Amazon turned 30 on July 5th and did something that nearly 70% of all women also say they do on their birthday: They bought themselves a present.
\nOn July 4th, the day before their three-decade birthday milestone, it was announced that Amazon would take a minority stake in the new luxury department store confab Saks Global. The $2.65 billion acquisition of Neiman Marcus by Saks will create that single luxury department store platform combining the 39 existing Saks stores, the 36 existing Neiman Marcus stores and the two Bergdorf Goodman flagship stores in New York.
\nAt least, that\u2019s the size of the footprint right now.
\nWe don\u2019t know how much of a birthday splurge that stake was for Amazon \u2014 details about total dollars invested were not disclosed.
\nThe acquisition isn\u2019t exactly a news flash. Saks and Neiman\u2019s have been doing the acquisitions dance for more than a decade. Their private equity investors wanted an exit after taking Neiman Marcus private in 2005 for $5.1 billion. Neiman\u2019s filed for bankruptcy in 2020, blaming COVID for at least some of its poor financial performance and using the filing as an opportunity to retire debt and streamline operations.
\nRumors floated again a year ago that an acquisition was in the offing, but the deal collapsed at the end of the year over price. Whether the Amazon stake and its potential to add shareholder value longer-term got Neiman\u2019s over their previous sale price hump is unknown.
\nSo, too, is whether even Amazon can save these once larger-than-life iconic luxury department stores from their largely self-inflicted demise.
\nThe head of Saks eCommerce says Amazon will accelerate the path forward for the merged entity. Geoffrey van Raemdonck, the CEO of Neiman Marcus, says that Saks Global (the new entity which includes Amazon\u2019s minority stake) will create greater efficiencies through a more streamlined inventory management and more favorable (read tougher) negotiations with suppliers. That people still love going to the store to touch and feel the merchandise and interact with salespeople.
\nThat luxury buyers are still buying.
\nMaybe. Lately, even wealthy buyers have become more discerning.
\nBut when they do shop, they don\u2019t seem to be beating a path to department stores. Looking at this chart from the St. Louis Fed suggests a different, more sobering, department store reality.
\n\n\nDepartment store sales are 50% below their peak in 2000, and 30% below where they were in the 1980s. \u00a0The 80s, as in 40 years ago. It\u2019s hard to understand what people mean when they say, \u201cdepartment stores are back.\u201d Back from what, exactly? Coming back from zero sales during COVID to levels which don\u2019t even match sales made four decades ago is hardly a comeback story worth writing.
\n\u201cBut things are looking up,\u201d proponents of the department store model still say. Not really. According to Collier\u2019s April Real Estate barometer, foot traffic to department stores in April rose 5.1%, but sales fell 5.3%. People are walking into department stores but walking out empty-handed \u2014 as it seems they have been for nearly a quarter of a century. In fact, annual sales for department stores are down by 22% over the 10-year period from 2013 to 2023.
\nNow, whether Amazon\u2019s minority stake in Saks Global becomes an opportunity for two desperate luxury retail department chains to think and act more like Amazon by streamlining logistics, inventory and supply chain operations \u2014 or whether it is the equivalent of a last-ditch retail Hail Mary pass \u2014 won\u2019t be known for a while.
\nNeither will Amazon\u2019s real interest in Saks Global.
\nMaybe they want a ringside seat into the ins and out of a retail category where Amazon doesn\u2019t have much of a presence right now \u2014 but could over the next five years. \u00a0To learn the ropes, the relationships, the frictions. The role of the physical store in luxury retail\u2019s future. According to Bain, the share of luxury goods sold online is expected to reach nearly a third of all luxury retail sales \u2014 taking most of that share from the department stores \u2014 up from low-double-digits five years ago.\u00a0 The future is trending digital.
\n\n\nOr perhaps Amazon wants a better understanding, more generally, about why, after thirty years of raising the expectations for the consumer retail buying experience, Census still reports that 84% of retail sales still happen in the physical store.
\nWhere innovation has stagnated for at least as many years.
\n\nBut where there\u2019s an opportunity to (finally) reinvent the retail model by making the physical store an extension of the digital experience. Where the physical store remains relevant, but maybe not so much for shopping.
\nIf I asked you to name the biggest innovations in the physical retail shopping experience over the last thirty years, what would make that list?
\nFor most people, the innovations that are top of mind are those that give consumers a way to avoid going into the store.
\nBuy online, pick up in store is the granddaddy of omnichannel, getting its start around 2007. It got its true digital mojo in 2020 as the world was in the throes of COVID and more retailers were forced to get on board. Today, globally, PYMNTS Intelligence finds a marked increase in that use case, with 9.2% of the U.S. consumer population using buy online, pick up at the store when shopping for groceries.
\nRetail is slightly higher, at 11%, but also often comes bundled with the not-so-veiled (and friction-filled attempt) to bring consumers into the store to fetch their bundles. In Boston, the Saks buy online, pick up in store experience consists of schlepping to a counter in the way-back corner of the second floor. Quite often, the buy online, pickup experience comes with a wait of a few days, which seems to miss the point of buying something online and picking it up in the store the same day.
\nInstacart gives consumers digital tools to shop the entirety of physical grocery store using their app. It could be a store where they always shop, or maybe the one that catches their interest but is too far away to be practical. Shoppers still shop at the grocery store, but they work for Instacart, and push shopping carts filled with stuff to be delivered to Instacart users.
\nRetail subscriptions, including Amazon\u2019s Subscribe and Save, are shopping innovations that move the weekly or monthly essential purchases online \u2014 maybe forever. Consumers can now subscribe to everything from laundry detergent to canned garbanzo beans to face cream to white T-shirts and get those items delivered on a schedule for free.
\nYou get the point.
\nInnovations inside the store that make shopping more convenient don\u2019t come easily to mind. No one marvels at the wonders of self-checkout. Even the no-checkout checkout seems to have gone nowhere. The Amazon Go experiment in 2018 was hailed as the coolest thing ever \u2014 until Amazon announced the closure of 8 of its 28 owned Amazon Go stores six years later. The new plan is to license the tech to 125 other retailers who\u2019ve yet to fess up that they\u2019re using it.
\nThere was a time when going to the store to shop was fun, interesting, serendipitous \u2014 but it has become an exercise in uncertainty. And consumers who hate uncertainty have turned to the online experiences that offer a more predictable outcome.
\nIt\u2019s also why years of analyzing shopper satisfaction find that the in-store shopping experience is the least satisfying of all \u2014 with department stores topping that list, as the Fed data shows.
\nSo why does the government report that 8 in every 10 retail purchases happen in physical stores?
\nI call it the Census Retail Data Iceberg Problem.
\nThe published Census Data on retail sales is a bit like an iceberg. What you see on the surface may not look that bad. The real danger sits below the surface, where the extent of the damage isn\u2019t felt until it\u2019s too late.
\nRight now, the Census reports that 84% of retail sales still happen in the physical store.
\nRetailers often laugh nervously when hearing these data. They hope it\u2019s true, but staring at the reality that is their day-to-day tells them that it isn\u2019t, for most of the big ones. They see and sense the danger below the surface, the impact of which is only getting stronger.
\nThe PYMNTS Intelligence team has tracked the share of online versus physical retail sales for most of the last decade. That team doubled down on benchmarking that shift in 2020 and has monitored the acceleration and permanence of retail\u2019s move online ever since. We do this by fielding national monthly and quarterly surveys of statistically significant consumer populations, producing results at a 95% confidence level.
\nIn the U.S., we find that even as consumers have returned to the physical store, online sales are 0.4% higher than they would have been, absent the pandemic. This amounts to an incremental $28 billion in sales that are now online and no longer made in stores.
\nTo understand the impact of that shift, and the true picture of online and physical store sales, one must examine the performance of individual retail segments.
\nIn other words, the iceberg below the surface often doesn\u2019t get as much airtime.
\nWhen Census publishes reports stating that 84% of retail sales happen in the physical store, those data include reporting across 12 retail segments, including clothing and personal care stores, and a lot of other categories too, like gas and groceries.
\nRemoving them from the retail sales tally, the online versus physical retail sales divide looks a little different. The share of retail sales made online becomes 19% of retail sales.
\nExamine just apparel and accessories, and the data looks different still.
\nPYMNTS Intelligence data estimates find that 34% of clothing sales were made online last year, double the 16% made online just a decade ago. That\u2019s slightly more than a third of clothing and apparel sales, for all of you keeping score at home, and only increasing. It starts to put the department store sales cliffhanger in a different perspective.
\n\n\nEven for groceries, where 99% of all grocery sales happened in the physical store pre-COVID, we observe that 39% of consumers buy some of their groceries online today. There is no reason to believe that shift won\u2019t continue.
\nThe generational shopping divide is even more telling.
\nNot surprisingly, the older the consumer, the greater the importance of physical retail, especially when purchasing clothing and accessories. There\u2019s only one problem: they do that half as often as their kids and grandkids.
\nThe younger the demographic, the more digital shopping becomes the preferred channel, their norm and their expectation of a user experience, even in a store.
\nThe emergence of the Click-and-Mortar![\"\u2122\"](\"https://s.w.org/images/core/emoji/15.0.3/72x72/2122.png\")
shopper, an insight gleaned from a six-country PYMNTS Intelligence study of shoppers and merchants commissioned by Visa Acceptance, finds that consumers want the same digital experience when shopping in the physical store as when shopping online \u2014 and especially when buying clothes. More than a third of all consumers participating in the study fit that profile. In the U.S., that share of consumers is 30%.
For these shoppers, physical is simply an extension of the digital experience that\u2019s become second nature. Another place, not the only place, to go when they need or want something to buy. And when inside the store, they expect the same digital features \u2014 product reviews, price comparisons, promo codes, payment options.
\nThe one thing that younger and older shoppers share is that fewer of their feet cross store thresholds. The bad news for retailers is that fewer younger feet today means many, many fewer younger feet, with the loss of their spending power, tomorrow.
\nLet\u2019s hope that the Amazon and Saks Global tie-up starts a conversation around the retail watercooler about a shopping experience that doesn\u2019t start with the store and simply tinkering with the retail status quo.
\nMaybe it\u2019s taken 30 years for retail more generally, and department stores specifically, to come to grips with the reality that they\u2019ve lost their grip on shoppers. It took the sector a good 15 years \u2014 half that time \u2014 to admit that shopping online was more than a one-off.\u00a0 The Census Retail Data Iceberg is partly to blame.
\nIt\u2019s not just Saks and Neiman\u2019s looking for the big retail reset \u2014 all department store retailers want the magic elixir. Macy\u2019s new CEO has proclaimed a bold new chapter, including shuttering a slew of stores to improve operating margins. The Nordstrom family is said to be contemplating going private, again. Bloomingdales is putting their efforts into small store formats. Neiman\u2019s just offered me a free night at a swanky hotel if I book a three-night stay.
\nThe same stores, but smaller. Events in stores. VIP Membership and experiences. More of the status quo. Nothing that breaks the current retail model and reassembles it around shopping, not shopping channels.
\nSaks Global seems to believe, at least in part, that gaining efficiencies in the back of store can lay the foundation for a better customer experience in the store. That complex functions like inventory management, logistics, payments, rewards and distribution can best be accomplished collaboratively rather than building and maintaining those capabilities retailer by retailer and store by store.
\nThat\u2019s certainly true. For Saks Global, outsourcing logistics and distribution capabilities to Amazon could make it easier to move products between stores, to deliver products the same or next day \u2014 which could, itself, be a gamechanger.
\nBut Amazon didn\u2019t have to take a minority stake in Saks Global to get that deal.
\nHow much of a role Amazon might play in executing a newly-formed Saks Global vision is unknown. Retailers have been unsuccessful at reinventing their future on their own and could use the help.
\nAmazon comes to Saks Global with a retail pedigree of its own: its sales of apparel and accessories are $23.6 billion in Q1 2024, accounting for 16.1% of apparel sales, and 0.5% of consumer spending, according to the latest PYMNTS Intelligence data. That makes their apparel sales larger than Walmart\u2019s and Macy\u2019s. The last PYMNTS Intelligence data from July 1st finds Amazon\u2019s share of online retail sales at 47.7% of all online sales.
\n\n\nSelling luxury brands on Amazon hasn\u2019t mirrored that success. Brand selection is quite limiting. The consumer experience is also less than luxurious. Dropping a few thousand dollars on an Oscar de la Renta dress right after putting olive oil in my shopping cart seems weird.
\nWhat seems to have resonated is Amazon\u2019s offer to ship clothes to consumers who can either keep or return before having to pay. Social media influencers have branded storefronts on Amazon to style and sell curated outfits sold on Amazon. They and their followers can have a conversation about fashion on social channels, and consumers can buy those products on Amazon to get the next day or a few days later.
\nThere\u2019s also the opportunity to voice-activate the retail \u2014 and the luxury retail \u2014 experience in new ways. \u00a0I remember asking an Amazon exec right after Alexa was introduced when I might be able to use her as my shopping concierge. My use case: Asking Alexa to use my Amazon Pay account to purchase a jacket or a skirt in my size from an ad without having to go to the retailer\u2019s site.
\nLet\u2019s just say\u2026 I\u2019m still waiting.
\nBut it\u2019s not as crazy as it sounded ten years ago.
\nIn a world of embedded payments, GenAI, enabling tech and logistics expertise, one can imagine the physical store as a staging ground, organized around the convenience of the shopper and not the store hours. Shoppers in the physical store assemble and send outfits curated by stylists to a shopper\u2019s home, much like Instacart shoppers do when buying groceries for their users. \u00a0Video chats with sales associates in the store in real time could offer styling lessons and feedback on what looks good or what to mix and match with what. Items can be added or exchanged and delivered same or next day without the trip to the store. Influencers could even assume the role of trusted sales associate with business models and digital storefronts that reinvent the luxury shopping experience and the economics that support it.
\nThe Saks Global deal and Amazon\u2019s minority stake seems aimed at boosting the fortunes of two luxury retail franchises that have seen better days. The more interesting story will be whether Amazon needs Saks Global to conquer luxury retail. Or whether, after getting a look under the hood, they find the model so broken they decide to go it alone \u2014 taking with them the 21% of the Amazon\u2019s 185 million Prime Members who are women with annual incomes over $100,000, just waiting to shop \u2019til they drop.
\nThe post Does Amazon Need Saks Global to Conquer Luxury Retail? appeared first on PYMNTS.com.
\n", "content_text": "Amazon turned 30 on July 5th and did something that nearly 70% of all women also say they do on their birthday: They bought themselves a present.\nOn July 4th, the day before their three-decade birthday milestone, it was announced that Amazon would take a minority stake in the new luxury department store confab Saks Global. The $2.65 billion acquisition of Neiman Marcus by Saks will create that single luxury department store platform combining the 39 existing Saks stores, the 36 existing Neiman Marcus stores and the two Bergdorf Goodman flagship stores in New York.\nAt least, that\u2019s the size of the footprint right now.\nWe don\u2019t know how much of a birthday splurge that stake was for Amazon \u2014 details about total dollars invested were not disclosed.\nThe acquisition isn\u2019t exactly a news flash. Saks and Neiman\u2019s have been doing the acquisitions dance for more than a decade. Their private equity investors wanted an exit after taking Neiman Marcus private in 2005 for $5.1 billion. Neiman\u2019s filed for bankruptcy in 2020, blaming COVID for at least some of its poor financial performance and using the filing as an opportunity to retire debt and streamline operations.\nRumors floated again a year ago that an acquisition was in the offing, but the deal collapsed at the end of the year over price. Whether the Amazon stake and its potential to add shareholder value longer-term got Neiman\u2019s over their previous sale price hump is unknown.\nSo, too, is whether even Amazon can save these once larger-than-life iconic luxury department stores from their largely self-inflicted demise.\nThe head of Saks eCommerce says Amazon will accelerate the path forward for the merged entity. Geoffrey van Raemdonck, the CEO of Neiman Marcus, says that Saks Global (the new entity which includes Amazon\u2019s minority stake) will create greater efficiencies through a more streamlined inventory management and more favorable (read tougher) negotiations with suppliers. That people still love going to the store to touch and feel the merchandise and interact with salespeople.\nThat luxury buyers are still buying.\nMaybe. Lately, even wealthy buyers have become more discerning.\nBut when they do shop, they don\u2019t seem to be beating a path to department stores. Looking at this chart from the St. Louis Fed suggests a different, more sobering, department store reality.\n\n\nDepartment store sales are 50% below their peak in 2000, and 30% below where they were in the 1980s. \u00a0The 80s, as in 40 years ago. It\u2019s hard to understand what people mean when they say, \u201cdepartment stores are back.\u201d Back from what, exactly? Coming back from zero sales during COVID to levels which don\u2019t even match sales made four decades ago is hardly a comeback story worth writing.\n\u201cBut things are looking up,\u201d proponents of the department store model still say. Not really. According to Collier\u2019s April Real Estate barometer, foot traffic to department stores in April rose 5.1%, but sales fell 5.3%. People are walking into department stores but walking out empty-handed \u2014 as it seems they have been for nearly a quarter of a century. In fact, annual sales for department stores are down by 22% over the 10-year period from 2013 to 2023.\nNow, whether Amazon\u2019s minority stake in Saks Global becomes an opportunity for two desperate luxury retail department chains to think and act more like Amazon by streamlining logistics, inventory and supply chain operations \u2014 or whether it is the equivalent of a last-ditch retail Hail Mary pass \u2014 won\u2019t be known for a while.\nNeither will Amazon\u2019s real interest in Saks Global.\nMaybe they want a ringside seat into the ins and out of a retail category where Amazon doesn\u2019t have much of a presence right now \u2014 but could over the next five years. \u00a0To learn the ropes, the relationships, the frictions. The role of the physical store in luxury retail\u2019s future. According to Bain, the share of luxury goods sold online is expected to reach nearly a third of all luxury retail sales \u2014 taking most of that share from the department stores \u2014 up from low-double-digits five years ago.\u00a0 The future is trending digital.\n\n\nOr perhaps Amazon wants a better understanding, more generally, about why, after thirty years of raising the expectations for the consumer retail buying experience, Census still reports that 84% of retail sales still happen in the physical store.\nWhere innovation has stagnated for at least as many years.\nWhere data about the share of online versus physical retail sales is about as clear as mud and easily misinterpreted.\nBut where there\u2019s an opportunity to (finally) reinvent the retail model by making the physical store an extension of the digital experience. Where the physical store remains relevant, but maybe not so much for shopping.\nPhysical Retail\u2019s Innovation Desert\nIf I asked you to name the biggest innovations in the physical retail shopping experience over the last thirty years, what would make that list?\nFor most people, the innovations that are top of mind are those that give consumers a way to avoid going into the store.\nBuy online, pick up in store is the granddaddy of omnichannel, getting its start around 2007. It got its true digital mojo in 2020 as the world was in the throes of COVID and more retailers were forced to get on board. Today, globally, PYMNTS Intelligence finds a marked increase in that use case, with 9.2% of the U.S. consumer population using buy online, pick up at the store when shopping for groceries.\nRetail is slightly higher, at 11%, but also often comes bundled with the not-so-veiled (and friction-filled attempt) to bring consumers into the store to fetch their bundles. In Boston, the Saks buy online, pick up in store experience consists of schlepping to a counter in the way-back corner of the second floor. Quite often, the buy online, pickup experience comes with a wait of a few days, which seems to miss the point of buying something online and picking it up in the store the same day.\nInstacart gives consumers digital tools to shop the entirety of physical grocery store using their app. It could be a store where they always shop, or maybe the one that catches their interest but is too far away to be practical. Shoppers still shop at the grocery store, but they work for Instacart, and push shopping carts filled with stuff to be delivered to Instacart users.\nRetail subscriptions, including Amazon\u2019s Subscribe and Save, are shopping innovations that move the weekly or monthly essential purchases online \u2014 maybe forever. Consumers can now subscribe to everything from laundry detergent to canned garbanzo beans to face cream to white T-shirts and get those items delivered on a schedule for free.\nYou get the point.\nInnovations inside the store that make shopping more convenient don\u2019t come easily to mind. No one marvels at the wonders of self-checkout. Even the no-checkout checkout seems to have gone nowhere. The Amazon Go experiment in 2018 was hailed as the coolest thing ever \u2014 until Amazon announced the closure of 8 of its 28 owned Amazon Go stores six years later. The new plan is to license the tech to 125 other retailers who\u2019ve yet to fess up that they\u2019re using it.\nThere was a time when going to the store to shop was fun, interesting, serendipitous \u2014 but it has become an exercise in uncertainty. And consumers who hate uncertainty have turned to the online experiences that offer a more predictable outcome.\nIt\u2019s also why years of analyzing shopper satisfaction find that the in-store shopping experience is the least satisfying of all \u2014 with department stores topping that list, as the Fed data shows.\nSo why does the government report that 8 in every 10 retail purchases happen in physical stores?\nI call it the Census Retail Data Iceberg Problem.\nThe Census Data Retail Sales Iceberg\nThe published Census Data on retail sales is a bit like an iceberg. What you see on the surface may not look that bad. The real danger sits below the surface, where the extent of the damage isn\u2019t felt until it\u2019s too late.\nRight now, the Census reports that 84% of retail sales still happen in the physical store.\nRetailers often laugh nervously when hearing these data. They hope it\u2019s true, but staring at the reality that is their day-to-day tells them that it isn\u2019t, for most of the big ones. They see and sense the danger below the surface, the impact of which is only getting stronger.\nThe PYMNTS Intelligence team has tracked the share of online versus physical retail sales for most of the last decade. That team doubled down on benchmarking that shift in 2020 and has monitored the acceleration and permanence of retail\u2019s move online ever since. We do this by fielding national monthly and quarterly surveys of statistically significant consumer populations, producing results at a 95% confidence level.\nIn the U.S., we find that even as consumers have returned to the physical store, online sales are 0.4% higher than they would have been, absent the pandemic. This amounts to an incremental $28 billion in sales that are now online and no longer made in stores.\nTo understand the impact of that shift, and the true picture of online and physical store sales, one must examine the performance of individual retail segments.\nIn other words, the iceberg below the surface often doesn\u2019t get as much airtime.\nThe Danger in the Data Beneath the Surface\nWhen Census publishes reports stating that 84% of retail sales happen in the physical store, those data include reporting across 12 retail segments, including clothing and personal care stores, and a lot of other categories too, like gas and groceries.\nRemoving them from the retail sales tally, the online versus physical retail sales divide looks a little different. The share of retail sales made online becomes 19% of retail sales.\nExamine just apparel and accessories, and the data looks different still.\nPYMNTS Intelligence data estimates find that 34% of clothing sales were made online last year, double the 16% made online just a decade ago. That\u2019s slightly more than a third of clothing and apparel sales, for all of you keeping score at home, and only increasing. It starts to put the department store sales cliffhanger in a different perspective.\n\n\nEven for groceries, where 99% of all grocery sales happened in the physical store pre-COVID, we observe that 39% of consumers buy some of their groceries online today. There is no reason to believe that shift won\u2019t continue.\nHow the Generations Shop \nThe generational shopping divide is even more telling.\nNot surprisingly, the older the consumer, the greater the importance of physical retail, especially when purchasing clothing and accessories. There\u2019s only one problem: they do that half as often as their kids and grandkids.\nThe younger the demographic, the more digital shopping becomes the preferred channel, their norm and their expectation of a user experience, even in a store.\nThe emergence of the Click-and-Mortar shopper, an insight gleaned from a six-country PYMNTS Intelligence study of shoppers and merchants commissioned by Visa Acceptance, finds that consumers want the same digital experience when shopping in the physical store as when shopping online \u2014 and especially when buying clothes. More than a third of all consumers participating in the study fit that profile. In the U.S., that share of consumers is 30%.\nFor these shoppers, physical is simply an extension of the digital experience that\u2019s become second nature. Another place, not the only place, to go when they need or want something to buy. And when inside the store, they expect the same digital features \u2014 product reviews, price comparisons, promo codes, payment options.\nThe one thing that younger and older shoppers share is that fewer of their feet cross store thresholds. The bad news for retailers is that fewer younger feet today means many, many fewer younger feet, with the loss of their spending power, tomorrow.\nLet\u2019s hope that the Amazon and Saks Global tie-up starts a conversation around the retail watercooler about a shopping experience that doesn\u2019t start with the store and simply tinkering with the retail status quo.\nScratching Thirty-Year Retail Innovation Itch\nMaybe it\u2019s taken 30 years for retail more generally, and department stores specifically, to come to grips with the reality that they\u2019ve lost their grip on shoppers. It took the sector a good 15 years \u2014 half that time \u2014 to admit that shopping online was more than a one-off.\u00a0 The Census Retail Data Iceberg is partly to blame.\nIt\u2019s not just Saks and Neiman\u2019s looking for the big retail reset \u2014 all department store retailers want the magic elixir. Macy\u2019s new CEO has proclaimed a bold new chapter, including shuttering a slew of stores to improve operating margins. The Nordstrom family is said to be contemplating going private, again. Bloomingdales is putting their efforts into small store formats. Neiman\u2019s just offered me a free night at a swanky hotel if I book a three-night stay.\nThe same stores, but smaller. Events in stores. VIP Membership and experiences. More of the status quo. Nothing that breaks the current retail model and reassembles it around shopping, not shopping channels.\nSaks Global seems to believe, at least in part, that gaining efficiencies in the back of store can lay the foundation for a better customer experience in the store. That complex functions like inventory management, logistics, payments, rewards and distribution can best be accomplished collaboratively rather than building and maintaining those capabilities retailer by retailer and store by store.\nThat\u2019s certainly true. For Saks Global, outsourcing logistics and distribution capabilities to Amazon could make it easier to move products between stores, to deliver products the same or next day \u2014 which could, itself, be a gamechanger.\nBut Amazon didn\u2019t have to take a minority stake in Saks Global to get that deal.\nThe Amazon Effect on Luxury Retail \nHow much of a role Amazon might play in executing a newly-formed Saks Global vision is unknown. Retailers have been unsuccessful at reinventing their future on their own and could use the help.\nAmazon comes to Saks Global with a retail pedigree of its own: its sales of apparel and accessories are $23.6 billion in Q1 2024, accounting for 16.1% of apparel sales, and 0.5% of consumer spending, according to the latest PYMNTS Intelligence data. That makes their apparel sales larger than Walmart\u2019s and Macy\u2019s. The last PYMNTS Intelligence data from July 1st finds Amazon\u2019s share of online retail sales at 47.7% of all online sales.\n\n\nSelling luxury brands on Amazon hasn\u2019t mirrored that success. Brand selection is quite limiting. The consumer experience is also less than luxurious. Dropping a few thousand dollars on an Oscar de la Renta dress right after putting olive oil in my shopping cart seems weird.\nWhat seems to have resonated is Amazon\u2019s offer to ship clothes to consumers who can either keep or return before having to pay. Social media influencers have branded storefronts on Amazon to style and sell curated outfits sold on Amazon. They and their followers can have a conversation about fashion on social channels, and consumers can buy those products on Amazon to get the next day or a few days later.\nThere\u2019s also the opportunity to voice-activate the retail \u2014 and the luxury retail \u2014 experience in new ways. \u00a0I remember asking an Amazon exec right after Alexa was introduced when I might be able to use her as my shopping concierge. My use case: Asking Alexa to use my Amazon Pay account to purchase a jacket or a skirt in my size from an ad without having to go to the retailer\u2019s site.\nLet\u2019s just say\u2026 I\u2019m still waiting.\nBut it\u2019s not as crazy as it sounded ten years ago.\nIn a world of embedded payments, GenAI, enabling tech and logistics expertise, one can imagine the physical store as a staging ground, organized around the convenience of the shopper and not the store hours. Shoppers in the physical store assemble and send outfits curated by stylists to a shopper\u2019s home, much like Instacart shoppers do when buying groceries for their users. \u00a0Video chats with sales associates in the store in real time could offer styling lessons and feedback on what looks good or what to mix and match with what. Items can be added or exchanged and delivered same or next day without the trip to the store. Influencers could even assume the role of trusted sales associate with business models and digital storefronts that reinvent the luxury shopping experience and the economics that support it.\nThe Saks Global deal and Amazon\u2019s minority stake seems aimed at boosting the fortunes of two luxury retail franchises that have seen better days. The more interesting story will be whether Amazon needs Saks Global to conquer luxury retail. Or whether, after getting a look under the hood, they find the model so broken they decide to go it alone \u2014 taking with them the 21% of the Amazon\u2019s 185 million Prime Members who are women with annual incomes over $100,000, just waiting to shop \u2019til they drop.\nThe post Does Amazon Need Saks Global to Conquer Luxury Retail? appeared first on PYMNTS.com.", "date_published": "2024-07-11T07:00:29-04:00", "date_modified": "2024-07-11T07:06:11-04:00", "authors": [ { "name": "Karen Webster", "url": "https://www.pymnts.com/author/karen-webster/", "avatar": "https://secure.gravatar.com/avatar/5b27788b9b2e77749b3dc9da766486d8?s=512&d=blank&r=g" } ], "author": { "name": "Karen Webster", "url": "https://www.pymnts.com/author/karen-webster/", "avatar": "https://secure.gravatar.com/avatar/5b27788b9b2e77749b3dc9da766486d8?s=512&d=blank&r=g" }, "image": "https://www.pymnts.com/wp-content/uploads/2024/07/amazon-luxury.jpg", "tags": [ "acquisitions", "Amazon", "brick and mortar", "Click-and-Mortar\u2122", "Department Stores", "digital commerce", "Karen Webster", "KLW Commentary", "luxury retail", "Main Feature", "neiman marcus", "News", "online shopping", "PYMNTS Intelligence", "PYMNTS News", "Retail", "Saks", "Saks Global" ] }, { "id": "https://www.pymnts.com/?p=1965376", "url": "https://www.pymnts.com/connectedeconomy/2024/what-60000-consumers-in-eleven-countries-tell-us-about-the-connected-economys-potential/", "title": "Why the Connected Economy Isn\u2019t", "content_html": "The 2,000 members of the Marubo tribe were among the most disconnected people on Planet Earth. A people whose roots span many centuries, they live in a part of the Amazon rainforest in Brazil so remote that it is said to take a week or more to travel from one village to another. The Marubo ecosystem is communal and self-contained with its own language, religion, culture and economy.
