics, 4, 290-323. Yu, C. (2012) Factors affecting individuals to adopt mobile banking: empirical evidence from the utaut model, Journal of Electronic Commerce Research, 13(2), 104-121. Read More
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