\nI say \u201cwere\u201d because in September 2023, Elon Musk\u2019s Starlink satellite brought the internet to this tribe \u2014 and with it, the ability to experience life outside their closed ecosystem.\u00a0 Since then, as reported by the New York Times, many have purchased cheap smartphones with government benefit checks. They use them mostly to play games, communicate with friends and family outside their remote encampment and scroll social media sites.
\n![\"\"](\"https://www.pymnts.com/wp-content/uploads/2024/06/starlink.jpg\")
Image courtesy of The New York Times
Some Marubo villagers, mostly the younger ones, use their newfound connection to the internet to monetize their skills, leveraging apps to connect them to a new world of potential customers. Others see it as a one-way ticket to a new life away from the tribe.
\nIt’s reported that elder members of the tribe worry about the internet\u2019s potential to distract younger members from doing their daily chores, including essential ones like hunting food for dinner. (Elder disdain for mobile phones and apps must be hard-coded in human DNA.)
\nBut even they say, \u201cDon\u2019t take away our internet.\u201d
\nThe New York Times reports that there are 66,000 active Starlink contracts throughout the Amazon rainforest in Brazil, which connects 93% of the cities, towns and villages that dot its riverbanks. Solar panels provide the power needed to operate the satellites and deliver the world to the people living there.
\nToday, about a third of the world\u2019s population remains offline, including 5% of the U.S. population living in rural areas for which there is no internet coverage. The ability to provide low-cost, fast and reliable service to remote parts of the world creates the foundation for a truly global, digital and connected economy.
\nIt\u2019s amazing,\u00a0but only the first step to their digital transformation \u2014 and that of the global economy at large.
\nThree decades after the start of the commercial internet, most of the world is connected to it \u2014 and most people have mobile devices that enable access to it.
\nYet the world remains in the very earliest innings of realizing the full potential of the connected economy that consumers and businesses say they\u2019d like to have, that business leaders and innovators say they are committed to delivering, and that I have been writing about since January of 2020.
\n| Too much of the digital transformation to this point is digital \u2014 but not exactly transformational. \n | \n
Yes, we have apps that allow us to start a transaction in the online world and fulfill it in the physical world. We can keep up with friends on social media, impulse buy on TikTok or Insta and one-click checkout on many mobile and online stores.
\nConsumers have more opportunities to skip the physical world altogether by streaming concerts, or by interacting with their friends inside of their game consoles in their living rooms. They can now cash or deposit paper checks on their mobile phones instead of standing in line at their traditional bank. And they can find a date without going to crowded bars.
\nThese experiences deliver extraordinary convenience because apps and mobile devices have shifted those time-consuming activities online.
\nCreating experiences that connect discrete digital activities within new connected ecosystems is a work in process. \u00a0Truly making the physical world a contextual part of a digital experience remains largely untapped.
\nToo much of the digital transformation to this point is digital \u2014 but not exactly transformational.
\nIt\u2019s one of the greatest opportunities for innovators and business leaders to seize as they write their strategies for the rest of this decade and well beyond.
\nThat\u2019s particularly true for some of the largest segments of the global economy like healthcare, retail and financial services, where innovations that fully integrate \u00a0the on and offline worlds will be necessary as access to (and the cost of delivering)\u00a0a skilled workforce faces enormous pressure.\u00a0
\nOn Wednesday, June 26, 2024, PYMNTS Intelligence will release the results of a landmark global benchmarking of the digital engagement of consumers living in 11 countries that represent 50% of the global GDP. The How the World Does Digital report includes the U.S. and the U.K.; the five largest EU countries \u2014 France, Germany, Italy, Netherlands, and Spain; and Australia, Japan and Singapore in the Asia Pacific.
\nThe nearly 60,000 consumers studied in 2023 are statistically representative of about 800 million people living in those countries. The report analyzes the digital behaviors of this population across 40 different activities involving how they work, live, pay, shop, eat, stay well, have fun, communicate, travel and bank. 2023 is the third year in which PYMNTS Intelligence has conducted this global study; some 180,00 consumers have been studied, all told.
\n| What we present in this report is a snapshot of the connectedness of the global economy at this moment in time for the activities that are done digitally by people in these countries. \n | \n
We know that these 40 activities will expand as more physical-world activities become part of the digital transformation of the global economy. What we present in this report is a snapshot of the connectedness of the global economy at this moment in time for the activities that are done digitally by people in these countries.
\nIn 2023, we find that just about everyone was engaged online or via their mobile devices in at least one of those 40 activities monthly. We think that\u2019s important, especially given the geographic diversity of the populations studied.
\nNot to mention the fact that consumers, en masse, left their homes to transact more in the physical world last year. \u00a0That\u2019s why we consider the 2023 report critical to understanding the global, digital landscape and how it is evolving.
\nWe find \u2014 ironically, perhaps \u2014 that the common activities across all the geographies studied are largely identical to those that the Marubo tribe members gravitated to immediately upon their newfound access: playing games, messaging friends and family and hanging out on social media sites.
\nThose activities have been part of the digital landscape ever since mobile phones and apps became a part of our lives in 2007/8 and digital devices purpose-built for gaming and computers capable of connecting to the internet provided access to gaming and social media years before.
\nThose user experiences have improved over time because competition for attention and eyeballs cause developers to double down on innovative experiences \u2014 and because there are existing networks of people and businesses to connect with.
\nThere are many places, though, where we find digital engagement either lacking or waning for one of three reasons:
\nI doubt many of you would be surprised to learn that Gen Z is way more digital than their parents and grandparents, regardless of the country in which they live. More than twice as engaged, in fact.
\nMaybe some of you might be if I said that there isn\u2019t that much of a difference in how Gen Z and Boomers living in those 11 countries use digital and mobile channels to do their banking.
\nBut I am willing to bet that very few of you would correctly guess which country of the 11 has the most engaged Gen Z population. It\u2019s a shocker. I\u2019ll keep you in suspense until Wednesday. Let\u2019s just say that it offers a clear imperative for how to address some of the economic issues facing that country.
\n| I am willing to bet that very few of you would correctly guess which country of the 11 has the most engaged Gen Z population. \n It\u2019s a shocker. | \n
If you have a guess, reach out to me on LI and I\u2019ll give you a thumbs up or down on what you pick.
\nAnd therein lies one of the biggest impediments to delivering a fully connected global economy \u2014 getting all members of the population on board, especially the older generations. It\u2019s something that will become more necessary as people live longer and have more of a need to stay connected to the physical world using digital methods.
\nOne way to clear that path is through a wholesale reset of the one activity that almost no one in our study engages with digitally anymore \u2014 but almost everyone does at least a couple of times a year in the physical world.
\nGoing to the doctor.
\nLike me, I am sure that many of you used a telehealth provider during COVID. It was the only way to see a doctor at one point during the pandemic, and a preferable one even after the pandemic began to \u00a0subside.
\nToday it remains one of the most underused digital activities, globally, for some of the same reasons that you probably haven\u2019t had a telehealth appointment in the last year: It has a pricey copay, and often you end up having to see the doctor anyway.
\n| It\u2019s a massive part of the global economy waiting to be transformed. \n | \n
Boomers and seniors use it very little, preferring to visit the doctor\u2019s office. They have the time and want the reassurance of being seen and examined there. But that\u2019s largely because there is no digital alternative that they \u2014 or anyone else according to our study \u2014 trusts to be as good or better.
\nPatients can use digital channels to access their medical records, make appointments, order prescriptions and have them delivered and pay their bills. The lack of access to diagnostic devices in the home that measure (and monitor) vitals make telehealth an unsuitable alternative to seeing a doctor in person right now.
\nIt\u2019s a massive part of the global economy waiting to be transformed.
\nThere are apps and connected devices for the home to control the lights, temperature, curtains, door locks and garage doors, and smart ovens that expertly cook food. Aside from the tech enthusiast early adopters, most consumers don\u2019t use them. Many of these devices are still hard to use, don\u2019t feel essential, and are expensive to boot.
\nVoice plays a big role in enabling a smart and connected home experience. Although voice-enabled speakers occupy the kitchen countertop and living room end tables in a small portion of the homes of the consumers studied, most don\u2019t use them or even as much as they once did.
\nPerhaps that\u2019s because more people are out of the house and back at work. Or most people find that there\u2019s a gap between how people would like to use them and their capabilities today. Right now, they are a long way from the Gen AI-powered assistants we\u2019re being promised, the ones consumers say they would even pay to use.
\nOne of the more common digital activities across the 11 countries in the study is the use of gig platforms to get rides and order restaurant food, groceries or retail items for delivery to their homes on demand. These platforms have built their businesses by matching and monetizing customer demand with driver supply at price points that consumers and drivers find acceptable. \u00a0They rely on people with some spare time, and vehicles with some spare capacity, at the right time to match up with people and businesses that need something delivered. They are the glue that neatly binds the digital and physical worlds.
\nMany of these platforms have also created connected experiences within them. Uber now reminds me that I can order food from Eats while at the airport waiting for my plane, and at the hotel when I land \u2014 right after reminding me to book my ride back to the airport the day I am scheduled to fly home.
\nUnfortunately, some countries have labor laws or other regulations that make it difficult to use people who would like to supply their services part time when they are needed this way. Other countries and cities are adopting regulations, including minimum wage laws and requirements that gig workers be full time. That makes it hard to give work to people who have unpredictable portions of their time available to do these jobs.
\n| The reclassification of gig workers as employees has resulted in higher prices for consumers, and fewer trips (and tips)\u00a0 for the drivers. \n | \n
This has been a real problem in many European countries and is becoming an increasing one in the U.S.\u00a0 The reclassification of gig workers as employees has resulted in higher prices for consumers, and fewer trips (and tips)\u00a0 for the drivers. According to the Wall Street Journal, \u00a0Seattle will roll back its requirement to pay gig workers minimum wage after reports that Uber Eats orders dropped 45% last quarter from a year ago (and obviously so did driver pay). Drivers may be making more on an hourly basis with the new minimum wage requirements, but taking home less since there is a diminishing demand for their services.
\nNew York is the latest State requiring gig platforms to pay workers a minimum of $19.56/hour, up about $16 from the end of last year. Massachusetts has it on the ballot. \u00a0Platforms are passing on the extra costs to the consumer as a surcharge \u2014 it\u2019s either that or run in the red.
\nThat will make the gig experience \u2014 which consumers all over the world like and use \u2014 more expensive and less accessible thanks to government regulation.
\nOne of the big takeaways from the 2023 How the World Does Digital report is the huge potential for embedding digital into the day-to-day routine activities of consumers regardless of where they live \u2014 including the once-isolated parts of the world. With connection comes innovation and the opportunity to expand people\u2019s economic wellbeing.
\nSince 2020 we\u2019ve fast-tracked our shift to digital, whetting the appetites of an enthusiastic consumer with access to the connected economy, and making the transition between the physical and digital worlds seamless, secure and always on. We\u2019ve seen innovators use technology and payments to power new experiences, laying the foundation for the transformation that is on the horizon.
\nOn \u00a0Wednesday, you\u2019ll get the full scoop \u2014 and the big reveal of which country is the most digitally connected one of those we studied. And where, across all of them, the opportunity to innovate \u2014 no, transform \u2014 those experiences is waiting.
\n\n
The post Why the Connected Economy Isn’t appeared first on PYMNTS.com.
\n", "content_text": "The 2,000 members of the Marubo tribe were among the most disconnected people on Planet Earth. A people whose roots span many centuries, they live in a part of the Amazon rainforest in Brazil so remote that it is said to take a week or more to travel from one village to another. The Marubo ecosystem is communal and self-contained with its own language, religion, culture and economy.\nI say \u201cwere\u201d because in September 2023, Elon Musk\u2019s Starlink satellite brought the internet to this tribe \u2014 and with it, the ability to experience life outside their closed ecosystem.\u00a0 Since then, as reported by the New York Times, many have purchased cheap smartphones with government benefit checks. They use them mostly to play games, communicate with friends and family outside their remote encampment and scroll social media sites.\nImage courtesy of The New York Times\nSome Marubo villagers, mostly the younger ones, use their newfound connection to the internet to monetize their skills, leveraging apps to connect them to a new world of potential customers. Others see it as a one-way ticket to a new life away from the tribe.\nIt’s reported that elder members of the tribe worry about the internet\u2019s potential to distract younger members from doing their daily chores, including essential ones like hunting food for dinner. (Elder disdain for mobile phones and apps must be hard-coded in human DNA.)\nBut even they say, \u201cDon\u2019t take away our internet.\u201d\nThe New York Times reports that there are 66,000 active Starlink contracts throughout the Amazon rainforest in Brazil, which connects 93% of the cities, towns and villages that dot its riverbanks. Solar panels provide the power needed to operate the satellites and deliver the world to the people living there.\nToday, about a third of the world\u2019s population remains offline, including 5% of the U.S. population living in rural areas for which there is no internet coverage. The ability to provide low-cost, fast and reliable service to remote parts of the world creates the foundation for a truly global, digital and connected economy.\nIt\u2019s amazing,\u00a0but only the first step to their digital transformation \u2014 and that of the global economy at large.\nThe Connected Economy Journey\nThree decades after the start of the commercial internet, most of the world is connected to it \u2014 and most people have mobile devices that enable access to it.\nYet the world remains in the very earliest innings of realizing the full potential of the connected economy that consumers and businesses say they\u2019d like to have, that business leaders and innovators say they are committed to delivering, and that I have been writing about since January of 2020.\n\n\n\n Too much of the digital transformation to this point is digital \u2014 but not exactly transformational.\n\n\n\n\nYes, we have apps that allow us to start a transaction in the online world and fulfill it in the physical world. We can keep up with friends on social media, impulse buy on TikTok or Insta and one-click checkout on many mobile and online stores.\nConsumers have more opportunities to skip the physical world altogether by streaming concerts, or by interacting with their friends inside of their game consoles in their living rooms. They can now cash or deposit paper checks on their mobile phones instead of standing in line at their traditional bank. And they can find a date without going to crowded bars.\nThese experiences deliver extraordinary convenience because apps and mobile devices have shifted those time-consuming activities online.\nCreating experiences that connect discrete digital activities within new connected ecosystems is a work in process. \u00a0Truly making the physical world a contextual part of a digital experience remains largely untapped.\nToo much of the digital transformation to this point is digital \u2014 but not exactly transformational.\nIt\u2019s one of the greatest opportunities for innovators and business leaders to seize as they write their strategies for the rest of this decade and well beyond.\nThat\u2019s particularly true for some of the largest segments of the global economy like healthcare, retail and financial services, where innovations that fully integrate \u00a0the on and offline worlds will be necessary as access to (and the cost of delivering)\u00a0a skilled workforce faces enormous pressure.\u00a0\nThe Connected Economy in 2024\nOn Wednesday, June 26, 2024, PYMNTS Intelligence will release the results of a landmark global benchmarking of the digital engagement of consumers living in 11 countries that represent 50% of the global GDP. The How the World Does Digital report includes the U.S. and the U.K.; the five largest EU countries \u2014 France, Germany, Italy, Netherlands, and Spain; and Australia, Japan and Singapore in the Asia Pacific.\nThe nearly 60,000 consumers studied in 2023 are statistically representative of about 800 million people living in those countries. The report analyzes the digital behaviors of this population across 40 different activities involving how they work, live, pay, shop, eat, stay well, have fun, communicate, travel and bank. 2023 is the third year in which PYMNTS Intelligence has conducted this global study; some 180,00 consumers have been studied, all told.\n\n\n\n What we present in this report is a snapshot of the connectedness of the global economy at this moment in time for the activities that are done digitally by people in these countries.\n\n\n\n\nWe know that these 40 activities will expand as more physical-world activities become part of the digital transformation of the global economy. What we present in this report is a snapshot of the connectedness of the global economy at this moment in time for the activities that are done digitally by people in these countries.\nIn 2023, we find that just about everyone was engaged online or via their mobile devices in at least one of those 40 activities monthly. We think that\u2019s important, especially given the geographic diversity of the populations studied.\nNot to mention the fact that consumers, en masse, left their homes to transact more in the physical world last year. \u00a0That\u2019s why we consider the 2023 report critical to understanding the global, digital landscape and how it is evolving.\nWe find \u2014 ironically, perhaps \u2014 that the common activities across all the geographies studied are largely identical to those that the Marubo tribe members gravitated to immediately upon their newfound access: playing games, messaging friends and family and hanging out on social media sites.\nThose activities have been part of the digital landscape ever since mobile phones and apps became a part of our lives in 2007/8 and digital devices purpose-built for gaming and computers capable of connecting to the internet provided access to gaming and social media years before.\nThose user experiences have improved over time because competition for attention and eyeballs cause developers to double down on innovative experiences \u2014 and because there are existing networks of people and businesses to connect with.\nThere are many places, though, where we find digital engagement either lacking or waning for one of three reasons:\n\nThe generational digital divides are enormous everywhere.\nMany digital activities that could be adopted aren\u2019t probably because the clunk isn\u2019t worth the squeeze.\nRegulators and lawmakers have imposed requirements on providers that degrade the appeal of a connected experience that consumers like and use.\n\nIt\u2019s Not Your Grandma\u2019s Connected Economy\nI doubt many of you would be surprised to learn that Gen Z is way more digital than their parents and grandparents, regardless of the country in which they live. More than twice as engaged, in fact.\nMaybe some of you might be if I said that there isn\u2019t that much of a difference in how Gen Z and Boomers living in those 11 countries use digital and mobile channels to do their banking.\nBut I am willing to bet that very few of you would correctly guess which country of the 11 has the most engaged Gen Z population. It\u2019s a shocker. I\u2019ll keep you in suspense until Wednesday. Let\u2019s just say that it offers a clear imperative for how to address some of the economic issues facing that country.\n\n\n\n I am willing to bet that very few of you would correctly guess which country of the 11 has the most engaged Gen Z population. \nIt\u2019s a shocker.\n\n\n\n\nIf you have a guess, reach out to me on LI and I\u2019ll give you a thumbs up or down on what you pick.\nAnd therein lies one of the biggest impediments to delivering a fully connected global economy \u2014 getting all members of the population on board, especially the older generations. It\u2019s something that will become more necessary as people live longer and have more of a need to stay connected to the physical world using digital methods.\nOne way to clear that path is through a wholesale reset of the one activity that almost no one in our study engages with digitally anymore \u2014 but almost everyone does at least a couple of times a year in the physical world.\nGoing to the doctor.\nThe Prescription for a Healthy and Connected Economy\nLike me, I am sure that many of you used a telehealth provider during COVID. It was the only way to see a doctor at one point during the pandemic, and a preferable one even after the pandemic began to \u00a0subside.\nToday it remains one of the most underused digital activities, globally, for some of the same reasons that you probably haven\u2019t had a telehealth appointment in the last year: It has a pricey copay, and often you end up having to see the doctor anyway.\n\n\n\n It\u2019s a massive part of the global economy waiting to be transformed.\n\n\n\n\nBoomers and seniors use it very little, preferring to visit the doctor\u2019s office. They have the time and want the reassurance of being seen and examined there. But that\u2019s largely because there is no digital alternative that they \u2014 or anyone else according to our study \u2014 trusts to be as good or better.\nPatients can use digital channels to access their medical records, make appointments, order prescriptions and have them delivered and pay their bills. The lack of access to diagnostic devices in the home that measure (and monitor) vitals make telehealth an unsuitable alternative to seeing a doctor in person right now.\nIt\u2019s a massive part of the global economy waiting to be transformed.\nThe Voice Doesn\u2019t Necessarily Have It\nThere are apps and connected devices for the home to control the lights, temperature, curtains, door locks and garage doors, and smart ovens that expertly cook food. Aside from the tech enthusiast early adopters, most consumers don\u2019t use them. Many of these devices are still hard to use, don\u2019t feel essential, and are expensive to boot.\nVoice plays a big role in enabling a smart and connected home experience. Although voice-enabled speakers occupy the kitchen countertop and living room end tables in a small portion of the homes of the consumers studied, most don\u2019t use them or even as much as they once did.\nPerhaps that\u2019s because more people are out of the house and back at work. Or most people find that there\u2019s a gap between how people would like to use them and their capabilities today. Right now, they are a long way from the Gen AI-powered assistants we\u2019re being promised, the ones consumers say they would even pay to use.\nWhen Regulators Rain on the Connected Economy\u2019s Parade\nOne of the more common digital activities across the 11 countries in the study is the use of gig platforms to get rides and order restaurant food, groceries or retail items for delivery to their homes on demand. These platforms have built their businesses by matching and monetizing customer demand with driver supply at price points that consumers and drivers find acceptable. \u00a0They rely on people with some spare time, and vehicles with some spare capacity, at the right time to match up with people and businesses that need something delivered. They are the glue that neatly binds the digital and physical worlds.\nMany of these platforms have also created connected experiences within them. Uber now reminds me that I can order food from Eats while at the airport waiting for my plane, and at the hotel when I land \u2014 right after reminding me to book my ride back to the airport the day I am scheduled to fly home.\nUnfortunately, some countries have labor laws or other regulations that make it difficult to use people who would like to supply their services part time when they are needed this way. Other countries and cities are adopting regulations, including minimum wage laws and requirements that gig workers be full time. That makes it hard to give work to people who have unpredictable portions of their time available to do these jobs.\n\n\n\n The reclassification of gig workers as employees has resulted in higher prices for consumers, and fewer trips (and tips)\u00a0 for the drivers.\n\n\n\n\nThis has been a real problem in many European countries and is becoming an increasing one in the U.S.\u00a0 The reclassification of gig workers as employees has resulted in higher prices for consumers, and fewer trips (and tips)\u00a0 for the drivers. According to the Wall Street Journal, \u00a0Seattle will roll back its requirement to pay gig workers minimum wage after reports that Uber Eats orders dropped 45% last quarter from a year ago (and obviously so did driver pay). Drivers may be making more on an hourly basis with the new minimum wage requirements, but taking home less since there is a diminishing demand for their services.\nNew York is the latest State requiring gig platforms to pay workers a minimum of $19.56/hour, up about $16 from the end of last year. Massachusetts has it on the ballot. \u00a0Platforms are passing on the extra costs to the consumer as a surcharge \u2014 it\u2019s either that or run in the red.\nThat will make the gig experience \u2014 which consumers all over the world like and use \u2014 more expensive and less accessible thanks to government regulation.\nThe Connected Economy\u2019s Path\nOne of the big takeaways from the 2023 How the World Does Digital report is the huge potential for embedding digital into the day-to-day routine activities of consumers regardless of where they live \u2014 including the once-isolated parts of the world. With connection comes innovation and the opportunity to expand people\u2019s economic wellbeing.\nSince 2020 we\u2019ve fast-tracked our shift to digital, whetting the appetites of an enthusiastic consumer with access to the connected economy, and making the transition between the physical and digital worlds seamless, secure and always on. We\u2019ve seen innovators use technology and payments to power new experiences, laying the foundation for the transformation that is on the horizon.\nOn \u00a0Wednesday, you\u2019ll get the full scoop \u2014 and the big reveal of which country is the most digitally connected one of those we studied. And where, across all of them, the opportunity to innovate \u2014 no, transform \u2014 those experiences is waiting.\n \nThe post Why the Connected Economy Isn’t appeared first on PYMNTS.com.", "date_published": "2024-06-24T07:00:55-04:00", "date_modified": "2024-06-24T07:17:53-04:00", "authors": [ { "name": "Karen Webster", "url": "https://www.pymnts.com/author/karen-webster/", "avatar": "https://secure.gravatar.com/avatar/5b27788b9b2e77749b3dc9da766486d8?s=512&d=blank&r=g" } ], "author": { "name": "Karen Webster", "url": "https://www.pymnts.com/author/karen-webster/", "avatar": "https://secure.gravatar.com/avatar/5b27788b9b2e77749b3dc9da766486d8?s=512&d=blank&r=g" }, "image": "https://www.pymnts.com/wp-content/uploads/2024/06/global-digital.jpg", "tags": [ "Connected Economy", "digital economy", "digital shift", "digital transformation", "Karen Webster", "KLW Commentary", "Main Feature", "News", "PYMNTS Intelligence", "PYMNTS News", "Connected Economy" ] }, { "id": "https://www.pymnts.com/?p=1964435", "url": "https://www.pymnts.com/consumer-insights/2024/meet-the-27-million-americans-who-drive-8-of-consumer-spend-but-struggle-to-pay-their-bills/", "title": "Meet the 27 Million Americans Who Drive 8% of Consumer Spend but Struggle to Pay Their Bills", "content_html": "The big consumer news last Friday was that the University of Michigan\u2019s June Consumer Sentiment Index hit a seven-month low. Many scratched their heads, particularly since the CPI print earlier in the week came in flat and the economy appears to be firing on all cylinders.
\nBut there\u2019s nothing like asking consumers how they\u2019re feeling about their personal financial prospects \u2014 and then comparing what they say to what they do \u2014 to get the true picture. And what we see is that the other consumer spending shoe is starting to drop.
\nWe read the stories about millionaires shopping at TJX (who probably always did), and Walmart attracting more $100,000 income shoppers (maybe some of them always did too). But you get the point \u2014 it\u2019s now a headline because it seems more than a one-off.
\nAt the same time, we see sales rising at recommerce sites such as The RealReal (after consecutive quarters of slowing sales) as shoppers at all income levels cast the net far and wide for deals, including those for someone else\u2019s designer duds at a favorable price point.
\nAccording to many recent research studies by PYMNTS Intelligence, we see trade-downs in merchants and brands across all income levels as savings diminish and credit card outstandings rise.
\nTrading down to cheaper brands was something that PYMNTS Intelligence data showed that nearly two-thirds of consumers were already doing in January. A little more than half of consumers said they were switching to cheaper merchants then, too.
\nConsumers take no solace in the month-over-month decline in CPI and the flat showing in June. Regardless of income, all consumers feel caught in the struggle between persistently high prices and moderating wage growth.
\nAs I wrote in May of this year, those declines mean nothing to the average consumer who is paying roughly 20% more at the grocery store and the gas pump now than they did in years past. CPI data shows that since inflation began in March of 2021, prices have increased by 18.4%, with retail and grocery prices increasing by 19.3% and 20.7% respectively.\u00a0 Alternatively, average earnings have increased by only 16.1%[1] over the same period.
\n\n\nThat squeeze is starting to pinch retail sales.
\nMay 2024 retail sales were released this week. The headline numbers are somewhat misleading. During the first five months of 2024, retail sales, while up by 2.3% over the first five months of 2023, are mainly up in essential items like grocery and health-related purchases and at mass merchants. However, they are all down for the year for discretionary categories such as home furnishings, building materials and hobby and leisure products.
\nRecent media coverage has focused on the stress points felt by the lower-income consumer earning $50,000 a year or less. As Sezzle CEO Charlie Youakim told me a few years back, this consumer is one who lives in a constant state of recession, so the price/income crunch is their status quo. In other words, they\u2019ve gotten pretty good over the years at figuring out how to do more with less.
\nBut there is a bigger and potentially more meaningful story to be told \u2014 one where the usual tricks of the trade-off are becoming less effective.
\nOne in ten U.S. consumers has an annual income of $50,000 or less, lives paycheck to paycheck and says they have issues paying their monthly bills. Not that they won\u2019t eventually pay them, but each month becomes a game of bill-pay roulette as consumers decide which biller can wait a little longer. Interestingly, of all household bills, utilities, insurance, mobile phones and credit cards make the monthly cut \u2014 the billers that carry a big downside risk if not paid.
\nThat makes the current price/wage/inflation dynamic hit this consumer with a potential double whammy. Not only do they struggle to make ends meet every month, but they also worry most about their wage and employment security as the labor market shows recent signs of cooling and employment alternatives may not be as plentiful.
\nIt\u2019s also a group of consumers whose ranks are swelling.
\nPYMNTS Intelligence reports a sharp spike in the number of consumers that fit this profile over the last two months \u2014 now reaching among the highest levels seen since we started tracking the paycheck-to-paycheck consumer nearly four years ago.
\nThis is their story.
\nIt would be easy to stereotype these 27 million consumers as poor people who don\u2019t matter much to overall retail spend and GDP. That would be wrong.
\nThese 27 million people represent 8% of all consumer spending. These are nurses, fire fighters, police officers, salon and spa staff, fitness instructors, teachers, the people who check you in at your hotel when you arrive, the independent truck driver who makes sure your packages arrive on time, the gig workers who deliver your groceries or take you to the airport, the people who cut your lawn and your hair, the sales associate at your favorite independent retailer, the freelance designer you hire to do your website.
\nIn many ways, these are the consumers who help power the economic infrastructure of our cities and towns and businesses across America.
\nMore of them have kids; fewer of them have a college degree. These consumers are not only trying to figure out how to stretch their dollars to buy what they need, but how to struggle with that and literally keep the lights on.
\nFor people making less than $50K per year, just paying for food (25%), housing (37%) and their monthly bills (13%) now accounts for 72% of their monthly income. That\u2019s three times more than consumers whose annual income is greater. And there isn\u2019t much left over to buy anything that isn\u2019t necessary to run the household.
\nOr save.
\n\n\nThe savings account balances for financially stressed consumers are 75% less than the average American household, some $2600 to the nearly $11,000 for the average American. Those lower balances make it more likely that an emergency expenditure, which PYMNTS Intelligence finds is closer to $1,400 than the $400 that the Fed continues to quote, could deplete most of it.
\nGiven their monthly income constraints, savings likely come last when the expenses of daily life get in the way. And that seems more the rule than the exception. We find that the financially stressed consumer saves half as much monthly as those living paycheck to paycheck and comfortably paying their bills \u2014 so rebuilding those savings can take a lot longer.
\nThe lack of a cash cushion means that these consumers are always living on a knife\u2019s edge. In the event of any financial emergency, they often lack access to credit, so are 30% more likely to be forced to sell assets or turn to family, friends or predatory lenders than the average consumer.
\nUnsurprisingly, financially stressed consumers use debit or cash to make most of their purchases \u2014 27% more often than the average consumer \u2014 and more out of necessity than choice. These consumers are also highly leveraged, and their credit options are more limited.
\nPYMNTS Intelligence data finds that their credit cards are often declined at the point of sale \u2014 nearly one in every five times \u2014 for not having enough available credit to make the purchase. More than twice as many financially stressed consumers either struggle to pay the monthly minimum or pay nothing, as compared to the average consumer.
\nThat makes purchases using cards more expensive and the ability to pay off their balances a challenge. As a cohort, 76% of financially stressed consumers revolve their monthly balances, compared to 48% of the average credit cardholder in the U.S.
\n\n\nMost financially stressed consumers choose to shop in a store rather than order online. They are willing to trade off the value of their time for the chance to examine products, compare prices and pay with cash on hand (debit or cash) at checkout.
\nCash, as a payment tender, is used by this cohort 53% more often than the average consumer, and 2.3 times more frequently than high earners. For financially stressed consumers, it is also their best budgeting tool. \u00a0It\u2019s pretty straightforward to decide how and when and how much to spend money when the stack of bills in their leather wallets is a visible reminder of how much they have left to spend.
\nFinancially stressed consumers are also much more likely to shop at Walmart, naming Walmart 28% of the time when asked the name of the merchant from which they made their most recent purchase; 27% more often than the average consumer.
\n\n\nAcross all income segments, consumers who say they are living paycheck to paycheck with issues paying their bills are more digitally engaged than those who are not.
\n\n\n\n\nIt may be that these consumers rely more on their mobile devices and apps to find deals, compare prices, check their balances and scan sites for coupons to redeem at checkout to save money.
\nAnd to receive payments and do their banking. In fact, these struggling consumers use neobanks as their primary bank accounts more frequently than others. Currently, 14.5% of this struggling cohort say they use neobanks such as PayPal, Venmo, Chime, Ally and Cash App as their primary bank account. This is slightly higher than the 13.2% rate for the average American adult.
\nThey \u00a0use these non-bank wallets to send and receive money. PYMNTS Intelligence data shows\u00a0the majority of service workers that receive tips paid directly by consumers receive these tips in cash. However, 23% also receive some of these tip payments using digital apps such as Venmo, PayPal or Cash App accounts.
\nFinancially stressed consumers aren\u2019t the only ones who live paycheck to paycheck in the U.S.
\nThe PYMNTS Intelligence team has been tracking the behaviors of the paycheck-to-paycheck consumer since March of 2020. We\u2019ve done that by breaking consumers into three distinct cohorts based on how consumers describe the struggles of their financial lifestyle: Those who live paycheck to paycheck with issues paying bills; those without issues paying bills but who need their next paycheck to manage their household bills; and those who say they do not live paycheck to paycheck.
\nToday, 65% of the U.S. population lives paycheck to paycheck, the highest share we have seen in two years.
\nEighty percent of consumers earning less than $50,000 annually say they live paycheck to paycheck. More than two thirds (68%) of those in the middle-income range, those earning between $50,000 and $75,000, and 49% of those earning over $100,000 say they do, too. In fact, even 34% of those making over $200K per year also live paycheck to paycheck.
\n\n\nIn May 2024, we also find that slightly more than one in five U.S. consumers (21.2%) report living paycheck to paycheck with issues paying their bills.
\nThe 27 million financially stressed consumers you\u2019ve just read about represent nearly half (48%) of this paycheck-to-paycheck cohort that also earns $50,000 a year or less. Twenty-one percent of them are Gen Z.
\nThese 27 million consumers would love nothing more than to\u00a0reduce the daily stress that comes from worrying about making ends meet. Innovators and their investors would love nothing more than to find an addressable market where new technologies and data can deliver a compelling product for a willing buyer who can become a loyal customer.
\nPerhaps this financially stressed consumer \u2014 most often overlooked \u2014 is a compelling opportunity to improve the shopping, payment and savings experience using apps and the mobile phone. The chance to optimize these finance essentials might be a payments and commerce blue ocean.
\nYes, but it\u2019s a tricky group to serve. They are price- and fee-sensitive. To be successful, products and business models must consider levers other than interchange fees to drive scale and profits.
\nWe see FinTech banking, shopping and payments apps stepping in to fill the void with new product offers and bundled products and capabilities that create better economics for themselves and the financially stressed consumer they serve.\u00a0 Embedding products into platforms with a critical mass of these consumers can reduce customer acquisition costs, provided the value proposition is aligned, as they build their own. Innovators are blending payments and savings capabilities into a single product for financially stressed consumers. Pay in 3 or 4 provides short term, small dollar credit to help consumers manage their monthly budget, build credit and buy what is needed for themselves and their families.
\nFor these consumers, innovations in how they spend, shop, pay and save aren\u2019t just a nice-to-have. And they can\u2019t come soon enough.
\n\n
[1] Bureau of Labor Statistics, Current Employment Statistics Survey.
\nThe post Meet the 27 Million Americans Who Drive 8% of Consumer Spend but Struggle to Pay Their Bills appeared first on PYMNTS.com.
\n", "content_text": "The big consumer news last Friday was that the University of Michigan\u2019s June Consumer Sentiment Index hit a seven-month low. Many scratched their heads, particularly since the CPI print earlier in the week came in flat and the economy appears to be firing on all cylinders.\nBut there\u2019s nothing like asking consumers how they\u2019re feeling about their personal financial prospects \u2014 and then comparing what they say to what they do \u2014 to get the true picture. And what we see is that the other consumer spending shoe is starting to drop.\nWe read the stories about millionaires shopping at TJX (who probably always did), and Walmart attracting more $100,000 income shoppers (maybe some of them always did too). But you get the point \u2014 it\u2019s now a headline because it seems more than a one-off.\nAt the same time, we see sales rising at recommerce sites such as The RealReal (after consecutive quarters of slowing sales) as shoppers at all income levels cast the net far and wide for deals, including those for someone else\u2019s designer duds at a favorable price point.\nAccording to many recent research studies by PYMNTS Intelligence, we see trade-downs in merchants and brands across all income levels as savings diminish and credit card outstandings rise.\nTrading down to cheaper brands was something that PYMNTS Intelligence data showed that nearly two-thirds of consumers were already doing in January. A little more than half of consumers said they were switching to cheaper merchants then, too.\nConsumers take no solace in the month-over-month decline in CPI and the flat showing in June. Regardless of income, all consumers feel caught in the struggle between persistently high prices and moderating wage growth.\nAs I wrote in May of this year, those declines mean nothing to the average consumer who is paying roughly 20% more at the grocery store and the gas pump now than they did in years past. CPI data shows that since inflation began in March of 2021, prices have increased by 18.4%, with retail and grocery prices increasing by 19.3% and 20.7% respectively.\u00a0 Alternatively, average earnings have increased by only 16.1%[1] over the same period.\n\n\nThat squeeze is starting to pinch retail sales.\nMay 2024 retail sales were released this week. The headline numbers are somewhat misleading. During the first five months of 2024, retail sales, while up by 2.3% over the first five months of 2023, are mainly up in essential items like grocery and health-related purchases and at mass merchants. However, they are all down for the year for discretionary categories such as home furnishings, building materials and hobby and leisure products.\nThe Lower-Income Consumer Spotlight\nRecent media coverage has focused on the stress points felt by the lower-income consumer earning $50,000 a year or less. As Sezzle CEO Charlie Youakim told me a few years back, this consumer is one who lives in a constant state of recession, so the price/income crunch is their status quo. In other words, they\u2019ve gotten pretty good over the years at figuring out how to do more with less.\nBut there is a bigger and potentially more meaningful story to be told \u2014 one where the usual tricks of the trade-off are becoming less effective.\nOne in ten U.S. consumers has an annual income of $50,000 or less, lives paycheck to paycheck and says they have issues paying their monthly bills. Not that they won\u2019t eventually pay them, but each month becomes a game of bill-pay roulette as consumers decide which biller can wait a little longer. Interestingly, of all household bills, utilities, insurance, mobile phones and credit cards make the monthly cut \u2014 the billers that carry a big downside risk if not paid.\nThat makes the current price/wage/inflation dynamic hit this consumer with a potential double whammy. Not only do they struggle to make ends meet every month, but they also worry most about their wage and employment security as the labor market shows recent signs of cooling and employment alternatives may not be as plentiful.\nIt\u2019s also a group of consumers whose ranks are swelling.\nPYMNTS Intelligence reports a sharp spike in the number of consumers that fit this profile over the last two months \u2014 now reaching among the highest levels seen since we started tracking the paycheck-to-paycheck consumer nearly four years ago.\nThis is their story.\nSizing Up the Financially Stressed US Consumer\nIt would be easy to stereotype these 27 million consumers as poor people who don\u2019t matter much to overall retail spend and GDP. That would be wrong.\nThese 27 million people represent 8% of all consumer spending. These are nurses, fire fighters, police officers, salon and spa staff, fitness instructors, teachers, the people who check you in at your hotel when you arrive, the independent truck driver who makes sure your packages arrive on time, the gig workers who deliver your groceries or take you to the airport, the people who cut your lawn and your hair, the sales associate at your favorite independent retailer, the freelance designer you hire to do your website.\nIn many ways, these are the consumers who help power the economic infrastructure of our cities and towns and businesses across America.\nMore of them have kids; fewer of them have a college degree. These consumers are not only trying to figure out how to stretch their dollars to buy what they need, but how to struggle with that and literally keep the lights on.\nFor people making less than $50K per year, just paying for food (25%), housing (37%) and their monthly bills (13%) now accounts for 72% of their monthly income. That\u2019s three times more than consumers whose annual income is greater. And there isn\u2019t much left over to buy anything that isn\u2019t necessary to run the household.\nOr save.\n\n\nThe savings account balances for financially stressed consumers are 75% less than the average American household, some $2600 to the nearly $11,000 for the average American. Those lower balances make it more likely that an emergency expenditure, which PYMNTS Intelligence finds is closer to $1,400 than the $400 that the Fed continues to quote, could deplete most of it.\nGiven their monthly income constraints, savings likely come last when the expenses of daily life get in the way. And that seems more the rule than the exception. We find that the financially stressed consumer saves half as much monthly as those living paycheck to paycheck and comfortably paying their bills \u2014 so rebuilding those savings can take a lot longer.\nThe lack of a cash cushion means that these consumers are always living on a knife\u2019s edge. In the event of any financial emergency, they often lack access to credit, so are 30% more likely to be forced to sell assets or turn to family, friends or predatory lenders than the average consumer.\nCash on Hand Rules\nUnsurprisingly, financially stressed consumers use debit or cash to make most of their purchases \u2014 27% more often than the average consumer \u2014 and more out of necessity than choice. These consumers are also highly leveraged, and their credit options are more limited.\nPYMNTS Intelligence data finds that their credit cards are often declined at the point of sale \u2014 nearly one in every five times \u2014 for not having enough available credit to make the purchase. More than twice as many financially stressed consumers either struggle to pay the monthly minimum or pay nothing, as compared to the average consumer.\nThat makes purchases using cards more expensive and the ability to pay off their balances a challenge. As a cohort, 76% of financially stressed consumers revolve their monthly balances, compared to 48% of the average credit cardholder in the U.S.\n\n\nPhysical Stores Get Their Business\nMost financially stressed consumers choose to shop in a store rather than order online. They are willing to trade off the value of their time for the chance to examine products, compare prices and pay with cash on hand (debit or cash) at checkout.\nCash, as a payment tender, is used by this cohort 53% more often than the average consumer, and 2.3 times more frequently than high earners. For financially stressed consumers, it is also their best budgeting tool. \u00a0It\u2019s pretty straightforward to decide how and when and how much to spend money when the stack of bills in their leather wallets is a visible reminder of how much they have left to spend.\nFinancially stressed consumers are also much more likely to shop at Walmart, naming Walmart 28% of the time when asked the name of the merchant from which they made their most recent purchase; 27% more often than the average consumer.\n\n\nFinancially Stressed but Highly Connected\nAcross all income segments, consumers who say they are living paycheck to paycheck with issues paying their bills are more digitally engaged than those who are not.\n\n\n\n\nIt may be that these consumers rely more on their mobile devices and apps to find deals, compare prices, check their balances and scan sites for coupons to redeem at checkout to save money.\nAnd to receive payments and do their banking. In fact, these struggling consumers use neobanks as their primary bank accounts more frequently than others. Currently, 14.5% of this struggling cohort say they use neobanks such as PayPal, Venmo, Chime, Ally and Cash App as their primary bank account. This is slightly higher than the 13.2% rate for the average American adult.\nThey \u00a0use these non-bank wallets to send and receive money. PYMNTS Intelligence data shows\u00a0the majority of service workers that receive tips paid directly by consumers receive these tips in cash. However, 23% also receive some of these tip payments using digital apps such as Venmo, PayPal or Cash App accounts.\nThe Paycheck-to-Paycheck Consumer\nFinancially stressed consumers aren\u2019t the only ones who live paycheck to paycheck in the U.S.\nThe PYMNTS Intelligence team has been tracking the behaviors of the paycheck-to-paycheck consumer since March of 2020. We\u2019ve done that by breaking consumers into three distinct cohorts based on how consumers describe the struggles of their financial lifestyle: Those who live paycheck to paycheck with issues paying bills; those without issues paying bills but who need their next paycheck to manage their household bills; and those who say they do not live paycheck to paycheck.\nToday, 65% of the U.S. population lives paycheck to paycheck, the highest share we have seen in two years.\nEighty percent of consumers earning less than $50,000 annually say they live paycheck to paycheck. More than two thirds (68%) of those in the middle-income range, those earning between $50,000 and $75,000, and 49% of those earning over $100,000 say they do, too. In fact, even 34% of those making over $200K per year also live paycheck to paycheck.\n\n\nIn May 2024, we also find that slightly more than one in five U.S. consumers (21.2%) report living paycheck to paycheck with issues paying their bills.\nThe 27 million financially stressed consumers you\u2019ve just read about represent nearly half (48%) of this paycheck-to-paycheck cohort that also earns $50,000 a year or less. Twenty-one percent of them are Gen Z.\nThese 27 million consumers would love nothing more than to\u00a0reduce the daily stress that comes from worrying about making ends meet. Innovators and their investors would love nothing more than to find an addressable market where new technologies and data can deliver a compelling product for a willing buyer who can become a loyal customer.\nPerhaps this financially stressed consumer \u2014 most often overlooked \u2014 is a compelling opportunity to improve the shopping, payment and savings experience using apps and the mobile phone. The chance to optimize these finance essentials might be a payments and commerce blue ocean.\nYes, but it\u2019s a tricky group to serve. They are price- and fee-sensitive. To be successful, products and business models must consider levers other than interchange fees to drive scale and profits.\nWe see FinTech banking, shopping and payments apps stepping in to fill the void with new product offers and bundled products and capabilities that create better economics for themselves and the financially stressed consumer they serve.\u00a0 Embedding products into platforms with a critical mass of these consumers can reduce customer acquisition costs, provided the value proposition is aligned, as they build their own. Innovators are blending payments and savings capabilities into a single product for financially stressed consumers. Pay in 3 or 4 provides short term, small dollar credit to help consumers manage their monthly budget, build credit and buy what is needed for themselves and their families.\nFor these consumers, innovations in how they spend, shop, pay and save aren\u2019t just a nice-to-have. And they can\u2019t come soon enough.\n \n[1] Bureau of Labor Statistics, Current Employment Statistics Survey.\nThe post Meet the 27 Million Americans Who Drive 8% of Consumer Spend but Struggle to Pay Their Bills appeared first on PYMNTS.com.", "date_published": "2024-06-21T07:00:45-04:00", "date_modified": "2024-06-21T07:03:14-04:00", "authors": [ { "name": "Karen Webster", "url": "https://www.pymnts.com/author/karen-webster/", "avatar": "https://secure.gravatar.com/avatar/5b27788b9b2e77749b3dc9da766486d8?s=512&d=blank&r=g" } ], "author": { "name": "Karen Webster", "url": "https://www.pymnts.com/author/karen-webster/", "avatar": "https://secure.gravatar.com/avatar/5b27788b9b2e77749b3dc9da766486d8?s=512&d=blank&r=g" }, "image": "https://www.pymnts.com/wp-content/uploads/2024/06/paycheck-to-paycheck-customer.jpg", "tags": [ "Consumer Insights", "Consumer Spending", "economy", "FinTechs", "Gen Z", "Karen Webster", "KLW Commentary", "Main Feature", "News", "paycheck to paycheck economy", "PYMNTS News" ] }, { "id": "https://www.pymnts.com/?p=1946596", "url": "https://www.pymnts.com/consumer-insights/2024/why-zillennials-will-rule-the-digital-economy/", "title": "Why Zillennials Will Rule the Digital Economy", "content_html": "The Census Bureau collects demographic data on the birthrates of those living in the United States and groups them into age-related cohorts based on the year in which they were born. This is done every ten years based on a household survey.
\nThe current generational breakdown looks something like this:
\n| Generational Cohort | \nYear of Birth | \nAge Range | \n
| Post-War | \n1945 and earlier | \n79-96 | \n
| Baby Boomers | \n1946 – 1964 | \n60-78 | \n
| Gen X | \n1965 \u2013 1980 | \n44-59 | \n
| Millennials | \n1981 \u2013 1996 | \n28-43 | \n
| Gen Z | \n1997 \u2013 2012 | \n12-27 | \n
\n
This \u201cpulse rate\u201d way of classifying the behavior of people born in these 15 year generational bands assumes that birth date defines behaviors within that cohort. That all people who come of age within those age bands behaves similarly. And that the differences between cohorts are more relevant than the differences among the behaviors of the individuals within them.
\nA funny thing happened on the way to the digital transformation that throws cold water on this once tried and true way of benchmarking generational behavior.
\nOver the last twenty-five years, technology has introduced new ways for people and businesses to engage \u2014 and routine activities once only done in person became digitally enabled. For everyone.
\nTake social media.
\nAn 18-year-old Gen Z watches TikTok 58 minutes a day on a mobile phone, a 42-year-old millennial spends 2 hours on Instagram every week on her iPad. A 62-year-old boomer spends 11 hours on Facebook on either a PC or a mobile device each week. All different social media strokes for different generational folks. Yet all generations, except for the very oldest, are using social media apps to some degree to connect to people and brands using their mobile devices and apps.
\nAnd let\u2019s not forget that it was the Gen Zers and millennials who taught Grandpa how to text and Grandma to Venmo them money instead of a sending a check or cash tucked inside of a birthday card.
\n| Using different birth years instead of the standard generational cohort as a starting point for our analysis helped us understand how similar \u2014 and different \u2014 the use of technology was across consumers regardless of generational cohort. \n | \n
It\u2019s an observation that the PYMNTS Intelligence team made in 2018 when we began to more fully examine the payments, banking and shopping behaviors of a national study of consumers living in the U.S.
\nWe wanted to better understand the degree to which people used digital to connect to one of the many activities that represented a person\u2019s daily or weekly routine that were also often done in person at the time.
\nUsing different birth years instead of the standard generational cohort as a starting point for our analysis helped us understand how similar \u2014 and different \u2014 the use of technology was across consumers regardless of generational cohort.
\nWe learned that access to technology, the devices consumers owned and how they used them was more statistically relevant to understanding shopping, banking and payments behaviors than assumptions based on the traditional age-defined cohort to which Census said they belonged.
\nMaking broad sweeping generalizations asserting that all members of a particular cohort behaved the same way \u2014 inaccurate.
\nWe examined how consumers use connected devices and the things they do with them.
\nLess connected individuals might use connected technology to conduct their banking transactions, communicate via text and email and stream movies.\u00a0 More connected consumers also shop for products, buy food and manage their health using connected technologies. And all of this can be accomplished just using a smartphone.
\nAs consumers become more comfortable, they begin to adopt more connected devices like smart TVs, smart watches, gaming consoles, voice connected speakers and even purchase connected home devices like thermostats and smart appliances.\u00a0 These highly-connected individuals conduct a wide range of household activities digitally, including using them.
\nCurrently 19% of the population falls into the most highly-connected category, and they tend to be younger (46% of Gen Z are in the highly-connected group) and to some extent have higher incomes (only 15% of lower-income individuals fall into this group).
\nThis insight was also key to understanding the differences in consumer behavior within age-defined cohorts, particularly when studying millennials and Gen X.
\nAlso in 2018, the PYMNTS Intelligence team identified important behavioral differences within the millennial and Gen X cohorts. A 29-year-old and 43-year-old millennial turned out to be as different as apples and asparagus, even as both were classified as millennials by Census. So, too, were the behaviors of a 45-year-old and a 59-year-old Gen X.
\nUsing birth year as the starting point, the PYMNTS Intelligence team identified a new age cohort that reframed traditional generational lines; one that \u201cbridged\u201d older millennials with younger Gen Xers.
\nWe found this group to be affluent and well-educated, settling into more stable careers and earning more money, establishing households with partners and children, feathering their nests and consuming many new things as they did it. They relied on connected devices to guide their shopping decisions \u2014 from the products they bought to the stores they shopped. Their shopping, banking and payments behaviors were also quite different from their younger and older counterparts in the two cohorts.
\n| A 29-year-old and 43-year-old millennial turned out to be as different as apples and asparagus. \n | \n
We called this new generational cohort \u201cbridge millennials,\u201d and they were consumers born between 1978 and 1988 (who at the time were between the ages of 30 and 40 \u2014 today they are 36 to 46 ). They share a more technology-driven lifestyle, a similar set of lifecycle needs and digitally-driven expectations and shopping and payments behaviors unique to this group.
\nWhat shaped this behavior was their introduction to digital at important moments in their lives.
\nBridge millennials were the first to grow up in a largely internet-connected digital world. The oldest bridge millennials were in high school when internet-connected PCs were introduced, the youngest in middle school when the iPhone first launched. The elder bridge millennials rode the PC to mobile wave, were the early champions of digital in the workplace, and early adopters of consumer mobile and digital apps and devices.
\nThe youngest had access to smartphones and apps throughout high school and college. By the time of their college graduation, they were fluent in speaking the language of mobile and apps in business. They became mobile pioneers, raising the bar for what a great mobile experience was in and outside of their work environment. They fed the flames of innovation by giving innovators the incentive to create new and different experiences.
\nThis group was interesting not only because of their introduction and familiarity with connected technologies. They became old enough and far enough along in their career that they were emerging as a significant economic force in the economy.
\nI published my first piece describing the importance of the bridge millennial to payments and physical retail in May of 2018[1]. The piece referenced a study that tracked 4,000 consumers each quarter over an 18-month period, done with the support of Worldpay.
\n| Bridge millennials were the first to grow up in a largely internet-connected digital world. \n | \n
I wrote then that they would be the bellwether for how connected commerce would evolve over the next five to ten years \u2014at that time, through 2023 and beyond.
\nIt turned out to be more than a well-educated guess.
\nThe PYMNTS Intelligence team continues to track spending patterns and reports on bridge millennials each time we release new data on consumer and merchant trends.
\nIt turns out that over time this group has led to an expansion of digital shopping across retail and non-retail categories. At the same time, we have seen an evolution toward the use of purchasing online and picking up in stores.\u00a0 In fact, in 2019, a year before the pandemic hit, 35% of bridge millennial consumers preferred to purchase digitally \u2014 and that expanded to over 53% during the height of the pandemic (2021).\u00a0 That rate has declined as we exited the pandemic, but is still at 43% (far greater than it was before).
\nAt the same time, we have seen the overall portion of the population that prefers to order online and pick up at the store increase from 27% before the pandemic to 41% last year.\u00a0 All of which demonstrates the\u00a0adoption of connected technology over and above temporary impacts due to the pandemic\u00a0\u2014 and the influence of bridge millennials in shaping that trend.
\nWe found the same thing when examining the Gen Z cohort in 2022.
\nUsing the same methodology we used for the bridge millennials, the PYMNTS Intelligence team identified a new cohort that straddles the classic GenZ and millennial age-defined cohorts. We call them zillennials, the 39.3 million consumers who were born between 1991 and 1999 (and now between the ages of 25 and 34). The younger members of this group were in the fourth grade when the App store came to the iPhone. The elder zillennials were heading off to college, smartphone in hand.
\n| Zillennials are deeply dependent on mobile devices and apps to navigate the digital economy. \n | \n
This is the cohort for whom digital is native to their generation but who are transitioning from school to the workforce. They are deeply dependent on mobile devices and apps to navigate the digital economy. And more than their older peers, they are a generation for whom mobile and apps have changed how they work, bank, pay and shop.
\nAnd their expectations of businesses they work for and shop with.
\nThe \u201cGeneration Zillennial\u201d report that PYMNTS Intelligence will release tomorrow (May 22, 2024) is the first in a new monthly generational study series that will benchmark zillennial digital behavior, along with that of other generational cohorts across all aspects of the connected economy. The survey design captures a number of social and behavioral trends that offer new insights into the influence of mobile phones on decision making and spending patterns and choices across generations.
\nWith a big focus on zillennials.
\nOne study and set of data points does not make a trend \u2014 yet \u2014 but we already see the profound impact of mobile apps and phones on this generation.
\nWe find that zillennials are\u00a0more financially responsible than many may give them credit for: more than three quarters of zillennials can be classified as either budget-minded (45%) or wealth builders (33%). Only a small number are either \u201cgivers\u201d (4.8%) or splurge spenders (16%).
\nWe believe that these personas provide a more meaningful way to track and understand zillennial behavior over time \u2014 and may even help to explain why\u00a0so many in this age group move back home after school. Saving money and paying off debt seems to be a high priority, and therefore, a necessary part of their financial plan.
\n| We believe that tracking zillennial behavior will give us a window into understanding how they use digital tools to navigate the connected economy. \n | \n
We hypothesize that it was the early access to mobile apps like Greenlight, Step, Copper, goHenry, Robinhood, Venmo and others that made it much easier for this cohort to build good savings and investment habits, with parental guardrails. Setting goals and tracking progress toward those goals could happen in real time and in real life for zillennials, sparking conversations with friends and family members about stocks and markets and the tradeoffs between risk and reward when making investment decisions. If we are correct, access to these apps has helped shaped the personas we observe of this cohort in very different ways.
\nOf course, we will examine this more fully in future releases.
\nLike with bridge millennials, we believe that the zillennial cohort will be instructive in understanding the substantial impact of digital on the lives of these consumers. By the end of this decade, zillennials will represent 13.6% of the population and 14.5% of consumer spending. They, along with their older millennial peers, will represent a majority of the workforce.\u00a0Economically, together, they will be a force.
\nWe believe that tracking zillennial behavior will give us a window into understanding how they use digital tools to navigate the connected economy and the influence of apps on kids and teens in shaping payments, credit, banking and investment preferences and behaviors. As important, we believe also it will give us a lens into the impact of their digital behaviors on others across generations with whom they interact.
\nThe premise of the connected economy that I first began writing about in March of 2020 was mostly about the ability of mobile devices and apps to connect activities across once-discrete industry verticals. What we have discovered since is their demonstrable impact on people, no matter their age.
\nTechnology, mobile and apps have become the bridge that connects people across traditional generational definitions, making age little more than a biological mile-marker on life\u2019s journey. A way to share new experiences, drive adoption of new technology and establish new preferences.
\nAnd, as we\u2019ve discovered, an entirely new way to define population cohorts.
\n\n
[1] Bridge Millennials and the Threat to Physical Retail, Karen Webster, May 14, 2018.\u00a0 https://www.pymnts.com/consumer-insights/2018/bridge-millennials-physical-retail-future-online-clothes-shopping/
\n\n
The post Why Zillennials Will Rule the Digital Economy appeared first on PYMNTS.com.
\n", "content_text": "The Census Bureau collects demographic data on the birthrates of those living in the United States and groups them into age-related cohorts based on the year in which they were born. This is done every ten years based on a household survey.\nThe current generational breakdown looks something like this:\n\n\n\nGenerational Cohort\nYear of Birth\nAge Range\n\n\nPost-War\n1945 and earlier\n79-96\n\n\nBaby Boomers\n1946 – 1964\n60-78\n\n\nGen X\n1965 \u2013 1980\n44-59\n\n\nMillennials\n1981 \u2013 1996\n28-43\n\n\nGen Z\n1997 \u2013 2012\n12-27\n\n\n\n \nThis \u201cpulse rate\u201d way of classifying the behavior of people born in these 15 year generational bands assumes that birth date defines behaviors within that cohort. That all people who come of age within those age bands behaves similarly. And that the differences between cohorts are more relevant than the differences among the behaviors of the individuals within them.\nA funny thing happened on the way to the digital transformation that throws cold water on this once tried and true way of benchmarking generational behavior.\nAge is Just a Number\nOver the last twenty-five years, technology has introduced new ways for people and businesses to engage \u2014 and routine activities once only done in person became digitally enabled. For everyone.\nTake social media.\nAn 18-year-old Gen Z watches TikTok 58 minutes a day on a mobile phone, a 42-year-old millennial spends 2 hours on Instagram every week on her iPad. A 62-year-old boomer spends 11 hours on Facebook on either a PC or a mobile device each week. All different social media strokes for different generational folks. Yet all generations, except for the very oldest, are using social media apps to some degree to connect to people and brands using their mobile devices and apps.\nAnd let\u2019s not forget that it was the Gen Zers and millennials who taught Grandpa how to text and Grandma to Venmo them money instead of a sending a check or cash tucked inside of a birthday card.\n\n\n\n Using different birth years instead of the standard generational cohort as a starting point for our analysis helped us understand how similar \u2014 and different \u2014 the use of technology was across consumers regardless of generational cohort.\n\n\n\n\nIt\u2019s an observation that the PYMNTS Intelligence team made in 2018 when we began to more fully examine the payments, banking and shopping behaviors of a national study of consumers living in the U.S.\nWe wanted to better understand the degree to which people used digital to connect to one of the many activities that represented a person\u2019s daily or weekly routine that were also often done in person at the time.\nUsing different birth years instead of the standard generational cohort as a starting point for our analysis helped us understand how similar \u2014 and different \u2014 the use of technology was across consumers regardless of generational cohort.\nWe learned that access to technology, the devices consumers owned and how they used them was more statistically relevant to understanding shopping, banking and payments behaviors than assumptions based on the traditional age-defined cohort to which Census said they belonged.\nMaking broad sweeping generalizations asserting that all members of a particular cohort behaved the same way \u2014 inaccurate.\nWe examined how consumers use connected devices and the things they do with them.\nLess connected individuals might use connected technology to conduct their banking transactions, communicate via text and email and stream movies.\u00a0 More connected consumers also shop for products, buy food and manage their health using connected technologies. And all of this can be accomplished just using a smartphone.\nAs consumers become more comfortable, they begin to adopt more connected devices like smart TVs, smart watches, gaming consoles, voice connected speakers and even purchase connected home devices like thermostats and smart appliances.\u00a0 These highly-connected individuals conduct a wide range of household activities digitally, including using them.\nCurrently 19% of the population falls into the most highly-connected category, and they tend to be younger (46% of Gen Z are in the highly-connected group) and to some extent have higher incomes (only 15% of lower-income individuals fall into this group).\nThe Bridge Generation\nThis insight was also key to understanding the differences in consumer behavior within age-defined cohorts, particularly when studying millennials and Gen X.\nAlso in 2018, the PYMNTS Intelligence team identified important behavioral differences within the millennial and Gen X cohorts. A 29-year-old and 43-year-old millennial turned out to be as different as apples and asparagus, even as both were classified as millennials by Census. So, too, were the behaviors of a 45-year-old and a 59-year-old Gen X.\nUsing birth year as the starting point, the PYMNTS Intelligence team identified a new age cohort that reframed traditional generational lines; one that \u201cbridged\u201d older millennials with younger Gen Xers.\nWe found this group to be affluent and well-educated, settling into more stable careers and earning more money, establishing households with partners and children, feathering their nests and consuming many new things as they did it. They relied on connected devices to guide their shopping decisions \u2014 from the products they bought to the stores they shopped. Their shopping, banking and payments behaviors were also quite different from their younger and older counterparts in the two cohorts.\n\n\n\n A 29-year-old and 43-year-old millennial turned out to be as different as apples and asparagus.\n\n\n\n\nWe called this new generational cohort \u201cbridge millennials,\u201d and they were consumers born between 1978 and 1988 (who at the time were between the ages of 30 and 40 \u2014 today they are 36 to 46 ). They share a more technology-driven lifestyle, a similar set of lifecycle needs and digitally-driven expectations and shopping and payments behaviors unique to this group.\nWhat shaped this behavior was their introduction to digital at important moments in their lives.\nBridge millennials were the first to grow up in a largely internet-connected digital world. The oldest bridge millennials were in high school when internet-connected PCs were introduced, the youngest in middle school when the iPhone first launched. The elder bridge millennials rode the PC to mobile wave, were the early champions of digital in the workplace, and early adopters of consumer mobile and digital apps and devices.\nThe youngest had access to smartphones and apps throughout high school and college. By the time of their college graduation, they were fluent in speaking the language of mobile and apps in business. They became mobile pioneers, raising the bar for what a great mobile experience was in and outside of their work environment. They fed the flames of innovation by giving innovators the incentive to create new and different experiences.\nThis group was interesting not only because of their introduction and familiarity with connected technologies. They became old enough and far enough along in their career that they were emerging as a significant economic force in the economy.\nI published my first piece describing the importance of the bridge millennial to payments and physical retail in May of 2018[1]. The piece referenced a study that tracked 4,000 consumers each quarter over an 18-month period, done with the support of Worldpay.\n\n\n\n Bridge millennials were the first to grow up in a largely internet-connected digital world.\n\n\n\n\nI wrote then that they would be the bellwether for how connected commerce would evolve over the next five to ten years \u2014at that time, through 2023 and beyond.\nIt turned out to be more than a well-educated guess.\nThe PYMNTS Intelligence team continues to track spending patterns and reports on bridge millennials each time we release new data on consumer and merchant trends.\nIt turns out that over time this group has led to an expansion of digital shopping across retail and non-retail categories. At the same time, we have seen an evolution toward the use of purchasing online and picking up in stores.\u00a0 In fact, in 2019, a year before the pandemic hit, 35% of bridge millennial consumers preferred to purchase digitally \u2014 and that expanded to over 53% during the height of the pandemic (2021).\u00a0 That rate has declined as we exited the pandemic, but is still at 43% (far greater than it was before).\nAt the same time, we have seen the overall portion of the population that prefers to order online and pick up at the store increase from 27% before the pandemic to 41% last year.\u00a0 All of which demonstrates the\u00a0adoption of connected technology over and above temporary impacts due to the pandemic\u00a0\u2014 and the influence of bridge millennials in shaping that trend.\nThe Zillennials\nWe found the same thing when examining the Gen Z cohort in 2022.\nUsing the same methodology we used for the bridge millennials, the PYMNTS Intelligence team identified a new cohort that straddles the classic GenZ and millennial age-defined cohorts. We call them zillennials, the 39.3 million consumers who were born between 1991 and 1999 (and now between the ages of 25 and 34). The younger members of this group were in the fourth grade when the App store came to the iPhone. The elder zillennials were heading off to college, smartphone in hand.\n\n\n\n Zillennials are deeply dependent on mobile devices and apps to navigate the digital economy.\n\n\n\n\nThis is the cohort for whom digital is native to their generation but who are transitioning from school to the workforce. They are deeply dependent on mobile devices and apps to navigate the digital economy. And more than their older peers, they are a generation for whom mobile and apps have changed how they work, bank, pay and shop.\nAnd their expectations of businesses they work for and shop with.\nThe \u201cGeneration Zillennial\u201d report that PYMNTS Intelligence will release tomorrow (May 22, 2024) is the first in a new monthly generational study series that will benchmark zillennial digital behavior, along with that of other generational cohorts across all aspects of the connected economy. The survey design captures a number of social and behavioral trends that offer new insights into the influence of mobile phones on decision making and spending patterns and choices across generations.\nWith a big focus on zillennials.\nOne study and set of data points does not make a trend \u2014 yet \u2014 but we already see the profound impact of mobile apps and phones on this generation.\nWe find that zillennials are\u00a0more financially responsible than many may give them credit for: more than three quarters of zillennials can be classified as either budget-minded (45%) or wealth builders (33%). Only a small number are either \u201cgivers\u201d (4.8%) or splurge spenders (16%).\nWe believe that these personas provide a more meaningful way to track and understand zillennial behavior over time \u2014 and may even help to explain why\u00a0so many in this age group move back home after school. Saving money and paying off debt seems to be a high priority, and therefore, a necessary part of their financial plan.\n\n\n\n We believe that tracking zillennial behavior will give us a window into understanding how they use digital tools to navigate the connected economy.\n\n\n\n\nWe hypothesize that it was the early access to mobile apps like Greenlight, Step, Copper, goHenry, Robinhood, Venmo and others that made it much easier for this cohort to build good savings and investment habits, with parental guardrails. Setting goals and tracking progress toward those goals could happen in real time and in real life for zillennials, sparking conversations with friends and family members about stocks and markets and the tradeoffs between risk and reward when making investment decisions. If we are correct, access to these apps has helped shaped the personas we observe of this cohort in very different ways.\nOf course, we will examine this more fully in future releases.\nWhy Zillennials Matter\nLike with bridge millennials, we believe that the zillennial cohort will be instructive in understanding the substantial impact of digital on the lives of these consumers. By the end of this decade, zillennials will represent 13.6% of the population and 14.5% of consumer spending. They, along with their older millennial peers, will represent a majority of the workforce.\u00a0Economically, together, they will be a force.\nWe believe that tracking zillennial behavior will give us a window into understanding how they use digital tools to navigate the connected economy and the influence of apps on kids and teens in shaping payments, credit, banking and investment preferences and behaviors. As important, we believe also it will give us a lens into the impact of their digital behaviors on others across generations with whom they interact.\nThe premise of the connected economy that I first began writing about in March of 2020 was mostly about the ability of mobile devices and apps to connect activities across once-discrete industry verticals. What we have discovered since is their demonstrable impact on people, no matter their age.\nTechnology, mobile and apps have become the bridge that connects people across traditional generational definitions, making age little more than a biological mile-marker on life\u2019s journey. A way to share new experiences, drive adoption of new technology and establish new preferences.\nAnd, as we\u2019ve discovered, an entirely new way to define population cohorts.\n \n[1] Bridge Millennials and the Threat to Physical Retail, Karen Webster, May 14, 2018.\u00a0 https://www.pymnts.com/consumer-insights/2018/bridge-millennials-physical-retail-future-online-clothes-shopping/\n \nThe post Why Zillennials Will Rule the Digital Economy appeared first on PYMNTS.com.", "date_published": "2024-05-21T07:00:27-04:00", "date_modified": "2024-05-21T07:00:53-04:00", "authors": [ { "name": "Karen Webster", "url": "https://www.pymnts.com/author/karen-webster/", "avatar": "https://secure.gravatar.com/avatar/5b27788b9b2e77749b3dc9da766486d8?s=512&d=blank&r=g" } ], "author": { "name": "Karen Webster", "url": "https://www.pymnts.com/author/karen-webster/", "avatar": "https://secure.gravatar.com/avatar/5b27788b9b2e77749b3dc9da766486d8?s=512&d=blank&r=g" }, "image": "https://www.pymnts.com/wp-content/uploads/2024/05/zillennials.jpg", "tags": [ "Bridge Millennials", "Connected Economy", "Consumer Insights", "digital transformation", "Generation Zillennial", "Karen Webster", "KLW Commentary", "Main Feature", "News", "PYMNTS Intelligence", "PYMNTS News", "zellennials" ] }, { "id": "https://www.pymnts.com/?p=1939535", "url": "https://www.pymnts.com/apple/2024/is-apple-at-risk-of-becoming-the-next-ibm/", "title": "Is Apple at Risk of Becoming the Next IBM?", "content_html": "Sixty-three years ago this month, the world\u2019s first supercomputer was born. In May of 1961, IBM introduced its Model 7030, also known as \u201cStretch.\u201d The gamechanger was its computational processing power and speed. Computers were used mostly for scientific applications at the time, and crunching massive data sets was time consuming and tedious.
\n![\"\"](\"https://www.pymnts.com/wp-content/uploads/2024/05/ibm.jpg\")
\u201cStretch\u201d reduced the processing time of complex data sets from six months to a single day.
\nThree years later, in 1964, IBM introduced its System 360 Mainframe, marking a significant milestone in business efficiency. The System 360 bundled IBM hardware with software and services, making them easy to buy, use and upgrade. Businesses could also, for the first time, run multiple applications simultaneously using a single computer.
\nMainframes, and the sale of them, propelled IBM into becoming one of the most valuable companies in the world.
\nBy 1990, IBM was the 4th largest company on the Fortune 500 list; at the turn of the millennium, it was number six measured by revenue.
\nCompanies and governments in need of massive, reliable, fast and redundant computing power bought them as fast as IBM could make them.
\nTen years later, IBM\u2019s fortunes began to shift \u2014 as did its place on the Fortune 500 list.
\nIBM lost $5 billion in 1992, the most ever for a company at that time, after losing billions in each of the years before that. Between 2012 and 2020, IBM reportedly lost $95 billion in market cap.
\nMany case studies written about IBM\u2019s downward spiral cite a series of strategic management, pricing and partnership blunders, and a costly shift from its B2B core to personal computing in the 1990s. Those costly mistakes sapped time, dollars and focus from what was necessary to innovate for the future.
\n| This blind spot came from believing that IBM mainframes were so central to the core of the business that customers would always upgrade and buy high-margin services, but never leave. \n | \n
But in the early 2000s it would be its failure to recognize cloud computing as the cornerstone for computing in the digital age that would become IBM\u2019s corporate cross to bear. This blind spot came from believing, early on, that IBM mainframes were so central to the core of the business that customers would always upgrade and buy high-margin services, but never leave.
\nThat\u2019s what Lou Gerstner observed when he was brought in to turn IBM around in 1993. At the time, he cited \u201ccorporate arrogance\u201d as a contributor to the company\u2019s lack of urgency to shift focus, blaming a leadership team who believed too much in its own PR. The \u201cno one ever got fired by buying IBM\u201d mantra fanned those flames.
\nUntil, of course, it didn\u2019t.
\nBy the end of 2010, IBM had slipped to 65th place on the Fortune 500 list and has remained solidly stuck there for the last 14 years.
\n![\"\"](\"https://www.pymnts.com/wp-content/uploads/2024/05/ibm-800px-IBM_Z15_mainframe.jpg\")
It is estimated that 10,000 mainframes exist today, mostly IBM vintage, and mostly owned by the largest companies in the world. It\u2019s reported that two-thirds of the Fortune 500 companies use them, as do 45 of the top 50 banks and 70% of the world\u2019s largest retailers. Big Iron, as these mainframes are collectively called, processes about 90% of credit card transactions today. There\u2019s a great story about the history of IBM and mainframes here.
\nCompanies still buy mainframes because they are reliable and efficient data processing workhorses, despite the dearth of COBOL programmers and the cost to keep them running. They upgrade them because there\u2019s no other option \u2014 at least, not right now.
\nAnalysts project that the mainframe market will grow a modest 6.4% a year over the next seven years \u2013 from $2.5B in 2023 to $4.5B in 2032. IBM\u2019s revenues from mainframe sales are expected to get a 3% to 5% lift in 2024 as new models are introduced and existing users upgrade their software and service agreements.
\nBut experts, investors and analysts agree that IBM\u2019s future can\u2019t be about squeezing every last drop of milk from its flagship product, even though it will help keep the lights on in the near term.
\nToday, IBM is playing a costly game of catch-up \u2014 the cloud computing market was valued at roughly $588 billion in 2023 and is expected to reach $2.2 trillion in 2032 with a growth rate that is two and half times the mainframe sector. The shift from mainframes to the cloud may be a many-years, even decades-long, journey for its current users. But it is so important for achieving key strategic objectives that any IT department worth its salt is planning for it, has probably even started, and is likely working with the big cloud providers and their partners to guide the process.
\nThen, there\u2019s AI.
\nIBM was an early innovator with Watson in 2004, yet they are rarely mentioned as a key contender when AI or GenAI discussions are had today. IBM made a big bet on healthcare, investing billions to build Watson Health and another $5 billion to acquire companies for their data. The focus was oncology; diagnosing and prescribing personalized cancer treatments was the use case. All signs seemed to point to a slam-dunk winner.
\nSoon after Watson Health\u2019s 2016 launch, doctors found its patient diagnoses to be inaccurate and irrelevant, citing representative data limitations. They stopped using it. Watson Health was sold to a private equity firm six years later, in 2022, for $1 billion.
\nIn 2000, Apple was 285th on the Fortune 500 list, having fallen 162 places (from 123) in 1995. A series of costly product, pricing and competitive blunders led to big losses each year between 1994 and 1997. In 1997, Apple reported a Q1 loss of $708 million, destroying 85% of the company\u2019s value, and nearly tipping the company into bankruptcy.
\nThat was also the year that Steve Jobs returned to Apple.\u00a0![\"\"](\"https://www.pymnts.com/wp-content/uploads/2024/05/steve-jobs.jpg?w=258\")
He persuaded the board to give him some time to reposition the company and create better and more accessible personal computer products. He brought with him his dream team, including Jony Ive and Tony Faddell. That team \u2014 and the launch of colorful iMacs \u2014 brought Apple back to life.
\nSo did the repositioning of the firm as a software company powered by cool consumer hardware \u2014 and the opening of 500 retail stores to give consumers a way to touch and experience Apple products before buying them.
\nThe launch of the iPhone in 2007 and the App Store in 2008 would cement Apple\u2019s place in history as having created the one of the most transformative consumer products of all time.
\nBy 2010, Apple had jumped 229 spots to 56th place on the Fortune 500 list.
\nBy 2020 it had moved fifty more to sixth place.
\nIn 2023, Apple occupied spot number four. And its market cap reached $3 trillion.
\nApple\u2019s success over the last 24 years represents one of the, if not the, most successful turnaround stories of all time. Since the iPhone launched in 2007, it has grown its annual revenue 16X \u2014 from $24 billion in 2007 to $383 billion in 2023. The iPhone user base counts 18% of the world\u2019s population or 1.46 billion users. In the U.S., 55% of the adult U.S. population owns an iPhone, with many of them representing the most affluent consumer spending demographic.
\nOn Apple\u2019s Q2 FY 2024 pep rally earnings call,\u00a0 CEO Tim Cook described Apple\u2019s \u201camazing\u201d quarter, using the word \u201call-time\u201d 14 times to describe Apple\u2019s performance to investors, along with other superlatives such as \u201cgroundbreaking.\u201d
\nThis as iPhone revenue was reported down by 10%, iPad revenue down by 17% and Wearable device sales down by 10%. Apple also guided single digit growth in iPhone sales for the rest of the year.![\"\"](\"https://www.pymnts.com/wp-content/uploads/2024/04/Apple-Vision-Pro-1.jpg?w=258\")
Cook described Apple\u2019s latest hardware innovation, Vision Pro, as \u201cexciting\u201d and a big hit, citing nearly half of all Fortune 500 companies as buyers exploring \u201cinnovative\u201d use cases. He failed to say how many units were purchased by individuals and which use cases companies are exploring, even though he was asked.
\nGenAI plans were also vague, but described as a very key opportunity for Apple. Everyone expects details at Apple\u2019s annual World Wide Developers Conference about a month from now (June 10). Already, the hype machine is spinning at warp speed.
\nApple\u2019s earnings bright spot was the increase of 14% in Services revenue with double-digit increases guided for the balance of the year. It\u2019s not transparent about what accounts for that growth, although Apple did report a total of one billion subscribers to Apple One. That\u2019s roughly two-thirds of its user base.
\nAnalysts and investors remain bullish on Apple\u2019s future. Its stock price is up 8% since reporting its quarterly results. Many say that\u2019s just because the results weren\u2019t as bad as they expected. Warren Buffet, whose Apple stakes once comprised 50% of Berkshire Hathaway\u2019s\u00a0portfolio, just sold 13% of his shares. Nothing bad, he said \u2014 it was just time to cash in and move on.
\nEveryone seems optimistic (hopeful?) that GenAI will juice future iPhone sales and stem defections to the Android handsets that already include GenAI powered software.
\nAnd why not? The iPhone and its business model created the smartphone category, the device that connects the physical and digital worlds for its users.
\nThe indispensable consumer product that anchors the digital transformation and has become the centerpiece of life inside the Apple ecosystem.
\nAnd it\u2019s Apple.
\nDespite all its stunning achievements, by any objective measure Apple faces multiple serious and strategic issues. Issues so fundamental that everyone should be asking questions about the many assertions supporting its future as a leading mobile technology ecosystem \u2014 and its stratospheric market cap.
\nThe iPhone and the iMac were big hits. But that is where the big hit parade seems to slow down.
\n\n
| By any objective measure Apple faces multiple serious and strategic issues. \n | \n
Wearables were a hit for a time, but now not so much. The HomePod was an outright flop. Like most AR/VR headsets, the Vision Pro seems a niche product that got a PR and fanboy pop but seems to struggle to gain adoption. The Connected Car, billed as Apple\u2019s biggest flagship product since the iPhone, was shuttered after a decade-long attempt to make it road-and consumer-ready. And don\u2019t even try to ask Siri where Apple was when AI took off in late 2022.
\nUnless Apple has another transformative product innovation hiding up its sleeves, Apple\u2019s growth is entirely dependent upon people buying the next generation of iPhone, upgrading them and using them. The same form factor, more or less, that they have been buying for the last 17 years.
\nAnd as goes the iPhone, so goes Services.
\nWithout the iPhone, there is no Services revenue or double digit increase that comes from using Services \u2014 the part of Apple\u2019s business that is high-margin and touted as its growth engine.
\nThat may be harder to assume than it was a year or so ago.
\nAt the end of the first three months of 2024, Apple ceded its global handset leadership to Samsung. Apple\u2019s iOS users are a third of Android\u2019s with 3.3 billion users and a 41% global share.
\nThere\u2019s China, which, along with AI, could mark the biggest headwinds Apple has seen since the bad old days of 1994. China is Apple\u2019s third largest market accounting for roughly 17% of its sales. For the first three months of 2024, iPhone revenue there fell 19%, as Huawei sales jumped.
\nOf course, it doesn\u2019t help that the Chinese government forbids government officials from using iPhones and arranged key photo ops of all of them clutching their Huawei handsets. But don\u2019t blame the Xi regime. Chinese consumers, who are now feeling the spending pinch, can get better, cheaper phones and don\u2019t need to rely on Apple\u2019s app ecosystem given the widespread use of WeChat.
\nIn a double hit to both Tesla and Apple, handset maker Xiaomi announced the debut of a low-priced electric vehicle that is also totally integrated with the phone. Now the Chinese consumer can get a two-fer \u2014 a good-looking and inexpensive EV, totally integrated with a digital ecosystem powered by Xiaomi.
\nAlthough it will take time to see the impact of the loss of the China iPhone sales to its corresponding Services revenue, it seems inevitable.
\n| Perhaps Apple\u2019s biggest threat is AI, where, like IBM, it squandered its early lead. \n | \n
There\u2019s Apple\u2019s business model, a foundational pillar of its innovation and competitive advantage. It is also one under attack in nearly every jurisdiction worldwide, forcing Apple to open its App Store to competing payments processing systems and dinging its Services revenue further.
\nThere\u2019s high-margin search revenue. Safari\u2019s search was so bad, it needed Google to step in. And it did \u2014 for a fee that became a win-win for them both. But depending upon how the Google antitrust case works out, Apple may be out the high-margin $18 or so billion a year they get from Google to power search on the iPhone. \u00a0That reportedly accounts for 36% of Safari\u2019s annual ad revenue.
\nApple\u2019s closed ecosystem also means that Apple apps are not interoperable or portable unless used with another Apple product \u2014 which are fairly limited now. Without interoperability and portability, iPhone users are forced to live their life in that ecosystem. Innovators are forced to prioritize and pick sides. And Apple shuts itself out of the 3.36 billion consumers who use Android phones.
\nApple\u2019s closed ecosystem has worked well in a world where the iPhone is the front door that opens all other apps in an ecosystem that its high-spending users like living in. But in a world of distributed commerce and voice-activated transactions and commands, it will be increasingly limiting, and potentially frustrating. Try to use Apple Pay on any device other than an Apple device. Or your Apple Wallet on your PC.
\nThen try to use Chrome on your iPhone \u2014 you can \u2014 and Alexa on your iPhone or Android device \u2014 you can do that, too.
\nOr Chat GPT.
\nPerhaps Apple\u2019s biggest threat is AI, where, like IBM, it squandered its early lead.
\nApple was among the first to innovate voice with Siri \u2014 back in 2010 as an app, and a year later as an integration into the phone itself. Siri has improved over time but seems incapable of responding to complex tasks. Apple claims to have invested $100 billion in AI over the last five years, yet it isn\u2019t part of the conversation when it comes to the innovators who are now driving the AI revolution.
\nAnd just a week ago, Apple made the surprising announcement that it was teaming with OpenAI for GenAI on the iPhone.
\nPlan A? Or a sudden shift to Plan B (or C) from feeling the pressure of being late to the GenAI party?
\nAs PYMNTS has written, there is a new dream team reimagining the future of the smartphone with GenAI \u2014 and it\u2019s not at Apple. OpenAI\u2019s Sam Altman and original Apple dream team member Jony Ive are passing the hat to raise $1 billion to create an AI-powered smartphone. In an interesting twist, one of the funds rumored to have an interest in participating is Laurene Jobs, Steve Jobs\u2019 widow.
\nCould this device become as transformative to the smartphone world as the iPhone was in 2007? Hard to know right now. But if the past is prologue and the dream team delivers, the odds seem high. And if isn\u2019t them, it might well be another team we haven\u2019t yet heard of.
\n| A GenAI phone has the potential to change the user experience, the way business and consumers engage, and the business model that powers the economics of that experience. \n | \n
Like the iPhone, a GenAI phone has the potential to change the user experience, the way business and consumers engage, and the business model that powers the economics of that experience for users, developers and third parties.
\nLike IBM and the Mainframe, users won\u2019t bail right away. A lot will depend on what \u201cit\u201d is, how much the device costs, and how compelling the user experience and use cases it powers.
\nAnd how much work it takes to make a transition. The work to move from Android to iPhone and vice versa isn\u2019t fast or easy, and the differences not significant enough to put in the work. The data shows that not many people have.
\nLike Blackberry and the iPhone that displaced it, and the IBM mainframe and cloud computing, market share shifts take time. But history tells us that once users see a different and better way, those shifts gain momentum, hit a tipping point and become irreversible.
\nBlackberry and IBM were ill-equipped to pivot in time, mostly because they believed that their products were indispensable. That there might be something better, but users wouldn\u2019t invest the time and the money to make the switch. They didn\u2019t see a different future, only one where incremental improvements to the products would be good enough to keep customers from fleeing.
\nThey also failed to recognize the frictions that users would face if they didn\u2019t make the switch, the opportunities they would forgo but didn\u2019t want to, and the innovations that would make the experience new, different and truly transformational. Blackberry users didn\u2019t buy an iPhone to make calls or type emails, they bought it to connect to the digital world in a way that was impossible to do before. Enterprise companies aren\u2019t moving to the cloud because they\u2019re sick of mainframes, but because they want the speed and agility necessary to deliver real time, data-driven solutions to their customers.![\"\"](\"https://www.pymnts.com/wp-content/uploads/2024/05/tim_cook_billionth_inline.jpg.large_2x.jpg?w=258\")
Apple is one of the most beloved brands in the world, and once again flirting with a $3 trillion market cap. It has $56 billion in the bank and a talented team accustomed to delivering \u2014 and having people buy \u2014 Apple\u2019s next big thing.
\nBut like IBM, its flagship product has changed little over the last 17 years. The form factor looks better, is faster, takes better pictures and doesn\u2019t have to be charged as often. Software upgrades add new features. But nothing else has really changed.
\nIBM, at number 65 on the Fortune 500 list, is still a big global company with products that are still relevant and\u00a0a brand that still holds sway. It is making\u00a0investments in quantum computing, which could be the next big thing that drives customer value and the revenue to match. Today, it just doesn\u2019t lead the category in the same way it once did.
\nSince 2011, ,\u00a0Apple\u2019s formidable cash cushion has given it the luxury of staying power in markets and sectors where it wasn\u2019t first but had the bank account to outlast others who may have been.\u00a0\u00a0But GenAI has changed the rules of play, the speed of the game, and others are farther ahead.
\nThe next year will be interesting to watch, as innovators (both known and still in stealth)\u00a0use GenAI to drive the next big change in how people and businesses use digital to connect. Innovators with a different vision for how to use it to drive the connected economy forward are unconstrained by legacy products that may pay the bills today, just like Apple was in the early 2000s when the iPhone was little more than an idea.
\nIn many ways, for Apple, it is a little like d\u00e9j\u00e0 vu all over again.
\nSmartphone upgrade cycles are getting longer. Consumers, iPhones in hand, might prefer to wait and see what a pure-play GenAI phone does and what makes it different before buying the iPhone 16, 17, or 18.
\nThe GenAI-curious might buy a phone from a GenAI challenger to play around with while still using their iPhone before jumping in with both feet.
\nThe Fan boys could be the last to bolt \u2014 although as early adopters, you can never really be sure.
\n\n
The post Is Apple at Risk of Becoming the Next IBM? appeared first on PYMNTS.com.
\n", "content_text": "Sixty-three years ago this month, the world\u2019s first supercomputer was born. In May of 1961, IBM introduced its Model 7030, also known as \u201cStretch.\u201d The gamechanger was its computational processing power and speed. Computers were used mostly for scientific applications at the time, and crunching massive data sets was time consuming and tedious.\n\n\u201cStretch\u201d reduced the processing time of complex data sets from six months to a single day.\nThree years later, in 1964, IBM introduced its System 360 Mainframe, marking a significant milestone in business efficiency. The System 360 bundled IBM hardware with software and services, making them easy to buy, use and upgrade. Businesses could also, for the first time, run multiple applications simultaneously using a single computer.\nMainframes, and the sale of them, propelled IBM into becoming one of the most valuable companies in the world.\nBy 1990, IBM was the 4th largest company on the Fortune 500 list; at the turn of the millennium, it was number six measured by revenue.\nCompanies and governments in need of massive, reliable, fast and redundant computing power bought them as fast as IBM could make them.\nDown and to the Left \u00a0\nTen years later, IBM\u2019s fortunes began to shift \u2014 as did its place on the Fortune 500 list.\nIBM lost $5 billion in 1992, the most ever for a company at that time, after losing billions in each of the years before that. Between 2012 and 2020, IBM reportedly lost $95 billion in market cap.\nMany case studies written about IBM\u2019s downward spiral cite a series of strategic management, pricing and partnership blunders, and a costly shift from its B2B core to personal computing in the 1990s. Those costly mistakes sapped time, dollars and focus from what was necessary to innovate for the future.\n\n\n\n This blind spot came from believing that IBM mainframes were so central to the core of the business that customers would always upgrade and buy high-margin services, but never leave. \n\n\n\n\nBut in the early 2000s it would be its failure to recognize cloud computing as the cornerstone for computing in the digital age that would become IBM\u2019s corporate cross to bear. This blind spot came from believing, early on, that IBM mainframes were so central to the core of the business that customers would always upgrade and buy high-margin services, but never leave.\nThat\u2019s what Lou Gerstner observed when he was brought in to turn IBM around in 1993. At the time, he cited \u201ccorporate arrogance\u201d as a contributor to the company\u2019s lack of urgency to shift focus, blaming a leadership team who believed too much in its own PR. The \u201cno one ever got fired by buying IBM\u201d mantra fanned those flames.\nUntil, of course, it didn\u2019t.\nBy the end of 2010, IBM had slipped to 65th place on the Fortune 500 list and has remained solidly stuck there for the last 14 years.\nMilking the Cash Cow\n\nIt is estimated that 10,000 mainframes exist today, mostly IBM vintage, and mostly owned by the largest companies in the world. It\u2019s reported that two-thirds of the Fortune 500 companies use them, as do 45 of the top 50 banks and 70% of the world\u2019s largest retailers. Big Iron, as these mainframes are collectively called, processes about 90% of credit card transactions today. There\u2019s a great story about the history of IBM and mainframes here.\nCompanies still buy mainframes because they are reliable and efficient data processing workhorses, despite the dearth of COBOL programmers and the cost to keep them running. They upgrade them because there\u2019s no other option \u2014 at least, not right now.\nAnalysts project that the mainframe market will grow a modest 6.4% a year over the next seven years \u2013 from $2.5B in 2023 to $4.5B in 2032. IBM\u2019s revenues from mainframe sales are expected to get a 3% to 5% lift in 2024 as new models are introduced and existing users upgrade their software and service agreements.\nBut experts, investors and analysts agree that IBM\u2019s future can\u2019t be about squeezing every last drop of milk from its flagship product, even though it will help keep the lights on in the near term.\nToday, IBM is playing a costly game of catch-up \u2014 the cloud computing market was valued at roughly $588 billion in 2023 and is expected to reach $2.2 trillion in 2032 with a growth rate that is two and half times the mainframe sector. The shift from mainframes to the cloud may be a many-years, even decades-long, journey for its current users. But it is so important for achieving key strategic objectives that any IT department worth its salt is planning for it, has probably even started, and is likely working with the big cloud providers and their partners to guide the process.\nThen, there\u2019s AI.\nIBM was an early innovator with Watson in 2004, yet they are rarely mentioned as a key contender when AI or GenAI discussions are had today. IBM made a big bet on healthcare, investing billions to build Watson Health and another $5 billion to acquire companies for their data. The focus was oncology; diagnosing and prescribing personalized cancer treatments was the use case. All signs seemed to point to a slam-dunk winner.\nSoon after Watson Health\u2019s 2016 launch, doctors found its patient diagnoses to be inaccurate and irrelevant, citing representative data limitations. They stopped using it. Watson Health was sold to a private equity firm six years later, in 2022, for $1 billion.\nWhen the Apple Does Not Fall Far from The Tree \nIn 2000, Apple was 285th on the Fortune 500 list, having fallen 162 places (from 123) in 1995. A series of costly product, pricing and competitive blunders led to big losses each year between 1994 and 1997. In 1997, Apple reported a Q1 loss of $708 million, destroying 85% of the company\u2019s value, and nearly tipping the company into bankruptcy.\nThat was also the year that Steve Jobs returned to Apple.\u00a0\nHe persuaded the board to give him some time to reposition the company and create better and more accessible personal computer products. He brought with him his dream team, including Jony Ive and Tony Faddell. That team \u2014 and the launch of colorful iMacs \u2014 brought Apple back to life.\nSo did the repositioning of the firm as a software company powered by cool consumer hardware \u2014 and the opening of 500 retail stores to give consumers a way to touch and experience Apple products before buying them.\nThe launch of the iPhone in 2007 and the App Store in 2008 would cement Apple\u2019s place in history as having created the one of the most transformative consumer products of all time.\nBy 2010, Apple had jumped 229 spots to 56th place on the Fortune 500 list.\nBy 2020 it had moved fifty more to sixth place.\nIn 2023, Apple occupied spot number four. And its market cap reached $3 trillion.\nThe Big Apple Earnings Circus\nApple\u2019s success over the last 24 years represents one of the, if not the, most successful turnaround stories of all time. Since the iPhone launched in 2007, it has grown its annual revenue 16X \u2014 from $24 billion in 2007 to $383 billion in 2023. The iPhone user base counts 18% of the world\u2019s population or 1.46 billion users. In the U.S., 55% of the adult U.S. population owns an iPhone, with many of them representing the most affluent consumer spending demographic.\nOn Apple\u2019s Q2 FY 2024 pep rally earnings call,\u00a0 CEO Tim Cook described Apple\u2019s \u201camazing\u201d quarter, using the word \u201call-time\u201d 14 times to describe Apple\u2019s performance to investors, along with other superlatives such as \u201cgroundbreaking.\u201d\nThis as iPhone revenue was reported down by 10%, iPad revenue down by 17% and Wearable device sales down by 10%. Apple also guided single digit growth in iPhone sales for the rest of the year.\nCook described Apple\u2019s latest hardware innovation, Vision Pro, as \u201cexciting\u201d and a big hit, citing nearly half of all Fortune 500 companies as buyers exploring \u201cinnovative\u201d use cases. He failed to say how many units were purchased by individuals and which use cases companies are exploring, even though he was asked.\nGenAI plans were also vague, but described as a very key opportunity for Apple. Everyone expects details at Apple\u2019s annual World Wide Developers Conference about a month from now (June 10). Already, the hype machine is spinning at warp speed.\nApple\u2019s earnings bright spot was the increase of 14% in Services revenue with double-digit increases guided for the balance of the year. It\u2019s not transparent about what accounts for that growth, although Apple did report a total of one billion subscribers to Apple One. That\u2019s roughly two-thirds of its user base.\nAnalysts and investors remain bullish on Apple\u2019s future. Its stock price is up 8% since reporting its quarterly results. Many say that\u2019s just because the results weren\u2019t as bad as they expected. Warren Buffet, whose Apple stakes once comprised 50% of Berkshire Hathaway\u2019s\u00a0portfolio, just sold 13% of his shares. Nothing bad, he said \u2014 it was just time to cash in and move on.\nEveryone seems optimistic (hopeful?) that GenAI will juice future iPhone sales and stem defections to the Android handsets that already include GenAI powered software.\nAnd why not? The iPhone and its business model created the smartphone category, the device that connects the physical and digital worlds for its users.\nThe indispensable consumer product that anchors the digital transformation and has become the centerpiece of life inside the Apple ecosystem.\nAnd it\u2019s Apple.\nThe Wagons That Are Circling Apple\u2019s Basket\nDespite all its stunning achievements, by any objective measure Apple faces multiple serious and strategic issues. Issues so fundamental that everyone should be asking questions about the many assertions supporting its future as a leading mobile technology ecosystem \u2014 and its stratospheric market cap.\nThe iPhone and the iMac were big hits. But that is where the big hit parade seems to slow down.\n \n\n\n\n By any objective measure Apple faces multiple serious and strategic issues.\n\n\n\n\nWearables were a hit for a time, but now not so much. The HomePod was an outright flop. Like most AR/VR headsets, the Vision Pro seems a niche product that got a PR and fanboy pop but seems to struggle to gain adoption. The Connected Car, billed as Apple\u2019s biggest flagship product since the iPhone, was shuttered after a decade-long attempt to make it road-and consumer-ready. And don\u2019t even try to ask Siri where Apple was when AI took off in late 2022.\nUnless Apple has another transformative product innovation hiding up its sleeves, Apple\u2019s growth is entirely dependent upon people buying the next generation of iPhone, upgrading them and using them. The same form factor, more or less, that they have been buying for the last 17 years.\nAnd as goes the iPhone, so goes Services.\nWithout the iPhone, there is no Services revenue or double digit increase that comes from using Services \u2014 the part of Apple\u2019s business that is high-margin and touted as its growth engine.\nMore Markets, More Problems\nThat may be harder to assume than it was a year or so ago.\nAt the end of the first three months of 2024, Apple ceded its global handset leadership to Samsung. Apple\u2019s iOS users are a third of Android\u2019s with 3.3 billion users and a 41% global share.\nThere\u2019s China, which, along with AI, could mark the biggest headwinds Apple has seen since the bad old days of 1994. China is Apple\u2019s third largest market accounting for roughly 17% of its sales. For the first three months of 2024, iPhone revenue there fell 19%, as Huawei sales jumped.\nOf course, it doesn\u2019t help that the Chinese government forbids government officials from using iPhones and arranged key photo ops of all of them clutching their Huawei handsets. But don\u2019t blame the Xi regime. Chinese consumers, who are now feeling the spending pinch, can get better, cheaper phones and don\u2019t need to rely on Apple\u2019s app ecosystem given the widespread use of WeChat.\nIn a double hit to both Tesla and Apple, handset maker Xiaomi announced the debut of a low-priced electric vehicle that is also totally integrated with the phone. Now the Chinese consumer can get a two-fer \u2014 a good-looking and inexpensive EV, totally integrated with a digital ecosystem powered by Xiaomi.\nAlthough it will take time to see the impact of the loss of the China iPhone sales to its corresponding Services revenue, it seems inevitable.\n\n\n\n Perhaps Apple\u2019s biggest threat is AI, where, like IBM, it squandered its early lead.\n\n\n\n\nThere\u2019s Apple\u2019s business model, a foundational pillar of its innovation and competitive advantage. It is also one under attack in nearly every jurisdiction worldwide, forcing Apple to open its App Store to competing payments processing systems and dinging its Services revenue further.\nThere\u2019s high-margin search revenue. Safari\u2019s search was so bad, it needed Google to step in. And it did \u2014 for a fee that became a win-win for them both. But depending upon how the Google antitrust case works out, Apple may be out the high-margin $18 or so billion a year they get from Google to power search on the iPhone. \u00a0That reportedly accounts for 36% of Safari\u2019s annual ad revenue.\nApple\u2019s closed ecosystem also means that Apple apps are not interoperable or portable unless used with another Apple product \u2014 which are fairly limited now. Without interoperability and portability, iPhone users are forced to live their life in that ecosystem. Innovators are forced to prioritize and pick sides. And Apple shuts itself out of the 3.36 billion consumers who use Android phones.\nApple\u2019s closed ecosystem has worked well in a world where the iPhone is the front door that opens all other apps in an ecosystem that its high-spending users like living in. But in a world of distributed commerce and voice-activated transactions and commands, it will be increasingly limiting, and potentially frustrating. Try to use Apple Pay on any device other than an Apple device. Or your Apple Wallet on your PC.\nThen try to use Chrome on your iPhone \u2014 you can \u2014 and Alexa on your iPhone or Android device \u2014 you can do that, too.\nOr Chat GPT.\nPerhaps Apple\u2019s biggest threat is AI, where, like IBM, it squandered its early lead.\nEnter the Dream Nightmare Team\nApple was among the first to innovate voice with Siri \u2014 back in 2010 as an app, and a year later as an integration into the phone itself. Siri has improved over time but seems incapable of responding to complex tasks. Apple claims to have invested $100 billion in AI over the last five years, yet it isn\u2019t part of the conversation when it comes to the innovators who are now driving the AI revolution.\nAnd just a week ago, Apple made the surprising announcement that it was teaming with OpenAI for GenAI on the iPhone.\nPlan A? Or a sudden shift to Plan B (or C) from feeling the pressure of being late to the GenAI party?\nAs PYMNTS has written, there is a new dream team reimagining the future of the smartphone with GenAI \u2014 and it\u2019s not at Apple. OpenAI\u2019s Sam Altman and original Apple dream team member Jony Ive are passing the hat to raise $1 billion to create an AI-powered smartphone. In an interesting twist, one of the funds rumored to have an interest in participating is Laurene Jobs, Steve Jobs\u2019 widow.\nCould this device become as transformative to the smartphone world as the iPhone was in 2007? Hard to know right now. But if the past is prologue and the dream team delivers, the odds seem high. And if isn\u2019t them, it might well be another team we haven\u2019t yet heard of.\n\n\n\n A GenAI phone has the potential to change the user experience, the way business and consumers engage, and the business model that powers the economics of that experience.\n\n\n\n\nLike the iPhone, a GenAI phone has the potential to change the user experience, the way business and consumers engage, and the business model that powers the economics of that experience for users, developers and third parties.\nLike IBM and the Mainframe, users won\u2019t bail right away. A lot will depend on what \u201cit\u201d is, how much the device costs, and how compelling the user experience and use cases it powers.\nAnd how much work it takes to make a transition. The work to move from Android to iPhone and vice versa isn\u2019t fast or easy, and the differences not significant enough to put in the work. The data shows that not many people have.\nCutting to the Apple Core \nLike Blackberry and the iPhone that displaced it, and the IBM mainframe and cloud computing, market share shifts take time. But history tells us that once users see a different and better way, those shifts gain momentum, hit a tipping point and become irreversible.\nBlackberry and IBM were ill-equipped to pivot in time, mostly because they believed that their products were indispensable. That there might be something better, but users wouldn\u2019t invest the time and the money to make the switch. They didn\u2019t see a different future, only one where incremental improvements to the products would be good enough to keep customers from fleeing.\nThey also failed to recognize the frictions that users would face if they didn\u2019t make the switch, the opportunities they would forgo but didn\u2019t want to, and the innovations that would make the experience new, different and truly transformational. Blackberry users didn\u2019t buy an iPhone to make calls or type emails, they bought it to connect to the digital world in a way that was impossible to do before. Enterprise companies aren\u2019t moving to the cloud because they\u2019re sick of mainframes, but because they want the speed and agility necessary to deliver real time, data-driven solutions to their customers.\nApple is one of the most beloved brands in the world, and once again flirting with a $3 trillion market cap. It has $56 billion in the bank and a talented team accustomed to delivering \u2014 and having people buy \u2014 Apple\u2019s next big thing.\nBut like IBM, its flagship product has changed little over the last 17 years. The form factor looks better, is faster, takes better pictures and doesn\u2019t have to be charged as often. Software upgrades add new features. But nothing else has really changed.\nIBM, at number 65 on the Fortune 500 list, is still a big global company with products that are still relevant and\u00a0a brand that still holds sway. It is making\u00a0investments in quantum computing, which could be the next big thing that drives customer value and the revenue to match. Today, it just doesn\u2019t lead the category in the same way it once did.\nSince 2011, ,\u00a0Apple\u2019s formidable cash cushion has given it the luxury of staying power in markets and sectors where it wasn\u2019t first but had the bank account to outlast others who may have been.\u00a0\u00a0But GenAI has changed the rules of play, the speed of the game, and others are farther ahead.\nThe next year will be interesting to watch, as innovators (both known and still in stealth)\u00a0use GenAI to drive the next big change in how people and businesses use digital to connect. Innovators with a different vision for how to use it to drive the connected economy forward are unconstrained by legacy products that may pay the bills today, just like Apple was in the early 2000s when the iPhone was little more than an idea.\nIn many ways, for Apple, it is a little like d\u00e9j\u00e0 vu all over again.\nSmartphone upgrade cycles are getting longer. Consumers, iPhones in hand, might prefer to wait and see what a pure-play GenAI phone does and what makes it different before buying the iPhone 16, 17, or 18.\nThe GenAI-curious might buy a phone from a GenAI challenger to play around with while still using their iPhone before jumping in with both feet.\nThe Fan boys could be the last to bolt \u2014 although as early adopters, you can never really be sure.\n \nThe post Is Apple at Risk of Becoming the Next IBM? appeared first on PYMNTS.com.", "date_published": "2024-05-07T07:00:59-04:00", "date_modified": "2024-05-07T07:04:41-04:00", "authors": [ { "name": "Karen Webster", "url": "https://www.pymnts.com/author/karen-webster/", "avatar": "https://secure.gravatar.com/avatar/5b27788b9b2e77749b3dc9da766486d8?s=512&d=blank&r=g" } ], "author": { "name": "Karen Webster", "url": "https://www.pymnts.com/author/karen-webster/", "avatar": "https://secure.gravatar.com/avatar/5b27788b9b2e77749b3dc9da766486d8?s=512&d=blank&r=g" }, "image": "https://www.pymnts.com/wp-content/uploads/2024/05/apple-ibm.jpg", "tags": [ "AI", "Apple", "Connected Economy", "GenAI", "IBM", "Karen Webster", "KLW Commentary", "Main Feature", "News", "PYMNTS News", "Smart Phones", "voice activation" ] }, { "id": "https://www.pymnts.com/?p=1913800", "url": "https://www.pymnts.com/artificial-intelligence-2/2024/why-measuring-the-roi-of-transformative-technology-like-genai-is-so-hard/", "title": "Why Measuring the ROI of Transformative Technology Like GenAI Is So Hard", "content_html": "Google\u2019s market cap topped $2 trillion last week after quarterly earnings convinced investors that demand for its GenAI platform was not only strong but being monetized in the here and now. Microsoft, according to reports, attributed 7 points of its 31% quarterly cloud revenue jump to GenAI use cases. The CFOs of both whispered the possibility of the near-term risk of demand outpacing supply, given the almost universal acceptance of the potential for GenAI\u2019s transformational impact on people, business, and society \u2014 and the fear of being left behind.
\nWe see this too. A recent PYMNTS Intelligence study of how enterprise CFOs view GenAI\u2019s impact on their business finds that nearly two-thirds believe it is the most significant technological innovation of our time. They use words like \u201cgrowth,\u201d \u201csuccess,\u201d \u201cimpact,\u201d \u201cinnovation,\u201d and \u201cfuture\u201d when asked to provide a one-word description. None of the CFOs surveyed expressed a negative view, even though some admitted the need to know more about its application to their business.
\nAlthough the study finds investments in GenAI to be relatively modest and experimental today, 53% of CFOs say that they\u2019ll loosen the purse strings and significantly increase those budgets company-wide in the next year. Even the CFOs who acknowledge its potential, but have been more conservative, are ready to jump in. Nearly two-thirds (65%) of those CFOs expect to increase their corporate-wide GenAI budgets by an average of 12% in the coming year.
\nWhat\u2019s missing in all the coverage of the models, investments, startups and GenAI applications is a framework for analyzing the link between the application of the technology and business outcomes \u2014 and how executives across an organization measure the impact of their investments to support it.
\nLooking at GenAI through that lens can inform the characteristics of the companies and industry segments that recognize it as a strategic enabler to their business early on. More important, it offers a consistent way to track the impact of GenAI on business and financial performance over time. As GenAI and LLM applications become an embedded part of a business, the only way to measure the impact of this technology will be by looking at its impact on overall business outcomes.
\nThat is the thesis of a new monthly PYMNTS Intelligence study we call The CAIO Study. The first of these monthly reports will be released on Tuesday, May 14th.
The overall study framework consists of a proprietary weighting and scoring methodology for each of 13 activities to classify them as routine or strategic uses of GenAI. The PYMNTS Intelligence team then uses statistical techniques to examine how each activity, and groups of activities, can influence business outcomes and the return on their investments to support it, as reported by the C-suite.\u00a0 Each month will study a different enterprise C-Suite executive and in order to do a deeper dive into a particular business function.
\nThe study branding is a nod to the speed at which GenAI is becoming an embedded part of business decision-making and executive proficiency. Successful businesses will be led by executives who see GenAI as the invisible engine that powers the business and who prioritize the people, process, and dollars to make it real for themselves and their customers over the next one, three and five years.
\nThe CAIO Study will methodically benchmark that journey across the enterprise C-Suite and expects to have data on more than 700 such U.S. executives in its first year.
The May 14th release will share what we learned after conducting a double-blind survey of a random sample of CFOs of 60 of the largest companies in the U.S. \u2014 $1 billion or more in annual revenue. For this issue of the study, we drilled into the applications of GenAI across the business, what is being invested to support those activities, and how CFOs currently measure its impact.
\nStarting with the fact that not even enterprise CFOs who\u2019ve invested the most have a clear vision for how to effectively predict the impact of GenAI on the financial performance of the company in these early days.
\nHere\u2019s the good news:\u00a0Right now, nearly all enterprise firms we studied are using GenAI to some degree.
\nHere\u2019s the highly predictable news: Most of those CFOs have yet to see a demonstrable return from those investments.
\nThere are a few very good reasons for that.
\nFirst, the enterprise firms studied are just getting their feet wet with mostly low-risk, low-impact, less complex applications of GenAI tech.
\n\n\nAnd second, those types of applications and use cases represent the bulk of their company\u2019s experiences to date with GenAI. Most of what we see so far inside of these enterprise firms is the use of GenAI to create emails, summarize reports, search for information, produce graphics and write social media posts.
\nI won\u2019t ask whether the last email you sent also had a little GenAI helping hand.
\nRoughly half of the GenAI use cases inside these firms can be classified this way \u2014 more routine than strategic, more for internal use than customer-facing, and mostly by individuals inside of the company to save time and improve the quality of their personal workflows.
\nIt\u2019s why we also find a relationship between the number of firms using GenAI to tackle more complex activities and the impact CFOs report GenAI has on the business right now.
\nOnly 14% of the CFOs in our study say that GenAI-ing routine, less complex activities deliver a positive impact on the business. It is hard to measure the collective financial and business impact of better emails and snappier reports.
\nThey have a much different view when LLMs are used in broader and more strategic ways.
\nMore than twice as many CFOs report a strong ROI when GenAI is applied this way, even as CFOs right now are using more gut instinct than P&L performance to judge its potential impact. Strategic activities in this study include innovating products and improving processes and workflows for mission-critical business functions such as the production process, fraud and cybersecurity.
\nWe also observe a surprising disconnect between what conventional wisdom suggests as popular strategic applications of GenAI and how CFOs project their bottom-line impact today.
\nFor example,\u00a0chatbots are widely popular and often talked about as a GenAI use case; it\u2019s also one that CFOs say is an effective application of the tech. Yet we find roughly a third of \u00a0enterprise CFOs (32%) report a negligible impact of chatbots on financial and business performance. \u00a0It could be that the tech is still new and being introduced alongside people sitting in call centers, making it hard to predict its impact on business bottom line right now.
\nAccording to the study, using GenAI to generate code is a less widely used case, but one that CFOs report as having 2.5 times greater impact on business performance than others. \u00a0CFOs may find it easier to conceptualize GenAI\u2019s impact on the cost of supporting a development team, for example, \u00a0when coding has the potential to become more widely distributed across the business.
\n\n\n\n\nNearly every firm in The CAIO Study uses GenAI to support an average of four routine, less complex, non-mission-critical tasks, as described earlier. Enterprise firms that use GenAI more strategically use an average of six applications across the business.
We also find that enterprise CFOs using six or more GenAI applications report an eightfold increase in the expected ROI impact of GenAI on the business compared to those using five or fewer. One might expect that going from four to six applications would be linked to CFOs reporting a change in ROI impact proportional to that increase. But we see that the addition of\u00a0a few strategic applications\u00a0can be quite impactful.
\nThat\u2019s even as only one in three CFOs studied are using the technology across the business to this degree (i.e. six or more applications).
\nWe also find that when CFOs have more experience using GenAI applications to support strategic business initiatives, they have a greater appetite to invest more in its strategic use. \u00a0Those CFOs cite an average investment in GenAI applications at $4.6M, 88% more than those whose use cases are more routine.
\n\n\n\n\n\n\n\n
Nearly a year and a half after the public launch of OpenAI and Chat GPT, we find that the methods enterprise CFOs use to measure the future value of their current investments in GenAI applications are still a work in progress.
\nIt is admittedly early days, and one study of a small sample of enterprise CFOs does not make a trend. But we believe that what CFOs report as the drivers of a positive ROI may also undervalue\u00a0GenAI\u2019s potential business impact in the years to come.\u00a0 There\u2019s no data to benchmark or use as a guide right now. It is also difficult to forecast the impact across the business of such a transformative technology.
\nWe \u00a0already see signs of how measuring GenAI\u2019s impact might take shape. The enterprise CFOs who report that their firms have embedded GenAI into\u00a0more complex, higher-value business functions\u00a0also say the business and financial impact is stronger, and their reports of a positive ROI are more certain.
\nThey report a more positive impact across the business in the areas of customer delivery, critical business process improvement and competitive positioning. More than three quarters (78%) of the firms who use GenAI this way count positive impacts in new product innovation, and 72% see positive impacts on market adaptability and business expansion \u2014 nearly twice as much as those who haven\u2019t expanded their GenAI wings across the business.
\nSome of that can be explained by how CFOs see the staffing mix evolve over time and how it impacts the costs to support the workforce in the here and now.
\nEight in ten enterprise CFOs in this study say that\u00a0GenAI will have a big impact on staff mix, with nearly two thirds saying that their need for lower-skilled workers across the business has decreased at the same time the need for more analytically skilled workers has increased. CFOs have a direct line of sight into those staffing plans and forecasts, so they may be using it as a proxy for measuring business performance over the longer term.
\nWe also see evidence that it is the blend of GenAI applications across both routine and strategic use cases that drives a stronger, more positive ROI outlook as reported by the enterprise CFOs we studied
\nAnd why we find little evidence that any single GenAI application is the \u201csilver bullet\u201d to take the overall business performance of the largest companies in the U.S. to the next level.
\n\n
The post Why Measuring the ROI of Transformative Technology Like GenAI Is So Hard appeared first on PYMNTS.com.
\n", "content_text": "Google\u2019s market cap topped $2 trillion last week after quarterly earnings convinced investors that demand for its GenAI platform was not only strong but being monetized in the here and now. Microsoft, according to reports, attributed 7 points of its 31% quarterly cloud revenue jump to GenAI use cases. The CFOs of both whispered the possibility of the near-term risk of demand outpacing supply, given the almost universal acceptance of the potential for GenAI\u2019s transformational impact on people, business, and society \u2014 and the fear of being left behind.\nWe see this too. A recent PYMNTS Intelligence study of how enterprise CFOs view GenAI\u2019s impact on their business finds that nearly two-thirds believe it is the most significant technological innovation of our time. They use words like \u201cgrowth,\u201d \u201csuccess,\u201d \u201cimpact,\u201d \u201cinnovation,\u201d and \u201cfuture\u201d when asked to provide a one-word description. None of the CFOs surveyed expressed a negative view, even though some admitted the need to know more about its application to their business.\nAlthough the study finds investments in GenAI to be relatively modest and experimental today, 53% of CFOs say that they\u2019ll loosen the purse strings and significantly increase those budgets company-wide in the next year. Even the CFOs who acknowledge its potential, but have been more conservative, are ready to jump in. Nearly two-thirds (65%) of those CFOs expect to increase their corporate-wide GenAI budgets by an average of 12% in the coming year.\nThe Need for a GenAI Organizing Framework\nWhat\u2019s missing in all the coverage of the models, investments, startups and GenAI applications is a framework for analyzing the link between the application of the technology and business outcomes \u2014 and how executives across an organization measure the impact of their investments to support it.\nLooking at GenAI through that lens can inform the characteristics of the companies and industry segments that recognize it as a strategic enabler to their business early on. More important, it offers a consistent way to track the impact of GenAI on business and financial performance over time. As GenAI and LLM applications become an embedded part of a business, the only way to measure the impact of this technology will be by looking at its impact on overall business outcomes.\nThat is the thesis of a new monthly PYMNTS Intelligence study we call The CAIO Study. The first of these monthly reports will be released on Tuesday, May 14th.\nThe overall study framework consists of a proprietary weighting and scoring methodology for each of 13 activities to classify them as routine or strategic uses of GenAI. The PYMNTS Intelligence team then uses statistical techniques to examine how each activity, and groups of activities, can influence business outcomes and the return on their investments to support it, as reported by the C-suite.\u00a0 Each month will study a different enterprise C-Suite executive and in order to do a deeper dive into a particular business function.\nThe study branding is a nod to the speed at which GenAI is becoming an embedded part of business decision-making and executive proficiency. Successful businesses will be led by executives who see GenAI as the invisible engine that powers the business and who prioritize the people, process, and dollars to make it real for themselves and their customers over the next one, three and five years.\nThe CAIO Study will methodically benchmark that journey across the enterprise C-Suite and expects to have data on more than 700 such U.S. executives in its first year.\nThe May 14th release will share what we learned after conducting a double-blind survey of a random sample of CFOs of 60 of the largest companies in the U.S. \u2014 $1 billion or more in annual revenue. For this issue of the study, we drilled into the applications of GenAI across the business, what is being invested to support those activities, and how CFOs currently measure its impact.\nStarting with the fact that not even enterprise CFOs who\u2019ve invested the most have a clear vision for how to effectively predict the impact of GenAI on the financial performance of the company in these early days.\n\u00a0A Whole Lot of Writing Emails Going On\nHere\u2019s the good news:\u00a0Right now, nearly all enterprise firms we studied are using GenAI to some degree.\nHere\u2019s the highly predictable news: Most of those CFOs have yet to see a demonstrable return from those investments.\nThere are a few very good reasons for that.\nFirst, the enterprise firms studied are just getting their feet wet with mostly low-risk, low-impact, less complex applications of GenAI tech.\n\n\nAnd second, those types of applications and use cases represent the bulk of their company\u2019s experiences to date with GenAI. Most of what we see so far inside of these enterprise firms is the use of GenAI to create emails, summarize reports, search for information, produce graphics and write social media posts.\nI won\u2019t ask whether the last email you sent also had a little GenAI helping hand.\nRoughly half of the GenAI use cases inside these firms can be classified this way \u2014 more routine than strategic, more for internal use than customer-facing, and mostly by individuals inside of the company to save time and improve the quality of their personal workflows.\nIt\u2019s why we also find a relationship between the number of firms using GenAI to tackle more complex activities and the impact CFOs report GenAI has on the business right now.\nOnly 14% of the CFOs in our study say that GenAI-ing routine, less complex activities deliver a positive impact on the business. It is hard to measure the collective financial and business impact of better emails and snappier reports.\nThey have a much different view when LLMs are used in broader and more strategic ways.\nMore than twice as many CFOs report a strong ROI when GenAI is applied this way, even as CFOs right now are using more gut instinct than P&L performance to judge its potential impact. Strategic activities in this study include innovating products and improving processes and workflows for mission-critical business functions such as the production process, fraud and cybersecurity.\nWe also observe a surprising disconnect between what conventional wisdom suggests as popular strategic applications of GenAI and how CFOs project their bottom-line impact today.\nFor example,\u00a0chatbots are widely popular and often talked about as a GenAI use case; it\u2019s also one that CFOs say is an effective application of the tech. Yet we find roughly a third of \u00a0enterprise CFOs (32%) report a negligible impact of chatbots on financial and business performance. \u00a0It could be that the tech is still new and being introduced alongside people sitting in call centers, making it hard to predict its impact on business bottom line right now.\nAccording to the study, using GenAI to generate code is a less widely used case, but one that CFOs report as having 2.5 times greater impact on business performance than others. \u00a0CFOs may find it easier to conceptualize GenAI\u2019s impact on the cost of supporting a development team, for example, \u00a0when coding has the potential to become more widely distributed across the business.\n\n\n\n\nMore GenAI Means More Impact \u00a0\nNearly every firm in The CAIO Study uses GenAI to support an average of four routine, less complex, non-mission-critical tasks, as described earlier. Enterprise firms that use GenAI more strategically use an average of six applications across the business.\nWe also find that enterprise CFOs using six or more GenAI applications report an eightfold increase in the expected ROI impact of GenAI on the business compared to those using five or fewer. One might expect that going from four to six applications would be linked to CFOs reporting a change in ROI impact proportional to that increase. But we see that the addition of\u00a0a few strategic applications\u00a0can be quite impactful.\nThat\u2019s even as only one in three CFOs studied are using the technology across the business to this degree (i.e. six or more applications).\nWe also find that when CFOs have more experience using GenAI applications to support strategic business initiatives, they have a greater appetite to invest more in its strategic use. \u00a0Those CFOs cite an average investment in GenAI applications at $4.6M, 88% more than those whose use cases are more routine.\n\n\n\n\n\n\n \nWhat Gets Managed Gets Measured, Sort Of\nNearly a year and a half after the public launch of OpenAI and Chat GPT, we find that the methods enterprise CFOs use to measure the future value of their current investments in GenAI applications are still a work in progress.\nIt is admittedly early days, and one study of a small sample of enterprise CFOs does not make a trend. But we believe that what CFOs report as the drivers of a positive ROI may also undervalue\u00a0GenAI\u2019s potential business impact in the years to come.\u00a0 There\u2019s no data to benchmark or use as a guide right now. It is also difficult to forecast the impact across the business of such a transformative technology.\nWe \u00a0already see signs of how measuring GenAI\u2019s impact might take shape. The enterprise CFOs who report that their firms have embedded GenAI into\u00a0more complex, higher-value business functions\u00a0also say the business and financial impact is stronger, and their reports of a positive ROI are more certain.\nThey report a more positive impact across the business in the areas of customer delivery, critical business process improvement and competitive positioning. More than three quarters (78%) of the firms who use GenAI this way count positive impacts in new product innovation, and 72% see positive impacts on market adaptability and business expansion \u2014 nearly twice as much as those who haven\u2019t expanded their GenAI wings across the business.\nSome of that can be explained by how CFOs see the staffing mix evolve over time and how it impacts the costs to support the workforce in the here and now.\nEight in ten enterprise CFOs in this study say that\u00a0GenAI will have a big impact on staff mix, with nearly two thirds saying that their need for lower-skilled workers across the business has decreased at the same time the need for more analytically skilled workers has increased. CFOs have a direct line of sight into those staffing plans and forecasts, so they may be using it as a proxy for measuring business performance over the longer term.\nWe also see evidence that it is the blend of GenAI applications across both routine and strategic use cases that drives a stronger, more positive ROI outlook as reported by the enterprise CFOs we studied\nAnd why we find little evidence that any single GenAI application is the \u201csilver bullet\u201d to take the overall business performance of the largest companies in the U.S. to the next level.\n \nThe post Why Measuring the ROI of Transformative Technology Like GenAI Is So Hard appeared first on PYMNTS.com.", "date_published": "2024-04-30T07:00:59-04:00", "date_modified": "2024-04-30T23:03:56-04:00", "authors": [ { "name": "Karen Webster", "url": "https://www.pymnts.com/author/karen-webster/", "avatar": "https://secure.gravatar.com/avatar/5b27788b9b2e77749b3dc9da766486d8?s=512&d=blank&r=g" } ], "author": { "name": "Karen Webster", "url": "https://www.pymnts.com/author/karen-webster/", "avatar": "https://secure.gravatar.com/avatar/5b27788b9b2e77749b3dc9da766486d8?s=512&d=blank&r=g" }, "image": "https://www.pymnts.com/wp-content/uploads/2024/04/measure.jpg", "tags": [ "AI", "artificial intelligence", "B2B", "B2B Payments", "CFOs", "commercial payments", "GenAI", "Investments", "Karen Webster", "KLW Commentary", "LLMs", "Main Feature", "News", "PYMNTS Intelligence", "PYMNTS News", "The CAIO\u2122 Study", "artificial intelligence" ] }, { "id": "https://www.pymnts.com/?p=1888359", "url": "https://www.pymnts.com/news/banking/2024/what-generation-z-wants-from-their-bank/", "title": "What Generation Z Wants From Their Bank", "content_html": "There are 69 million consumers in the U.S. who are between the ages of 12 and 27. They are described as the first digitally-native generation \u2014 a generation that has lived with mobile phones and apps for most of their lives. The iPhone was introduced 17 years ago when the oldest of this cohort, known as Gen Z, were in the fourth grade.
\nBy 2030, barely five years from now, Gen Z will represent a third of the workforce. Their disposable income is projected to increase by sevenfold and their spending by sixfold as their incomes rise and they begin to benefit from the $90 trillion transfer of wealth headed their way from parents and grandparents.
\n| By 2030, Gen Z will represent a third of the workforce. \n | \n
For that reason, Gen Z is the generation that all businesses are courting \u2014 they are their future workers, customers, business partners and investors. What makes this generation tick is the subject of intense scrutiny because decisions made now could stick for decades to come.
\nEspecially when it comes to how and where they bank and how and where they spend their money.
\nI had the chance to present the results of new PYMNTS Intelligence research on this topic with those attending the PSCU Member Forum in San Antonio last week.
\nWhat Gen Zs want from their bank was one of several research outcomes from a path-breaking study of credit union members, credit union executives and FinTechs done with the support of PSCU.
\nThe research objective was to examine the innovation required of credit unions to meet the needs of their members today \u2014 and to attract and retain the future generation of customers over the next five to six years. The research outcome provides a blueprint for Credit Union 2030 \u2014 and an index to measure the innovation readiness of credit unions to deliver member-driven outcomes over that period.
\nThe study considered more than fifty products and services, along with financial metrics from the credit unions studied. It analyzed current member use and future expectations for current and future credit union product offerings. The study also examined the ROI of investments in innovation to identify top, middle and bottom performers. More than 4,500 consumers were studied, both credit union and non-credit union accountholders.
\nThe PYMNTS Intelligence/PCSCU study generated more than one million data points and, for me, one important conclusion.
\nWhat Gen Z wants from a bank is what almost everyone now wants from their bank: personalized products and services that are easier to consume on their mobile devices.
\n| But for Gen Z, many features aren\u2019t just nice to have. They are a requirement. \n | \n
But for Gen Z, using their phones to open accounts, pay bills, send money to family and friends, get financial advice, apply for credit including BNPL, invest and save money \u2014 aren\u2019t just nice to have. They are a requirement. Their low bar: those products and services must be available on the phone, on demand, and without having to bounce between apps and screens to access them
\nGen Z wants this easy and seamless access to banking and payments services because they are active consumers of banking and payments products \u2014 five on average, according to the research. And they\u2019d use twice as many, if offered and available.
\nSo, therein lies the rub.
\nGen Z is more willing and able to switch banking relationships to get the banking services they want \u2014 and they do: two to three times more often than their parents, and four times more often than their grandparents.
\nPYMNTS Intelligence research finds that 42% of Gen Zs who bank with credit unions have changed their banking relationship over the last 12 months, as have 44% of Gen Zs that bank with traditional financial institutions.
\nSixty percent of those switchers have kept their prior account open but no longer use it as their primary banking relationship \u2014 it\u2019s no longer top of mind and/or top of wallet. Forty percent have closed their account completely. Fewer than 5% of these bank switchers came from FinTechs or neobanks.
\nGen Z says they switch to get products and features that are highly mobile-centric. It\u2019s not consistently what credit unions offer \u2014 or even say they plan to in the next three years.
\nGen Z wants P2P from their bank or credit union, yet 41% of credit unions don\u2019t plan to offer a solution that delivers a Venmo-like experience. (BTW, big banks don\u2019t either.)
\nThey would like to invest in crypto, yet 95% of credit unions don\u2019t have anything like the Robinhood, Venmo/PayPal crypto investment option on their roadmap.
\n| These innovation gaps can be costly, even though 95% of credit unions say banking Gen Z is a high priority. \n | \n
\n
The pre-college teen Gen Z cohorts want debit cards and apps that suit their needs, yet 85% of credit unions say don\u2019t plan to offer something like the Greenlight experience.
\nForty-two percent of credit unions say that they don\u2019t plan to offer instant issue cards, even though this generation lives on their phones and wants to use them to pay everywhere. Many don\u2019t even carry a physical wallet, so virtual is the mode of payment product they want and use.
\nOf top-performing credit unions, 40% say they have no plans to offer a BNPL product, even though it\u2019s regarded as an important budgetary tool for Gen Z consumers. That\u2019s, sadly, the same share as the bottom performers.
\nThese innovation gaps can be costly, even though 95% of credit unions say serving Gen Z is a high priority.
\nNot only have Gen Zs switched their primary banking relationships in the last year, they are also 2.5 times more likely to leave their current financial institution if these services are unavailable. Or delivered with an experience that has too much friction associated with it.
\nThere is a silver lining.
\nGen Zs say they\u2019d rather get services like BNPL and financial advice from their banks and credit unions.
\nSo there\u2019s a chance for banks and credit unions to deliver a personalized set of products from the financial institution that also bank their parents, but are delivered in a way that is best suited to their mobile financial lifestyle.
\nWith trust, safety and security as the common cornerstones of that relationship.
\nIn 1988, Oldsmobile launched an ad campaign that would ultimately destroy the 106-year old car brand.
\n\u201cNot your Father\u2019s Oldsmobile\u201d was a tagline promoting a new \u201cgeneration\u201d of Olds(mobile) models designed with a much younger buyer profile in mind. GM created the campaign to overcome the brand\u2019s reputation as the safe and reliable car driven largely by Dads and Granddads. I can relate. As a kid, there was always an Olds sitting in front of the house.
\nThe campaign\u2019s objective was to persuade young drivers to give Oldsmobile a serious look. The television and print campaign featured famous parents in the passenger seats of new Oldsmobile car models driven by their younger kids. William Shatner, Ringo Starr, Leonard Nimoy and Rod Sterling were among those famous parents. Space-age themes were the ad\u2019s cornerstone. If you have thirty seconds, it\u2019s worth checking out the William and Melanie Shatner ad.
\n
\nThese cringeworthy ads backfired. It is reported that Oldsmobile sales between 1986 and 1991 fell by 50% and by another 50% at the end of the 1990\u2019s. Oldsmobile buyers might have been older, but they didn\u2019t like being stereotyped that way, as old and stodgy. Younger buyers didn\u2019t want to be seen as driving the same car brand as Dad \u2014 and worse yet, getting his stamp of approval \u2014 even if those new models looked different and came with spiffy 1990-s vintage bells and whistles.
Oldsmobile was sunset as a brand twenty years ago on April 29, 2004.
\nThe one thing that lived on was its tagline.
\nNot your father\u2019s [fill in the blank] became shorthand for describing the distinct differences between modern products and services and those which older generations may have considered their go-to.
\nIncluding banking.
\n| Younger buyers didn\u2019t want to be seen as driving the same car brand as Dad \u2014 and worse yet, getting his stamp of approval. \n | \n
\n
\u201cNot your father\u2019s bank/banker\u201d has been used since the mid 2000\u2019s to signal that the addition of online banking, credit and wealth management and investment services was an important upgrade to traditional banking customs and norms \u2014 even though not much else had really changed.
\nToday, it\u2019s implicitly the value proposition of FinTechs whose slick mobile apps and easy onboarding appeal to many Gen Z and Young Millennials who view Dad\u2019s bank as too old-school for their modern mobile ways.
\nMany Gen Zs find that the digital ease, simplicity and relevance of the banking products and services offered by FinTechs check their box. And work for many of their parents, who\u2019d rather open a Greenlight account in their name for their 14-year-old than do the same thing at their bank. It\u2019s easier to open, manage and monitor the spending and savings of their kids. Links to investment apps make it easy for their kids to learn about investing and open new conversations between parents and their kids about the impact of current events on stock and market performance.
\nBut the shift to digital and more modern ways of engaging with people and businesses today crosses generational lines. Serving Gen Z well means\u00a0delivering products and services to a mobile-centric consumer whose expectations for a seamless banking experience span generations \u2014 but whose requirements of those products and features vary based on lifestyle and lifecycle.
\nThe smartphone has become the great financial services equalizer.
\n| The shift to digital and more modern ways of engaging with people and businesses today crosses generational lines. \n | \n
For every Generation Z consumer, there\u2019s a parent or grandparent Venmoing them money, texting, and Face Timing with them, probably paying some of their bills online and ordering stuff online they may need.
\nMeeting the needs of Gen Z makes it a common denominator for all banks, and the call to action for how all banks adapt the banking experience to an entire generation of banking consumer that expects a better and more personalized digital experience. For Gen Zs \u2014 but also for everyone who lives life in a mobile, digital first world. And who values the safety, security, soundness and depth of services provided by a traditional financial institution.
\nJust don\u2019t say this isn\u2019t your father\u2019s bank.
\n\n
The post What Generation Z Wants From Their Bank appeared first on PYMNTS.com.
\n", "content_text": "There are 69 million consumers in the U.S. who are between the ages of 12 and 27. They are described as the first digitally-native generation \u2014 a generation that has lived with mobile phones and apps for most of their lives. The iPhone was introduced 17 years ago when the oldest of this cohort, known as Gen Z, were in the fourth grade.\nBy 2030, barely five years from now, Gen Z will represent a third of the workforce. Their disposable income is projected to increase by sevenfold and their spending by sixfold as their incomes rise and they begin to benefit from the $90 trillion transfer of wealth headed their way from parents and grandparents.\n\n\n\n By 2030, Gen Z will represent a third of the workforce.\n\n\n\n\nFor that reason, Gen Z is the generation that all businesses are courting \u2014 they are their future workers, customers, business partners and investors. What makes this generation tick is the subject of intense scrutiny because decisions made now could stick for decades to come.\nEspecially when it comes to how and where they bank and how and where they spend their money.\nGeneration Mobile\nI had the chance to present the results of new PYMNTS Intelligence research on this topic with those attending the PSCU Member Forum in San Antonio last week.\nWhat Gen Zs want from their bank was one of several research outcomes from a path-breaking study of credit union members, credit union executives and FinTechs done with the support of PSCU.\nThe research objective was to examine the innovation required of credit unions to meet the needs of their members today \u2014 and to attract and retain the future generation of customers over the next five to six years. The research outcome provides a blueprint for Credit Union 2030 \u2014 and an index to measure the innovation readiness of credit unions to deliver member-driven outcomes over that period.\nThe study considered more than fifty products and services, along with financial metrics from the credit unions studied. It analyzed current member use and future expectations for current and future credit union product offerings. The study also examined the ROI of investments in innovation to identify top, middle and bottom performers. More than 4,500 consumers were studied, both credit union and non-credit union accountholders.\nThe PYMNTS Intelligence/PCSCU study generated more than one million data points and, for me, one important conclusion.\nWhat Gen Z wants from a bank is what almost everyone now wants from their bank: personalized products and services that are easier to consume on their mobile devices.\n\n\n\n But for Gen Z, many features aren\u2019t just nice to have. They are a requirement.\n\n\n\n\nBut for Gen Z, using their phones to open accounts, pay bills, send money to family and friends, get financial advice, apply for credit including BNPL, invest and save money \u2014 aren\u2019t just nice to have. They are a requirement. Their low bar: those products and services must be available on the phone, on demand, and without having to bounce between apps and screens to access them\nGen Z wants this easy and seamless access to banking and payments services because they are active consumers of banking and payments products \u2014 five on average, according to the research. And they\u2019d use twice as many, if offered and available.\nSo, therein lies the rub.\nGen Z is more willing and able to switch banking relationships to get the banking services they want \u2014 and they do: two to three times more often than their parents, and four times more often than their grandparents.\nGeneration Bank Switcher\nPYMNTS Intelligence research finds that 42% of Gen Zs who bank with credit unions have changed their banking relationship over the last 12 months, as have 44% of Gen Zs that bank with traditional financial institutions.\nSixty percent of those switchers have kept their prior account open but no longer use it as their primary banking relationship \u2014 it\u2019s no longer top of mind and/or top of wallet. Forty percent have closed their account completely. Fewer than 5% of these bank switchers came from FinTechs or neobanks.\nGen Z says they switch to get products and features that are highly mobile-centric. It\u2019s not consistently what credit unions offer \u2014 or even say they plan to in the next three years.\nGen Z wants P2P from their bank or credit union, yet 41% of credit unions don\u2019t plan to offer a solution that delivers a Venmo-like experience. (BTW, big banks don\u2019t either.)\nThey would like to invest in crypto, yet 95% of credit unions don\u2019t have anything like the Robinhood, Venmo/PayPal crypto investment option on their roadmap.\n\n\n\n These innovation gaps can be costly, even though 95% of credit unions say banking Gen Z is a high priority.\n\n\n\n\n \nThe pre-college teen Gen Z cohorts want debit cards and apps that suit their needs, yet 85% of credit unions say don\u2019t plan to offer something like the Greenlight experience.\nForty-two percent of credit unions say that they don\u2019t plan to offer instant issue cards, even though this generation lives on their phones and wants to use them to pay everywhere. Many don\u2019t even carry a physical wallet, so virtual is the mode of payment product they want and use.\nOf top-performing credit unions, 40% say they have no plans to offer a BNPL product, even though it\u2019s regarded as an important budgetary tool for Gen Z consumers. That\u2019s, sadly, the same share as the bottom performers.\nThese innovation gaps can be costly, even though 95% of credit unions say serving Gen Z is a high priority.\nNot only have Gen Zs switched their primary banking relationships in the last year, they are also 2.5 times more likely to leave their current financial institution if these services are unavailable. Or delivered with an experience that has too much friction associated with it.\nThere is a silver lining.\nGen Zs say they\u2019d rather get services like BNPL and financial advice from their banks and credit unions.\nSo there\u2019s a chance for banks and credit unions to deliver a personalized set of products from the financial institution that also bank their parents, but are delivered in a way that is best suited to their mobile financial lifestyle.\nWith trust, safety and security as the common cornerstones of that relationship.\nNot Your Father\u2019s Bank\nIn 1988, Oldsmobile launched an ad campaign that would ultimately destroy the 106-year old car brand.\n\u201cNot your Father\u2019s Oldsmobile\u201d was a tagline promoting a new \u201cgeneration\u201d of Olds(mobile) models designed with a much younger buyer profile in mind. GM created the campaign to overcome the brand\u2019s reputation as the safe and reliable car driven largely by Dads and Granddads. I can relate. As a kid, there was always an Olds sitting in front of the house.\nThe campaign\u2019s objective was to persuade young drivers to give Oldsmobile a serious look. The television and print campaign featured famous parents in the passenger seats of new Oldsmobile car models driven by their younger kids. William Shatner, Ringo Starr, Leonard Nimoy and Rod Sterling were among those famous parents. Space-age themes were the ad\u2019s cornerstone. If you have thirty seconds, it\u2019s worth checking out the William and Melanie Shatner ad.\n\nThese cringeworthy ads backfired. It is reported that Oldsmobile sales between 1986 and 1991 fell by 50% and by another 50% at the end of the 1990\u2019s. Oldsmobile buyers might have been older, but they didn\u2019t like being stereotyped that way, as old and stodgy. Younger buyers didn\u2019t want to be seen as driving the same car brand as Dad \u2014 and worse yet, getting his stamp of approval \u2014 even if those new models looked different and came with spiffy 1990-s vintage bells and whistles.\nOldsmobile was sunset as a brand twenty years ago on April 29, 2004.\nThe one thing that lived on was its tagline.\nNot your father\u2019s [fill in the blank] became shorthand for describing the distinct differences between modern products and services and those which older generations may have considered their go-to.\nIncluding banking.\n\n\n\n Younger buyers didn\u2019t want to be seen as driving the same car brand as Dad \u2014 and worse yet, getting his stamp of approval.\n\n\n\n\n \n\u201cNot your father\u2019s bank/banker\u201d has been used since the mid 2000\u2019s to signal that the addition of online banking, credit and wealth management and investment services was an important upgrade to traditional banking customs and norms \u2014 even though not much else had really changed.\nToday, it\u2019s implicitly the value proposition of FinTechs whose slick mobile apps and easy onboarding appeal to many Gen Z and Young Millennials who view Dad\u2019s bank as too old-school for their modern mobile ways.\nMany Gen Zs find that the digital ease, simplicity and relevance of the banking products and services offered by FinTechs check their box. And work for many of their parents, who\u2019d rather open a Greenlight account in their name for their 14-year-old than do the same thing at their bank. It\u2019s easier to open, manage and monitor the spending and savings of their kids. Links to investment apps make it easy for their kids to learn about investing and open new conversations between parents and their kids about the impact of current events on stock and market performance.\nBut the shift to digital and more modern ways of engaging with people and businesses today crosses generational lines. Serving Gen Z well means\u00a0delivering products and services to a mobile-centric consumer whose expectations for a seamless banking experience span generations \u2014 but whose requirements of those products and features vary based on lifestyle and lifecycle.\nThe smartphone has become the great financial services equalizer.\n\n\n\n The shift to digital and more modern ways of engaging with people and businesses today crosses generational lines.\n\n\n\n\nFor every Generation Z consumer, there\u2019s a parent or grandparent Venmoing them money, texting, and Face Timing with them, probably paying some of their bills online and ordering stuff online they may need.\nMeeting the needs of Gen Z makes it a common denominator for all banks, and the call to action for how all banks adapt the banking experience to an entire generation of banking consumer that expects a better and more personalized digital experience. For Gen Zs \u2014 but also for everyone who lives life in a mobile, digital first world. And who values the safety, security, soundness and depth of services provided by a traditional financial institution.\nJust don\u2019t say this isn\u2019t your father\u2019s bank.\n \nThe post What Generation Z Wants From Their Bank appeared first on PYMNTS.com.", "date_published": "2024-04-15T07:00:13-04:00", "date_modified": "2024-04-15T06:31:26-04:00", "authors": [ { "name": "Karen Webster", "url": "https://www.pymnts.com/author/karen-webster/", "avatar": "https://secure.gravatar.com/avatar/5b27788b9b2e77749b3dc9da766486d8?s=512&d=blank&r=g" } ], "author": { "name": "Karen Webster", "url": "https://www.pymnts.com/author/karen-webster/", "avatar": "https://secure.gravatar.com/avatar/5b27788b9b2e77749b3dc9da766486d8?s=512&d=blank&r=g" }, "image": "https://www.pymnts.com/wp-content/uploads/2024/04/klw-piece-banks.jpg", "tags": [ "banking", "Banks", "BNPL", "credit unions", "digital innovation", "FinTechs", "Gen Z", "Generation Z", "Karen Webster", "KLW Commentary", "Main Feature", "mobile banking", "News", "PSCU", "PYMNTS Intelligence", "PYMNTS News", "Banking" ] }, { "id": "https://www.pymnts.com/?p=1878638", "url": "https://www.pymnts.com/walmart/2024/will-walmarts-walmarche-strategy-lure-high-income-shoppers/", "title": "Will Walmart\u2019s \u2018Walmarche\u2019 Strategy Lure High-Income Shoppers?", "content_html": "Last Saturday (March 23), legendary fashion designer Diane Von Furstenberg made her exclusive collection of 200 clothing, baby and household items available for shoppers to buy at Target. DVF, who will celebrate the 50th anniversary of her iconic wrap dress this year, said her interest in the collaboration was to make her pieces more accessible to every woman.
\nMost items carry a price tag ranging from $5 to $50, even though some items sell for two to five times more. Fashion influencers helped drive awareness and demand at the launch.
\nThe exclusive DVF collection is the latest in Target\u2019s 25-year history of exclusive collaborations with celebrated designers, starting with Michael Graves in 1999. Target claims more than 175 such partnerships that give consumers affordable access to designer collections they can\u2019t get anywhere else.
\nTarget\u2019s online and in-store shopper base is an attractive brand awareness, marketing and product distribution engine for designers such as Alexander McQueen, Lily Pulitzer, Missoni and Jason Wu, who usually only sell in higher-end retail outlets and their own D2C channels. For those who have been out of the designer fashion limelight for some time, it is an opportunity for a brand revival and refresh.
\nFor Target, it\u2019s a way to pay off its \u201cexpect more, pay less\u201d brand proposition and amplify the \u201cTarjay\u201d moniker coined by shoppers who like the idea of buying upscale designer products without the upscale designer price tags.
\nIt\u2019s a playbook that Walmart has apparently been studying and is now rolling out at 800 stores \u2014 a strategy to turn Walmart\u2019s physical stores into \u201cWalmarche\u201d one duck breast, pair of cargo pants and Bobby Flay Steak takeout meal at a time.
\nMaybe there\u2019ll even be a Walmoi app for Walmarche shoppers.
\nAs reported by Bloomberg last week, Walmart will pilot a new merchandise mix and fancier displays aimed at high-income hipsters looking for cool stuff much cheaper inside those 800 Walmart brick-and-mortar stores. The article says private-label clothing items such as blazers and cargo pants, influenced by upscale designers like Brandon Maxwell, are more fashionably displayed inside of those stores. High-end branded grocery products and meat selections one might consider designer (e.g. duck breasts) are not only available, but reportedly selling for less than at rival grocers.
\nWalmart has also leased space in a limited number of locations to Marc Lore\u2019s Wonder, a \u201cfast fine\u201d operation that serves high-end takeout using celebrity chef brands like Bobby Flay Steak.
\nLore is the Jet.com founder who sold his eComm business to Walmart for $3.3 billion in 2016. Walmart unwound it in March of 2020 due to its lackluster performance.\u00a0 This isn’t the first time Walmart has tried restaurants in its stores.\u00a0Its first was a ghost kitchen, with Kitchen United featuring multi-restaurant brands, shuttered in 2023 after two years in operation. \u00a0We Wonder if things will be different.
\nOn the surface, Walmarche is not a totally crazy idea.
\nConsumers, across all income levels, are spending less and trading down to manage the impact of inflation that still results in prices that are too high, according to PYMNTS Intelligence.\u00a0 The appetite for fashion and home furnishing dupes is increasing across all shopper demographics, and influencers are taking to Instagram and TikTok to document how to buy the look and not the label for a lot less.
\nLooking at Walmart\u2019s numbers, this move also seems important.
\nAccording to PYMNTS Intelligence, Amazon\u2019s share of high-income consumers is 36% higher than Walmart\u2019s and 2.5 times more consumers have an Amazon Prime subscription than Walmart+. More of Walmart\u2019s customers earn less than $50,000 a year than earn more than $100,000 \u2014 roughly a third at each end of the income spectrum.
\n\n
\nThirty percent of Walmart\u2019s shoppers live paycheck to paycheck and have issues meeting their monthly financial obligations, an increase of 10% over the last two years. Walmart\u2019s shoppers are disproportionately lower-income consumers who also disproportionately feel the inflation pinch.
\nHaving a shopper base that is less financially pinched is important as Walmart finds its share of overall retail spend declining against its biggest rival, Amazon. PYMNTS Intelligence analysis of retail sales using Q4 data from SEC filings finds Amazon\u2019s share of retail spending in 2023 to be 10 percent to Walmart\u2019s 7.3%.
Walmart is losing ground to Amazon in key retail categories that were once its bread and butter: electronics, health and beauty, sporting goods and hobbies, and home furnishings. Grocery remains Walmart\u2019s huge juggernaut, at roughly 19% of all grocery purchases. But that\u2019s a share that has remained relatively constant over the last couple of years. Amazon grocery, by comparison, looks anemic, even though its share has increased 10% over the last few years.
\nBut Target\u2019s Tarjay does not a Walmart Walmarche strategy make.
\n[In case you are wondering, Walmarche is a portmanteau of my own creation. Walmart execs should feel free to use it, with appropriate credit, of course.]
\n\u201cTarjay\u201d is the mashup of known designer brands at affordable price tags bought by a shopper with a median income of $80,000, lured into the stores by the cheap, chic brand association \u2014 and the scarcity of the collections offered. While there, the shopper finds other cheap and chic fashion or home furnishing merchandise at lower prices.
\n\u201cWalmarche,\u201d as it\u2019s been described, seems different \u2014 and a harder hill to climb. Walmart must first convince high earners that they\u2019ll find recognizable designer brands or really high-quality dupes at cheaper prices than they\u2019d find elsewhere, and then make shopping at Walmart a habit. It\u2019s not clear that Carbone pasta sauce and knock-off navy blazers will be enough to change high-earner shopping habits \u2014 especially when most of the product mix and shopper profile inside of a Walmart store remains largely the same. And when many high-income shoppers make such purchases online for the convenience of not having to walk inside of a physical store.
\nThere\u2019s also the risk that becoming too much Walmarche could alienate Walmart\u2019s core shopper.
\nThat\u2019s what happened when Target\u2019s cheap and chic mastermind used the Tarjay playbook to attempt JCPenney\u2019s reinvention a little more than a decade ago.
\nIf you like how Apple Stores are designed and the Genius Bar works, you have Ron Johnson to thank. It is he who devised the strategy \u2014 and the plan to see it through. His thesis was that spaces beautiful enough to walk into make buying a better experience and create opportunities for collaboration and enduring customer loyalty.
\nIn his role as VP of merchandising at Target, it was Johnson who forged the partnership with Michael Graves in 1999. That partnership became the foundation for the \u201ccheap and chic\u201d product strategy that hooked a new shopper demographic.
\nThe JCPenney board hired Johnson in 2011 to help plug the deepening sales hole created during the 2008 recession. Johnson\u2019s plan was to implement a mashup of his Tarjay/Apple Store plans. He hired a former Apple colleague to help.
\nThe plan was to create little branded store vignettes inside of JCPenney where shoppers could discover new designer brands, hang out, meet people and then buy stuff. Private label brands were sunset. Coupons, which were to JCPenney shoppers what Frisbees are to my Border Collie, were eliminated in exchange for everyday low prices.
\nLess than a year into the launch of this new store concept, Johnson was shown the door by the Board. The CEO he replaced was brought back. The investors who lauded Johnson and his initial strategy discovered that the shoppers who drove billions in sales for the brand liked coupons, and the private label brands they carried in the store. The tried-and-true JCPenney customer didn\u2019t want to hang out and didn\u2019t like \u2014 or couldn\u2019t afford \u2014 the hipster-branded merch sold there.
\nNew young, trendy shoppers didn\u2019t show up either. Soon, neither did those who kept the cash register ringing. Sales got worse, not better.
\nJCPenney filed for bankruptcy in 2020, then emerged from bankruptcy with new investors and a $1 billion turnaround plan in 2023. Gone are fancy brands and places to hangout. Operational efficiencies, improving the quality of its private label brands, upgrading its digital experience, and turbocharging its coupon and rewards programs, it claims, will support its goal to remain the shopping destination for America\u2019s working families.
\nTarjay worked for Target and not for JCPenney because Target didn\u2019t try to force a round shopper profile into a square hole. The challenge for Walmart is balancing the high-income shopper expectations with the everyday-low-price proposition and merchandise assortment that supports the shopper who built its brand over the last 62 years.
\nWalmart is the largest physical retailer in the world, on solid financial footing with sophisticated data analysts and strategists who know that it will take more than duck breasts, stylish mannequins and funkier looking baby cribs to attract more spend from high earners and bring more of them into their stores. Those are the shoppers with the greatest number of shopping options and stores who want their business.
\nThose are also the shoppers who don\u2019t tend to switch merchants to find better deals. PYMNTS Intelligence data finds that high-income consumers don\u2019t switch stores to save money, they just buy cheaper products at the stores they already shop. Lower-income and financially stressed consumers do. For those consumers, following the money often means finding a new merchant.
\n\n
\nOne of Walmart\u2019s biggest challenges is getting a growing share of the consumers who shop there today for groceries to stay for clothes, toys, electronics and \u2014 increasingly \u2014 home furnishings. As their sales numbers reflect, and earnings reports confirm, they don\u2019t. Getting more of those shoppers to convert seems like Walmart\u2019s low-hanging fruit, and they probably don\u2019t need duck breasts in the meat case to do that.
Will the wonder of Wonder be enough to make Walmart their new favorite dining and shopping hotspot? \u00a0Unlike the local carryout, you have to walk into the store to pick up the order \u2014 that\u2019s friction. \u00a0And then there\u2019s the product/market fit. Apparently the idea of shopping and grabbing a bite was not appealing enough to shoppers to keep Walmart\u2019s Ghost Kitchen 1.0 a going concern. It\u2019s been said that the fastest way to a man\u2019s heart is through his stomach \u2014 we\u2019ll see if fast fine is the fastest way for high-income shoppers to beat a path to Walmart\u2019s new store format.
\nHere\u2019s one thought. Walmarche could end up making Walmart more attractive for the lower- to middle-income consumers there already, especially since Walmart is subsidizing how much consumers pay to buy those fancy brands right now. \u00a0Maybe Walmarche ends up making more of the shoppers they have today more loyal \u2014 and budding gourmands.
\nNow what about that Walmoi app?
\n\n
The post Will Walmart\u2019s \u2018Walmarche\u2019 Strategy Lure High-Income Shoppers? appeared first on PYMNTS.com.
\n", "content_text": "Last Saturday (March 23), legendary fashion designer Diane Von Furstenberg made her exclusive collection of 200 clothing, baby and household items available for shoppers to buy at Target. DVF, who will celebrate the 50th anniversary of her iconic wrap dress this year, said her interest in the collaboration was to make her pieces more accessible to every woman.\nMost items carry a price tag ranging from $5 to $50, even though some items sell for two to five times more. Fashion influencers helped drive awareness and demand at the launch.\nThe exclusive DVF collection is the latest in Target\u2019s 25-year history of exclusive collaborations with celebrated designers, starting with Michael Graves in 1999. Target claims more than 175 such partnerships that give consumers affordable access to designer collections they can\u2019t get anywhere else.\nTarget\u2019s online and in-store shopper base is an attractive brand awareness, marketing and product distribution engine for designers such as Alexander McQueen, Lily Pulitzer, Missoni and Jason Wu, who usually only sell in higher-end retail outlets and their own D2C channels. For those who have been out of the designer fashion limelight for some time, it is an opportunity for a brand revival and refresh.\nFor Target, it\u2019s a way to pay off its \u201cexpect more, pay less\u201d brand proposition and amplify the \u201cTarjay\u201d moniker coined by shoppers who like the idea of buying upscale designer products without the upscale designer price tags.\nIt\u2019s a playbook that Walmart has apparently been studying and is now rolling out at 800 stores \u2014 a strategy to turn Walmart\u2019s physical stores into \u201cWalmarche\u201d one duck breast, pair of cargo pants and Bobby Flay Steak takeout meal at a time.\nMaybe there\u2019ll even be a Walmoi app for Walmarche shoppers.\nParlez-Vous Walmarche?\nAs reported by Bloomberg last week, Walmart will pilot a new merchandise mix and fancier displays aimed at high-income hipsters looking for cool stuff much cheaper inside those 800 Walmart brick-and-mortar stores. The article says private-label clothing items such as blazers and cargo pants, influenced by upscale designers like Brandon Maxwell, are more fashionably displayed inside of those stores. High-end branded grocery products and meat selections one might consider designer (e.g. duck breasts) are not only available, but reportedly selling for less than at rival grocers.\nWalmart has also leased space in a limited number of locations to Marc Lore\u2019s Wonder, a \u201cfast fine\u201d operation that serves high-end takeout using celebrity chef brands like Bobby Flay Steak.\nLore is the Jet.com founder who sold his eComm business to Walmart for $3.3 billion in 2016. Walmart unwound it in March of 2020 due to its lackluster performance.\u00a0 This isn’t the first time Walmart has tried restaurants in its stores.\u00a0Its first was a ghost kitchen, with Kitchen United featuring multi-restaurant brands, shuttered in 2023 after two years in operation. \u00a0We Wonder if things will be different.\nOn the surface, Walmarche is not a totally crazy idea.\nConsumers, across all income levels, are spending less and trading down to manage the impact of inflation that still results in prices that are too high, according to PYMNTS Intelligence.\u00a0 The appetite for fashion and home furnishing dupes is increasing across all shopper demographics, and influencers are taking to Instagram and TikTok to document how to buy the look and not the label for a lot less.\nLooking at Walmart\u2019s numbers, this move also seems important.\nAccording to PYMNTS Intelligence, Amazon\u2019s share of high-income consumers is 36% higher than Walmart\u2019s and 2.5 times more consumers have an Amazon Prime subscription than Walmart+. More of Walmart\u2019s customers earn less than $50,000 a year than earn more than $100,000 \u2014 roughly a third at each end of the income spectrum.\n\n\nThirty percent of Walmart\u2019s shoppers live paycheck to paycheck and have issues meeting their monthly financial obligations, an increase of 10% over the last two years. Walmart\u2019s shoppers are disproportionately lower-income consumers who also disproportionately feel the inflation pinch.\n\n\nHaving a shopper base that is less financially pinched is important as Walmart finds its share of overall retail spend declining against its biggest rival, Amazon. PYMNTS Intelligence analysis of retail sales using Q4 data from SEC filings finds Amazon\u2019s share of retail spending in 2023 to be 10 percent to Walmart\u2019s 7.3%.\nWalmart is losing ground to Amazon in key retail categories that were once its bread and butter: electronics, health and beauty, sporting goods and hobbies, and home furnishings. Grocery remains Walmart\u2019s huge juggernaut, at roughly 19% of all grocery purchases. But that\u2019s a share that has remained relatively constant over the last couple of years. Amazon grocery, by comparison, looks anemic, even though its share has increased 10% over the last few years.\nBut Target\u2019s Tarjay does not a Walmart Walmarche strategy make.\n[In case you are wondering, Walmarche is a portmanteau of my own creation. Walmart execs should feel free to use it, with appropriate credit, of course.]\n\u201cTarjay\u201d is the mashup of known designer brands at affordable price tags bought by a shopper with a median income of $80,000, lured into the stores by the cheap, chic brand association \u2014 and the scarcity of the collections offered. While there, the shopper finds other cheap and chic fashion or home furnishing merchandise at lower prices.\n\u201cWalmarche,\u201d as it\u2019s been described, seems different \u2014 and a harder hill to climb. Walmart must first convince high earners that they\u2019ll find recognizable designer brands or really high-quality dupes at cheaper prices than they\u2019d find elsewhere, and then make shopping at Walmart a habit. It\u2019s not clear that Carbone pasta sauce and knock-off navy blazers will be enough to change high-earner shopping habits \u2014 especially when most of the product mix and shopper profile inside of a Walmart store remains largely the same. And when many high-income shoppers make such purchases online for the convenience of not having to walk inside of a physical store.\nThere\u2019s also the risk that becoming too much Walmarche could alienate Walmart\u2019s core shopper.\nThat\u2019s what happened when Target\u2019s cheap and chic mastermind used the Tarjay playbook to attempt JCPenney\u2019s reinvention a little more than a decade ago.\nWhen Cut-and-Paste Strategies Won\u2019t Cut It\nIf you like how Apple Stores are designed and the Genius Bar works, you have Ron Johnson to thank. It is he who devised the strategy \u2014 and the plan to see it through. His thesis was that spaces beautiful enough to walk into make buying a better experience and create opportunities for collaboration and enduring customer loyalty.\nIn his role as VP of merchandising at Target, it was Johnson who forged the partnership with Michael Graves in 1999. That partnership became the foundation for the \u201ccheap and chic\u201d product strategy that hooked a new shopper demographic.\nThe JCPenney board hired Johnson in 2011 to help plug the deepening sales hole created during the 2008 recession. Johnson\u2019s plan was to implement a mashup of his Tarjay/Apple Store plans. He hired a former Apple colleague to help.\nThe plan was to create little branded store vignettes inside of JCPenney where shoppers could discover new designer brands, hang out, meet people and then buy stuff. Private label brands were sunset. Coupons, which were to JCPenney shoppers what Frisbees are to my Border Collie, were eliminated in exchange for everyday low prices.\nLess than a year into the launch of this new store concept, Johnson was shown the door by the Board. The CEO he replaced was brought back. The investors who lauded Johnson and his initial strategy discovered that the shoppers who drove billions in sales for the brand liked coupons, and the private label brands they carried in the store. The tried-and-true JCPenney customer didn\u2019t want to hang out and didn\u2019t like \u2014 or couldn\u2019t afford \u2014 the hipster-branded merch sold there.\nNew young, trendy shoppers didn\u2019t show up either. Soon, neither did those who kept the cash register ringing. Sales got worse, not better.\nJCPenney filed for bankruptcy in 2020, then emerged from bankruptcy with new investors and a $1 billion turnaround plan in 2023. Gone are fancy brands and places to hangout. Operational efficiencies, improving the quality of its private label brands, upgrading its digital experience, and turbocharging its coupon and rewards programs, it claims, will support its goal to remain the shopping destination for America\u2019s working families.\nTarjay worked for Target and not for JCPenney because Target didn\u2019t try to force a round shopper profile into a square hole. The challenge for Walmart is balancing the high-income shopper expectations with the everyday-low-price proposition and merchandise assortment that supports the shopper who built its brand over the last 62 years.\nDate Night at Walmart\u2019s Food Court? \nWalmart is the largest physical retailer in the world, on solid financial footing with sophisticated data analysts and strategists who know that it will take more than duck breasts, stylish mannequins and funkier looking baby cribs to attract more spend from high earners and bring more of them into their stores. Those are the shoppers with the greatest number of shopping options and stores who want their business.\nThose are also the shoppers who don\u2019t tend to switch merchants to find better deals. PYMNTS Intelligence data finds that high-income consumers don\u2019t switch stores to save money, they just buy cheaper products at the stores they already shop. Lower-income and financially stressed consumers do. For those consumers, following the money often means finding a new merchant.\n\n\nOne of Walmart\u2019s biggest challenges is getting a growing share of the consumers who shop there today for groceries to stay for clothes, toys, electronics and \u2014 increasingly \u2014 home furnishings. As their sales numbers reflect, and earnings reports confirm, they don\u2019t. Getting more of those shoppers to convert seems like Walmart\u2019s low-hanging fruit, and they probably don\u2019t need duck breasts in the meat case to do that.\nWill the wonder of Wonder be enough to make Walmart their new favorite dining and shopping hotspot? \u00a0Unlike the local carryout, you have to walk into the store to pick up the order \u2014 that\u2019s friction. \u00a0And then there\u2019s the product/market fit. Apparently the idea of shopping and grabbing a bite was not appealing enough to shoppers to keep Walmart\u2019s Ghost Kitchen 1.0 a going concern. It\u2019s been said that the fastest way to a man\u2019s heart is through his stomach \u2014 we\u2019ll see if fast fine is the fastest way for high-income shoppers to beat a path to Walmart\u2019s new store format.\nHere\u2019s one thought. Walmarche could end up making Walmart more attractive for the lower- to middle-income consumers there already, especially since Walmart is subsidizing how much consumers pay to buy those fancy brands right now. \u00a0Maybe Walmarche ends up making more of the shoppers they have today more loyal \u2014 and budding gourmands.\nNow what about that Walmoi app?\n \nThe post Will Walmart\u2019s \u2018Walmarche\u2019 Strategy Lure High-Income Shoppers? appeared first on PYMNTS.com.", "date_published": "2024-03-25T07:00:18-04:00", "date_modified": "2024-03-25T12:22:29-04:00", "authors": [ { "name": "Karen Webster", "url": "https://www.pymnts.com/author/karen-webster/", "avatar": "https://secure.gravatar.com/avatar/5b27788b9b2e77749b3dc9da766486d8?s=512&d=blank&r=g" } ], "author": { "name": "Karen Webster", "url": "https://www.pymnts.com/author/karen-webster/", "avatar": "https://secure.gravatar.com/avatar/5b27788b9b2e77749b3dc9da766486d8?s=512&d=blank&r=g" }, "image": "https://www.pymnts.com/wp-content/uploads/2024/03/walmarche.png", "tags": [ "Branding", "consumer insights", "inflation", "Karen Webster", "KLW Commentary", "Main Feature", "Marc Lore", "News", "PYMNTS News", "Retail", "Ron Johnson", "Target", "Walmart", "Wonder" ] }, { "id": "https://www.pymnts.com/?p=1874854", "url": "https://www.pymnts.com/apple-pay-tracker/2024/the-apple-pay-threat-facing-banks/", "title": "The Apple Pay Threat Facing Banks", "content_html": "A friend was preparing for a once-in-a-lifetime yoga retreat to a fancy resort in Malaysia. The trip was a long one with stopovers in Qatar and two days in Kuala Lumpur. The tour guide suggested that she put her debit and credit cards from her physical wallet into her Apple Pay wallet to keep them safe. In the event her purse or wallet was stolen, she could easily cancel cards and have them reissued virtually on her phone, they told her, and she would be able to use her Apple Pay wallet to pay. As a long-time iPhone and occasional Apple Pay user, the idea never occurred to her. Now all the cards she uses frequently are organized inside of her Apple Pay wallet for use on that trip \u2014 and everywhere else once she returns.
\nIt took me less than five minutes this weekend to do the same thing. Until then, my Apple Pay Wallet included only my Apple Card and my Apple Cash card. Out of curiously, I checked my transaction history using Apple Pay over the last few years, since I felt instinctively my use of it had increased.
\nIn 2021, I had 37 Apple Pay transactions; in 2022 I had 40. In 2023, I had 119 transactions \u2014 and so far in Jan and Feb of 2024, I have completed nearly half the number of all my 2023 transactions combined. My use of Apple Pay is exclusively in-app and, until this weekend, using my Apple Card.
\nThe increase in use comes at the expense of PayPal and my bank account as funding sources \u2014 and as card on file at merchants I now shop using their app. There are exceptions like when I shop on Amazon, at department stores where I use my store card for rewards, and when I shop using my laptop.
\n| My increased use of Apple Pay reflects a shift in how and where I shop. \n | \n
But as my transaction history suggests, my increased use of Apple Pay reflects a shift in how and where I shop, which is increasingly using my phone/tablet and apps. Two clicks on the side of the phone and the transaction is done. Paying my Apple Card bill is easy inside the Wallet. Now, with the addition of my oft-used cards, I have payments choice before I double click. That might have the effect of reducing my use of the Apple Card, but probably not my use of the Apple Wallet when I am shopping in an app on my mobile device when it is available.
\nIt\u2019s not just me.
\nDigital wallets are how consumers seem to want to manage the everyday transactional parts of their lives \u2014 how they pay, who they pay, how much they spend, and how much they have left to spend. It\u2019s one of the reasons so many consumers gravitate to the everyday app concept. According to PYMNTS Intelligence, three quarters of consumers say they want the convenience and simplicity of such an experience. Their bank is on the list of providers they trust to do that, but not at the top.
\nAggregators, whether it is a platform like Amazon or Instacart or DoorDash or OpenTable, generally offer the one-stop experience with a number of choices and an end-to-end transactional experience. Digital wallets can play a similar role for consumers across the payments and banking spectrum. Apple Pay\u2019s integration creates a sticky behavior that increases usage and can drive preference. Consumers don\u2019t see their banks as being that aggregator, at least not now. A typical bank mobile and web app, even with Zelle integrated into it, doesn\u2019t make it easy to do what Apple Pay does on the iPhone.
\nThis behavior is a sobering reality for issuers that risk becoming invisible inside of a Big Tech digital intermediary whose branding is front and center for the consumer when checking out. Banks will probably have to pay more when consumers use their cards in that wallet. Apple Pay may charge them more as they face pressure to raise revenue in the face of slumping iPhone sales. Or because they must spend more to drive top-of-wallet preference in that wallet. That will be increasingly true as more transactions move to mobile devices \u2014 and especially to iPhones, which will capture the bulk of the spending in the U.S. and other developed countries.
\nThe friction between banks and digital wallet intermediaries is nothing new.
\nPayPal rubbed the issuers and card networks the wrong way once it started to get traction, and rubbed users the wrong way when it made adding forms of payment other than a bank account a friction-filled experience. It would take until 2016 for PayPal, card networks and issuers to find common ground and make choice an easier and more visible option for consumers using the PayPal wallet. That decision helped to drive the growth and expansion of PayPal as an online digital option at checkout over the next several years and more volume on issuers\u2019 cards stored in it.
\nApple Pay will celebrate its tenth birthday in about six months. It\u2019s a mobile payments intermediary that issuers weren\u2019t all that enthusiastic about in 2014, given the Apple Pay tax levied on every transaction initiated in the wallet. Since Apple Pay at that time was mostly to be used in stores, and in-store use was (and still is) nascent, there didn\u2019t seem to be much collateral damage.
\n| Apple Pay has become a more material potential competitor to the banks as more transactions move in-app and on mobile phones and tablets. \n | \n
Apple Pay is a different digital intermediary now even though the overall use of the Apple Pay Wallet in the U.S. remains small. It has its own credit card in that wallet\u00a0and offers an integrated Pay Later option at checkout. The user experience is slick, and managing transactions is easy. Cash back on purchases is automatically deposited to the Apple Cash card, which can be spent or transferred to a bank account. Integration with messaging makes P2P payments just like sending a text.
\nIt is becoming the aggregator for virtual cards that consumers have in their physical wallets today or get from brands that aren\u2019t their bank, including those issued by brands that are not a bank.
\nApple now offers a high-yield savings account on balances of up to $1 million as a feature in its wallet. It has a disproportionate share of high earners as iPhone customers here in the U.S. and, by extension, those who drive spend using that wallet and the cards in it. According to PYMNTS Intelligence, 54% of Apple Pay Users earn more than $100,000 a year and nearly half (45%) of iPhone users do.
\nA digital wallet that was more or less a dud at the physical checkout in the store for most of its post-launch life, Apple Pay has become a more material potential competitor to the banks as more transactions move in-app and on mobile phones and tablets \u2014 with Apple Pay offered as a friction-free alternative to checking out.\u00a0 And Apple adds new banking and payments features to create more utility for its users when transacting in app, as it will surely do.
\nThose use cases might extend to a reinvention of how consumers check out in store, Apple\u2019s initial payments target, which has been slow to gain momentum.
\nOne of the biggest innovations for physical checkout is to replicate the digital experience for consumers who are standing inside of a store. The Click-and-Mortar shopper is here to stay, as PYMNTS Intelligence research, done in collaboration with Visa Acceptance, shows. Click-and-Mortar shoppers are the fastest-growing shopping segment worldwide, as consumers see the store as just another place to use their mobile devices to shop and pay. Customer satisfaction is higher with merchants who offer such an experience \u2014 and with satisfaction comes preference, and with preference comes more sales. Digital wallets, with payments choice, can be a bridge to the reinvented checkout experience. Whose digital wallet depends on who can deliver the better experience.
Maybe this is where banks and merchants could find common digital wallet ground.
\nStay with me. There is a point to this anecdote.
\nSam Bankman Fried\u2019s sentencing for his role in the collapse of FTX is set for March 28th. Last week, we heard prosecutors argue for a 40-to-50-year sentence at the same time SBF\u2019s defense team said 5 to 6 years should be the max. The three closest FTX colleagues who testified against their former boss will be sentenced later. Each of them made the decision, independently, to plead guilty and cooperate with the government in hope of a more lenient sentence.
\n| The prisoner\u2019s dilemma is the essence of decisions that impact business outcomes \u2014 often in material ways. \n | \n
They did so even though each could have pleaded not guilty with the hope that their group silence would make it tough for the prosecutors to win. The prisoner\u2019s dilemma a year ago was whether to gamble that one of them would spill the beans in the hopes of a reduced sentence or hope that everyone would hang tough and maybe get little to no jail time.
\nThe prisoner\u2019s dilemma dynamic is evident in business almost every day even though we don\u2019t call it that, and the outcome isn\u2019t about whether anyone will serve time behind bars. But it is the essence of decisions that impact business outcomes \u2014 often in material ways.
\nA prisoner\u2019s dilemma is about deciding whether it is more advantageous to just follow one\u2019s self interest or collaborate with an adversary to achieve a better outcome. In a very connected digital economy, where competition and cooperation now define business, these scenarios have become more the rule than the exception.
\nIt’s also a fitting way to describe the dynamic now between banks and digital wallets, and in particular Apple Pay.
\nThe issue for banks, and the biggest ones with the largest card bases, is how to become more than just a feature in a wallet where they don\u2019t control the experience, the acceptance or the cost to them of a consumer using it.
\nThese decisions are being weighed while\u00a0Apple is under pressure to boost revenues as\u00a0iPhone sales globally fall and competitive (and geopolitical) pressures in China increase. This Bloomberg article suggests Apple is less like a Big Tech innovator and more like a value stock, citing Coca Cola as a relevant comparison. The writer says its lack of AI chops is to blame. The bigger point is that Apple has been largely unsuccessful at bringing a slew of blockbuster products to market under Tim Cook\u2019s reign.
\nSo, all attention is focused on Services revenue now to drive revenues and margin. \u00a0Apple Pay transactions are very likely in the consideration set of assets for Cupertino to monetize in new ways.
\nBanks, of course, know this. The big banks behind Zelle have banded together to create a bank-only competitor, Paze, as a digital wallet alternative to Apple Pay. It has little chance of being a competitor or getting any traction for all the reasons I outlined when it first launched.
\nWe witnessed the challenges of getting a bank-operated payments consortia to scale in the U.S. with real-time payments and TCH. Business model failures hindered ubiquitous acceptance, coupled with a lack of clarity on use cases that would create the adoption and usage to get a flywheel going. The very adversaries that TCH was intended to unseat, the card networks, have only become stronger real-time competitors with push-to-card options that deliver a streamlined and ubiquitous consumer experience and consumer preference. If we think that getting real-time, account to account payments to ignite in the U.S. was challenging, which we are still working to do, just sit back and watch how painful it will be for Paze to try and do the same.
\nDeciding what\u2019s in the self-interest of banks, especially the biggest ones, when it comes to their digital wallet strategy is more complicated than it was when Apple Pay first launched. Consumer preferences have changed, and\u00a0Apple Pay seems to have momentum in-app. Apple also has an incentive to figure out how to make more high earners stickier, and to be the aggregator of the payments and transactional banking elements that consumers value in order to bolster its own bottom line. Almost anything could be in play.
\n| Apple has an incentive to figure out how to be the aggregator of the payments and transactional banking elements that consumers value. \n | \n
At the same time, Apple is only half of the smartphone population in the U.S. \u2014 and even smaller globally \u2014 at a time when the smartphone landscape is going through its own digital transformation. GenAI will usher in a new generation of devices and operating systems; Open AI and ex-Apple iPhone visionary Jony Ive is working on such a device now. So is Google. Commerce and payments will move to a more distributed network of devices that are voice-activated and where smartphones and apps may be the receivers, and not the initiators, of transactions. Amazon isn\u2019t going to sit back and watch the GenAI commerce train pass it by either.
\nThe same banks that helped build Apple Pay success now find Apple to be the gatekeeper for the use of their cards inside of it.
\nIn that world, determining who\u2019s the real adversary won\u2019t be that easy. Neither is figuring out whether a collaborator today may be an adversary in the future. Apple faces many of the same decisions in its core business. Just today, we read that they are contemplating a partnership with Google to license its Gemini product to fast track its own AI capabilities.\u00a0\u00a0
\n\n
The post The Apple Pay Threat Facing Banks appeared first on PYMNTS.com.
\n", "content_text": "A friend was preparing for a once-in-a-lifetime yoga retreat to a fancy resort in Malaysia. The trip was a long one with stopovers in Qatar and two days in Kuala Lumpur. The tour guide suggested that she put her debit and credit cards from her physical wallet into her Apple Pay wallet to keep them safe. In the event her purse or wallet was stolen, she could easily cancel cards and have them reissued virtually on her phone, they told her, and she would be able to use her Apple Pay wallet to pay. As a long-time iPhone and occasional Apple Pay user, the idea never occurred to her. Now all the cards she uses frequently are organized inside of her Apple Pay wallet for use on that trip \u2014 and everywhere else once she returns.\nIt took me less than five minutes this weekend to do the same thing. Until then, my Apple Pay Wallet included only my Apple Card and my Apple Cash card. Out of curiously, I checked my transaction history using Apple Pay over the last few years, since I felt instinctively my use of it had increased.\nIn 2021, I had 37 Apple Pay transactions; in 2022 I had 40. In 2023, I had 119 transactions \u2014 and so far in Jan and Feb of 2024, I have completed nearly half the number of all my 2023 transactions combined. My use of Apple Pay is exclusively in-app and, until this weekend, using my Apple Card.\nThe increase in use comes at the expense of PayPal and my bank account as funding sources \u2014 and as card on file at merchants I now shop using their app. There are exceptions like when I shop on Amazon, at department stores where I use my store card for rewards, and when I shop using my laptop.\n\n\n\nMy increased use of Apple Pay reflects a shift in how and where I shop.\n\n\n\n\nBut as my transaction history suggests, my increased use of Apple Pay reflects a shift in how and where I shop, which is increasingly using my phone/tablet and apps. Two clicks on the side of the phone and the transaction is done. Paying my Apple Card bill is easy inside the Wallet. Now, with the addition of my oft-used cards, I have payments choice before I double click. That might have the effect of reducing my use of the Apple Card, but probably not my use of the Apple Wallet when I am shopping in an app on my mobile device when it is available.\nIt\u2019s not just me.\nDigital wallets are how consumers seem to want to manage the everyday transactional parts of their lives \u2014 how they pay, who they pay, how much they spend, and how much they have left to spend. It\u2019s one of the reasons so many consumers gravitate to the everyday app concept. According to PYMNTS Intelligence, three quarters of consumers say they want the convenience and simplicity of such an experience. Their bank is on the list of providers they trust to do that, but not at the top.\nAggregators, whether it is a platform like Amazon or Instacart or DoorDash or OpenTable, generally offer the one-stop experience with a number of choices and an end-to-end transactional experience. Digital wallets can play a similar role for consumers across the payments and banking spectrum. Apple Pay\u2019s integration creates a sticky behavior that increases usage and can drive preference. Consumers don\u2019t see their banks as being that aggregator, at least not now. A typical bank mobile and web app, even with Zelle integrated into it, doesn\u2019t make it easy to do what Apple Pay does on the iPhone.\nThis behavior is a sobering reality for issuers that risk becoming invisible inside of a Big Tech digital intermediary whose branding is front and center for the consumer when checking out. Banks will probably have to pay more when consumers use their cards in that wallet. Apple Pay may charge them more as they face pressure to raise revenue in the face of slumping iPhone sales. Or because they must spend more to drive top-of-wallet preference in that wallet. That will be increasingly true as more transactions move to mobile devices \u2014 and especially to iPhones, which will capture the bulk of the spending in the U.S. and other developed countries.\nThe Same Digital Wallet Story, but with a Difference \nThe friction between banks and digital wallet intermediaries is nothing new.\nPayPal rubbed the issuers and card networks the wrong way once it started to get traction, and rubbed users the wrong way when it made adding forms of payment other than a bank account a friction-filled experience. It would take until 2016 for PayPal, card networks and issuers to find common ground and make choice an easier and more visible option for consumers using the PayPal wallet. That decision helped to drive the growth and expansion of PayPal as an online digital option at checkout over the next several years and more volume on issuers\u2019 cards stored in it.\nApple Pay will celebrate its tenth birthday in about six months. It\u2019s a mobile payments intermediary that issuers weren\u2019t all that enthusiastic about in 2014, given the Apple Pay tax levied on every transaction initiated in the wallet. Since Apple Pay at that time was mostly to be used in stores, and in-store use was (and still is) nascent, there didn\u2019t seem to be much collateral damage.\n\n\n\n Apple Pay has become a more material potential competitor to the banks as more transactions move in-app and on mobile phones and tablets.\n\n\n\n\nApple Pay is a different digital intermediary now even though the overall use of the Apple Pay Wallet in the U.S. remains small. It has its own credit card in that wallet\u00a0and offers an integrated Pay Later option at checkout. The user experience is slick, and managing transactions is easy. Cash back on purchases is automatically deposited to the Apple Cash card, which can be spent or transferred to a bank account. Integration with messaging makes P2P payments just like sending a text.\nIt is becoming the aggregator for virtual cards that consumers have in their physical wallets today or get from brands that aren\u2019t their bank, including those issued by brands that are not a bank.\nApple now offers a high-yield savings account on balances of up to $1 million as a feature in its wallet. It has a disproportionate share of high earners as iPhone customers here in the U.S. and, by extension, those who drive spend using that wallet and the cards in it. According to PYMNTS Intelligence, 54% of Apple Pay Users earn more than $100,000 a year and nearly half (45%) of iPhone users do.\nA digital wallet that was more or less a dud at the physical checkout in the store for most of its post-launch life, Apple Pay has become a more material potential competitor to the banks as more transactions move in-app and on mobile phones and tablets \u2014 with Apple Pay offered as a friction-free alternative to checking out.\u00a0 And Apple adds new banking and payments features to create more utility for its users when transacting in app, as it will surely do.\nThose use cases might extend to a reinvention of how consumers check out in store, Apple\u2019s initial payments target, which has been slow to gain momentum.\nOne of the biggest innovations for physical checkout is to replicate the digital experience for consumers who are standing inside of a store. The Click-and-Mortar shopper is here to stay, as PYMNTS Intelligence research, done in collaboration with Visa Acceptance, shows. Click-and-Mortar shoppers are the fastest-growing shopping segment worldwide, as consumers see the store as just another place to use their mobile devices to shop and pay. Customer satisfaction is higher with merchants who offer such an experience \u2014 and with satisfaction comes preference, and with preference comes more sales. Digital wallets, with payments choice, can be a bridge to the reinvented checkout experience. Whose digital wallet depends on who can deliver the better experience.\nMaybe this is where banks and merchants could find common digital wallet ground.\nThe Digital Wallet Prisoner\u2019s Dilemma \nStay with me. There is a point to this anecdote.\nSam Bankman Fried\u2019s sentencing for his role in the collapse of FTX is set for March 28th. Last week, we heard prosecutors argue for a 40-to-50-year sentence at the same time SBF\u2019s defense team said 5 to 6 years should be the max. The three closest FTX colleagues who testified against their former boss will be sentenced later. Each of them made the decision, independently, to plead guilty and cooperate with the government in hope of a more lenient sentence.\n\n\n\n The prisoner\u2019s dilemma is the essence of decisions that impact business outcomes \u2014 often in material ways.\n\n\n\n\nThey did so even though each could have pleaded not guilty with the hope that their group silence would make it tough for the prosecutors to win. The prisoner\u2019s dilemma a year ago was whether to gamble that one of them would spill the beans in the hopes of a reduced sentence or hope that everyone would hang tough and maybe get little to no jail time.\nThe prisoner\u2019s dilemma dynamic is evident in business almost every day even though we don\u2019t call it that, and the outcome isn\u2019t about whether anyone will serve time behind bars. But it is the essence of decisions that impact business outcomes \u2014 often in material ways.\nA prisoner\u2019s dilemma is about deciding whether it is more advantageous to just follow one\u2019s self interest or collaborate with an adversary to achieve a better outcome. In a very connected digital economy, where competition and cooperation now define business, these scenarios have become more the rule than the exception.\nIt’s also a fitting way to describe the dynamic now between banks and digital wallets, and in particular Apple Pay.\nThe issue for banks, and the biggest ones with the largest card bases, is how to become more than just a feature in a wallet where they don\u2019t control the experience, the acceptance or the cost to them of a consumer using it.\nThese decisions are being weighed while\u00a0Apple is under pressure to boost revenues as\u00a0iPhone sales globally fall and competitive (and geopolitical) pressures in China increase. This Bloomberg article suggests Apple is less like a Big Tech innovator and more like a value stock, citing Coca Cola as a relevant comparison. The writer says its lack of AI chops is to blame. The bigger point is that Apple has been largely unsuccessful at bringing a slew of blockbuster products to market under Tim Cook\u2019s reign.\nSo, all attention is focused on Services revenue now to drive revenues and margin. \u00a0Apple Pay transactions are very likely in the consideration set of assets for Cupertino to monetize in new ways.\nBanks, of course, know this. The big banks behind Zelle have banded together to create a bank-only competitor, Paze, as a digital wallet alternative to Apple Pay. It has little chance of being a competitor or getting any traction for all the reasons I outlined when it first launched.\nWe witnessed the challenges of getting a bank-operated payments consortia to scale in the U.S. with real-time payments and TCH. Business model failures hindered ubiquitous acceptance, coupled with a lack of clarity on use cases that would create the adoption and usage to get a flywheel going. The very adversaries that TCH was intended to unseat, the card networks, have only become stronger real-time competitors with push-to-card options that deliver a streamlined and ubiquitous consumer experience and consumer preference. If we think that getting real-time, account to account payments to ignite in the U.S. was challenging, which we are still working to do, just sit back and watch how painful it will be for Paze to try and do the same.\nFriend, Foe or Somewhere in Between\nDeciding what\u2019s in the self-interest of banks, especially the biggest ones, when it comes to their digital wallet strategy is more complicated than it was when Apple Pay first launched. Consumer preferences have changed, and\u00a0Apple Pay seems to have momentum in-app. Apple also has an incentive to figure out how to make more high earners stickier, and to be the aggregator of the payments and transactional banking elements that consumers value in order to bolster its own bottom line. Almost anything could be in play.\n\n\n\n Apple has an incentive to figure out how to be the aggregator of the payments and transactional banking elements that consumers value.\n\n\n\n\nAt the same time, Apple is only half of the smartphone population in the U.S. \u2014 and even smaller globally \u2014 at a time when the smartphone landscape is going through its own digital transformation. GenAI will usher in a new generation of devices and operating systems; Open AI and ex-Apple iPhone visionary Jony Ive is working on such a device now. So is Google. Commerce and payments will move to a more distributed network of devices that are voice-activated and where smartphones and apps may be the receivers, and not the initiators, of transactions. Amazon isn\u2019t going to sit back and watch the GenAI commerce train pass it by either.\nThe same banks that helped build Apple Pay success now find Apple to be the gatekeeper for the use of their cards inside of it.\nIn that world, determining who\u2019s the real adversary won\u2019t be that easy. Neither is figuring out whether a collaborator today may be an adversary in the future. Apple faces many of the same decisions in its core business. Just today, we read that they are contemplating a partnership with Google to license its Gemini product to fast track its own AI capabilities.\u00a0\u00a0\n \nThe post The Apple Pay Threat Facing Banks appeared first on PYMNTS.com.", "date_published": "2024-03-18T07:00:06-04:00", "date_modified": "2024-03-19T17:47:12-04:00", "authors": [ { "name": "Karen Webster", "url": "https://www.pymnts.com/author/karen-webster/", "avatar": "https://secure.gravatar.com/avatar/5b27788b9b2e77749b3dc9da766486d8?s=512&d=blank&r=g" } ], "author": { "name": "Karen Webster", "url": "https://www.pymnts.com/author/karen-webster/", "avatar": "https://secure.gravatar.com/avatar/5b27788b9b2e77749b3dc9da766486d8?s=512&d=blank&r=g" }, "image": "https://www.pymnts.com/wp-content/uploads/2024/03/apple-pay-1.jpg", "tags": [ "Apple", "Apple Card", "Apple Pay", "checkout", "Click-and-Mortar\u2122 shoppers", "Digital Payments", "digital wallets", "Karen Webster", "KLW Commentary", "Main Feature", "News", "Payment Methods", "PayPal", "Paze", "PYMNTS News", "Zelle", "Apple Pay" ] }, { "id": "https://www.pymnts.com/?p=1872005", "url": "https://www.pymnts.com/credit-cards/2024/why-the-credit-card-competition-act-wont-lower-merchant-interchange-fees/", "title": "Why the Credit Card Competition Act Won\u2019t Lower Merchant Interchange Fees", "content_html": "In 1955, the island nation of Borneo was in the throes of a serious malaria virus outbreak. It turned to The World Health Organization for help. WHO recommended spraying massive amounts of DDT across the island to kill the mosquitos that carried the disease. Borneo sprayed. Mosquitos died. Malaria cases fell dramatically.
\nSoon thereafter, so did the thatched roofs of the houses people lived in. It turns out, DDT also killed the insects that ate the caterpillars that spent most of their day munching on roof thatching.
\nThen there were the rats.
\nDDT\u2019s collateral damage spread to the food supply that poisoned most of Borneo\u2019s cat population. Since the cats ate the rats that seemed impervious to the chemical, the island soon became overrun with them. That drove island-wide outbreaks of typhus and the plague and made island residents deathly ill.
\nFive years later in 1960, Borneo again asked for help to control the rat infestation. This time it was the U.K.\u2019s Royal Air Force to the rescue. They parachuted 14,000 cats, packaged into little crates, onto the island to eat the rats in the hopes of restoring the island to its rightful ecological equilibrium.
\n![\"\"](\"https://www.pymnts.com/wp-content/uploads/2024/03/cat-drop.jpg?w=258\")
Operation Cat Drop, as the operation was dubbed, had its many critics. The images, like this one courtesy of Anifex, made light of the seriousness of the situation \u2013 and the seemingly Rube Goldberg-like solution that apparently only 14,000 flying cats could fix.
\nIt is also one of the more extreme examples of what can happen when actions taken by those in positions of authority \u201cfor the good of the people\u201d backfire when they fail to contemplate the downstream effects \u2014 the unintended consequences \u2014 of their recommendations.
\nI am certain I\u2019d have no trouble finding people from across the payments ecosystem to fund the purchase and transport of 14,000 cats \u2014 if airdropping them on Capitol Hill would derail Senator Durbin\u2019s Credit Card Competition Act, aka CCCA.
\nFor those in and around payments, the CCCA is the pending bipartisan piece of legislation that purports to create a more competitive credit card playing field. The bill\u2019s intention is to drive interchange fees down by letting merchants choose\u00a0 which network rails they use to route credit card transactions \u2014 under the assumption that they will pick the lowest-cost option. Merchants and merchant associations like the NRF and The National Association of Convenience Stores have heavily lobbied Sen. Durbin to write the bill and encourage bipartisan support to pass it.
\nThe bill itself is short. It has essentially no details about how this would work in practice. If you have three minutes, you can read the legislation here. If you have five minutes, it\u2019s worth glancing at Sen. Durbin\u2019s Cliff’s Notes version here.
\n| I believe the CCCA is based on a flawed argument rooted in a lack of understanding of how the credit card system functions in the U.S. today. \n | \n
Like me and everyone else who reads the CCCA bill, you probably have a lot of questions about how it will work. Don\u2019t sweat the small stuff, though \u2014 if passed, the payments ecosystem will have one whole year to figure out how it will work and implement new rules, processes and procedures to support it.
\nUnsurprisingly, payments lobbyists have been out in full force, all guns blazing, taking a whack at the legislation and its impact on credit card rewards if passed. That seems to have met with a collective lawmaker yawn, seen as the predictable response by big banks and card networks whose only interest is to \u201cstick it to the merchants,\u201d they believe.
\nI\u2019ve been thinking about this a lot recently since it has become such a hot topic of conversation. Like many, I believe the CCCA is based on a flawed argument rooted in a lack of understanding of how the credit card system functions in the U.S. today \u2014 and a belief that merchants, not consumers, know best.
\nUnlike many, I don\u2019t think the CCCA will reduce interchange at all \u2014 or if it does, by maybe an unnoticeable smidge.
\nIn fact, it may even increase it.
\nOn second thought, we might not need the cats.
\nThe bill, as written, is almost sanctimonious in its claim that the current card networks, Visa and Mastercard, have too much power. The intent of the bill is to force big banks to issue cards that have an alternative credit card network on the front or back of the card so that merchants can decide over whose credit card rails they route the shopper\u2019s payment. The hitch is that issuers can\u2019t put Mastercard on their Visa cards \u2014 or vice versa. But they can opt for one of the current three-party alternatives. There\u2019s Discover and Amex.
\nThe intention, as I mentioned, is to force Visa and Mastercard to lower interchange and network fees because they will have to compete for volume with an alternative network. But that assumes that issuers would default to putting Discover on their cards, which has lower merchant discounts (the equivalent of the interchange fee and network fee for the four-party systems.)
\nBut why would big banks do that?
\nAny issuer that chooses to put Discover on their cards \u00a0is making a conscious decision to cut into the credit card rewards that consumers know and love, and drive top-of-wallet status for them.
\nSo, if I am an issuer thinking strategically, I\u2019m on Zoom calls with Amex to negotiate a higher interchange fee that will allow me to support consumer rewards at the levels they are now. Otherwise, they could threaten to put Discover on the card.
\nThen guess what would happen?
\nFor Discover to be a competitive option for banks, they, too, would have to bid up interchange fees for issuers.
\nWho knows, maybe the reason that Capital One is trying to buy Discover is to capture more interchange fee revenue for the cards going over the Discover network by raising merchant fees.
\nHere\u2019s another thought: The CCCA bill, which is an ode to three-party networks (but really Discover, since Amex is even more expensive for merchants than Mastercard and Visa), could give rise to even more of them in the U.S.
\nThere is a short list of providers who have both issuing and acquiring, and those include the big banks. Who\u2019s to say that one of them couldn\u2019t emerge as a contender with their own network to be considered that competitive alternative? And\u00a0 they would bid to have banks issue their third-party card in addition to Mastercard or Visa.
\n| The effect on the merchant community may be the direct opposite of what Sen. Durbin and his CCCA legislation intended. \n | \n
Notwithstanding a lack of understanding of how dual routing would work for credit card transactions, the flaw in Sen. Durbin\u2019s bill is a lack of understanding of how the current credit card ecosystem works. And, more fundamentally, how platform ecosystems ignite and scale \u2014 and are monetized.
\nStarting with the small detail that Amex and Discover aren\u2019t really three-party networks.
\nBoth allow banks to issue their card products \u2014 there just hasn\u2019t been much of an appetite for banks to do that. But Katie, bar the door now.
\nIf passed as currently proposed, the effect on the merchant community may be the direct opposite of what Sen. Durbin and his CCCA legislation intended.
\nAlthough the Administration, Congress and CFPB are all very concerned with consumer choice, their voices have been surprisingly muted on this bill.
\nLet\u2019s say that issuers \u00a0choose to cut into their own fee income and put a low interchange alternative on the back of their cards \u2014 basically issuing all of their cardholders a Discover card. There will be a material hit to card rewards \u2014 and that will have a noticeable effect on consumer spending and wellbeing.
\nIt is also flawed thinking that merchants will re-allocate their interchange fee savings to consumer promotions and rewards, if past is prologue.
\nResearch in the aftermath of the first Durbin reduction to debit interchange finds that merchants didn\u2019t \u2014 and if they did, the savings were so insignificant as to be imperceptible to consumers. Home Depot even admitted in a 2011 earnings call that they realized a $35 million net margin increase from interchange fee savings after pledging to reallocate those savings to consumers.
\n| It is flawed thinking that merchants will re-allocate their interchange fee savings to consumer promotions and rewards. \n | \n
However, consumers did pay more to keep their checking accounts at the banks that issued their debit cards, and to support other value-added services related to those accounts.
\nBut these arguments are familiar and well-trodden.
\nOne that isn\u2019t: the CCCA, if successfully passed, would create potentially enormous confusion for the consumer at the point of sale.
\nIt is crazier than it seems at first glance.
\nDual network routing for credit card transactions is a very different animal than dual network routing for debit. Debit transactions pull money out of a checking account. Processing a credit card transaction is about managing risk, extending credit and managing issuer balance sheets using a network that supports the issuer who underwrites the risk and establishes a credit line for that consumer.
\nThat means that a consumer with a Visa or Mastercard \u2014 issued by a bank they know and trust \u2014 signed up for a card with a rewards program that suits their needs, a line of credit they know, and an interest rate on balances that they understand. When they present their card at the virtual or physical point of sale, their expectation is for those card program attributes to be honored as agreed. If there is fraud, they know who to call. If there is a dispute, they know who to call. When they get their statement, those transactions are easy to see and understand; their bills are easy to pay.
\n| The CCCA would create potentially enormous confusion for the consumer at the point of sale. \n | \n
When merchants get to decide the network rail that processes the transaction, it is unclear how any of this will work.
\nWill the consumer have to be underwritten for credit by the alternative network? If so, will they have a different credit line and interest rate? Does the consumer have to agree to those terms for the bank to issue a card with an alternative logo on that card? What if they don\u2019t?
\nWill all issuers and networks be forced to accept all consumers from the alternative network? If a consumer has a Mastercard from one issuer that chooses to add Amex as the second network, does Amex have to match interest rates and credit lines for that consumer? Can they say no?
\nAnd since this is all on a single card, when a consumer presents that credential at the virtual or physical point of sale, when will the consumer know what the implications of that transaction routing are? Did the merchant choose the card with the higher interest rate or one where the consumer was close to their credit limit and could be declined? Who is responsible if there is fraud or a false decline?
\nOh, I forgot. The industry has 12 months to figure that out.
\nAs written, the bill takes all these decisions out of the consumer\u2019s hands to let the merchant decide what\u2019s best for the consumer, based on what\u2019s best for their bottom line.
\nIt\u2019s no different than ordering Skippy peanut butter from a grocery store online and being given a store brand for the same price because it buffs the merchant\u2019s balance sheet.
\nWell, at least GenAI can help make bank call centers more efficient, since they will be flooded with calls from confused consumers if CCCA becomes the law.
\nThe CCCA is coming while merchants are using a variety of tactics to shift more of their costs of doing business onto consumers, often in sketchy ways.
\nMerchants can add fees to cover the cost of payments processing in all but two U.S. states now, even as many states have implemented caps on the amount charged. It is speculated that merchants will increase their use of surcharging regardless of the CCCA\u2019s outcome.
\nAccording to PYMNTS Intelligence data, half of consumers surveyed in March of 2022 said they recall paying a surcharge to cover credit card fees. In that same survey, half of consumers who paid a fee said they would switch to a merchant that didn\u2019t charge one \u2014 so consumers may have paid it once but were unwilling to pay it twice.
\nOnly one in ten consumers who never paid a surcharge \u2014 or remembered doing so \u2014 said they would be willing to pay a surcharge at a merchant, which means nearly all say they would not.
\nAt the same time, there has been a noticeable increase in tip options at the point of sale in places where the service element of the customer experience is questionable. Fast food, grocery and convenience stores have become notorious over the last several years for forcing tips on transactions for which the only \u201cservice\u201d is ringing up the items and putting them in a bag. Processors make it easy to add a tip option on the checkout screen, so why not?
\nConsumers don\u2019t like it.
\n| It seems odd that merchants seem so willing to introduce friction at the point of sale for their own benefit, particularly when consumers are more interested in their own balance sheets than those of the merchants they shop. \n | \n
More than third of consumers surveyed by PYMNTS Intelligence in October of 2023 say that the pressure to tip in these situations has gotten out of hand. Thirty percent of consumers recalled being asked to tip at retail and convenience stores, twenty percent at self-checkout. Nearly all consumers say that being asked to tip where there is no tip precedent is never acceptable, with 65% saying they will find alternatives rather than be pressured to add another 10 to 15% tax to their transaction.
\nSurcharging can only work if all merchants do it. The consumer\u2019s willingness to pay weighs heavily on those decisions, which is why most merchants don\u2019t. It seems only a matter of time before forced tipping in the absence of service will be marginalized if merchants want the pitter patter of consumer feet in their stores.
\nIt seems odd that a CFPB so focused on junk fees hasn\u2019t expanded their definition to include one or both of these merchant-directed items.
\nIt also seems odd that merchants seem so willing to introduce friction at the point of sale for their own benefit, particularly when consumers are more interested in their own balance sheets right now than those of the merchants they shop.
\nI predict that the CCCA will collapse under its own weight for some of the reasons I pointed out, and the many more that a deeper look under the hood will uncover. People in payments who know the industry, know networks and know credit know that this is an unworkable idea.
\nJust as Borneo discovered around the same time that the four-party model was introduced in the U.S., what may look good at the time creates years of chaos that can be hard to recover from. As I write this, the CCCA legislation has not been reintroduced. With any luck, it stays that way.
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The post Why the Credit Card Competition Act Won\u2019t Lower Merchant Interchange Fees appeared first on PYMNTS.com.
\n", "content_text": "In 1955, the island nation of Borneo was in the throes of a serious malaria virus outbreak. It turned to The World Health Organization for help. WHO recommended spraying massive amounts of DDT across the island to kill the mosquitos that carried the disease. Borneo sprayed. Mosquitos died. Malaria cases fell dramatically.\nSoon thereafter, so did the thatched roofs of the houses people lived in. It turns out, DDT also killed the insects that ate the caterpillars that spent most of their day munching on roof thatching.\nThen there were the rats.\nDDT\u2019s collateral damage spread to the food supply that poisoned most of Borneo\u2019s cat population. Since the cats ate the rats that seemed impervious to the chemical, the island soon became overrun with them. That drove island-wide outbreaks of typhus and the plague and made island residents deathly ill.\nFive years later in 1960, Borneo again asked for help to control the rat infestation. This time it was the U.K.\u2019s Royal Air Force to the rescue. They parachuted 14,000 cats, packaged into little crates, onto the island to eat the rats in the hopes of restoring the island to its rightful ecological equilibrium.\n\nThis is a true story.\nOperation Cat Drop, as the operation was dubbed, had its many critics. The images, like this one courtesy of Anifex, made light of the seriousness of the situation \u2013 and the seemingly Rube Goldberg-like solution that apparently only 14,000 flying cats could fix.\nIt is also one of the more extreme examples of what can happen when actions taken by those in positions of authority \u201cfor the good of the people\u201d backfire when they fail to contemplate the downstream effects \u2014 the unintended consequences \u2014 of their recommendations.\nOperation Credit Card Interchange Backfire\nI am certain I\u2019d have no trouble finding people from across the payments ecosystem to fund the purchase and transport of 14,000 cats \u2014 if airdropping them on Capitol Hill would derail Senator Durbin\u2019s Credit Card Competition Act, aka CCCA.\nFor those in and around payments, the CCCA is the pending bipartisan piece of legislation that purports to create a more competitive credit card playing field. The bill\u2019s intention is to drive interchange fees down by letting merchants choose\u00a0 which network rails they use to route credit card transactions \u2014 under the assumption that they will pick the lowest-cost option. Merchants and merchant associations like the NRF and The National Association of Convenience Stores have heavily lobbied Sen. Durbin to write the bill and encourage bipartisan support to pass it.\nThe bill itself is short. It has essentially no details about how this would work in practice. If you have three minutes, you can read the legislation here. If you have five minutes, it\u2019s worth glancing at Sen. Durbin\u2019s Cliff’s Notes version here.\n\n\n\n I believe the CCCA is based on a flawed argument rooted in a lack of understanding of how the credit card system functions in the U.S. today.\n\n\n\n\nLike me and everyone else who reads the CCCA bill, you probably have a lot of questions about how it will work. Don\u2019t sweat the small stuff, though \u2014 if passed, the payments ecosystem will have one whole year to figure out how it will work and implement new rules, processes and procedures to support it.\nUnsurprisingly, payments lobbyists have been out in full force, all guns blazing, taking a whack at the legislation and its impact on credit card rewards if passed. That seems to have met with a collective lawmaker yawn, seen as the predictable response by big banks and card networks whose only interest is to \u201cstick it to the merchants,\u201d they believe.\nI\u2019ve been thinking about this a lot recently since it has become such a hot topic of conversation. Like many, I believe the CCCA is based on a flawed argument rooted in a lack of understanding of how the credit card system functions in the U.S. today \u2014 and a belief that merchants, not consumers, know best.\nUnlike many, I don\u2019t think the CCCA will reduce interchange at all \u2014 or if it does, by maybe an unnoticeable smidge.\nIn fact, it may even increase it.\nOn second thought, we might not need the cats.\nAmex to the Rescue?\nThe bill, as written, is almost sanctimonious in its claim that the current card networks, Visa and Mastercard, have too much power. The intent of the bill is to force big banks to issue cards that have an alternative credit card network on the front or back of the card so that merchants can decide over whose credit card rails they route the shopper\u2019s payment. The hitch is that issuers can\u2019t put Mastercard on their Visa cards \u2014 or vice versa. But they can opt for one of the current three-party alternatives. There\u2019s Discover and Amex.\nThe intention, as I mentioned, is to force Visa and Mastercard to lower interchange and network fees because they will have to compete for volume with an alternative network. But that assumes that issuers would default to putting Discover on their cards, which has lower merchant discounts (the equivalent of the interchange fee and network fee for the four-party systems.)\nBut why would big banks do that?\nAny issuer that chooses to put Discover on their cards \u00a0is making a conscious decision to cut into the credit card rewards that consumers know and love, and drive top-of-wallet status for them.\nSo, if I am an issuer thinking strategically, I\u2019m on Zoom calls with Amex to negotiate a higher interchange fee that will allow me to support consumer rewards at the levels they are now. Otherwise, they could threaten to put Discover on the card.\nThen guess what would happen?\nFor Discover to be a competitive option for banks, they, too, would have to bid up interchange fees for issuers.\nWho knows, maybe the reason that Capital One is trying to buy Discover is to capture more interchange fee revenue for the cards going over the Discover network by raising merchant fees.\nHere\u2019s another thought: The CCCA bill, which is an ode to three-party networks (but really Discover, since Amex is even more expensive for merchants than Mastercard and Visa), could give rise to even more of them in the U.S.\nThere is a short list of providers who have both issuing and acquiring, and those include the big banks. Who\u2019s to say that one of them couldn\u2019t emerge as a contender with their own network to be considered that competitive alternative? And\u00a0 they would bid to have banks issue their third-party card in addition to Mastercard or Visa.\n\n\n\n The effect on the merchant community may be the direct opposite of what Sen. Durbin and his CCCA legislation intended.\n\n\n\n\nNotwithstanding a lack of understanding of how dual routing would work for credit card transactions, the flaw in Sen. Durbin\u2019s bill is a lack of understanding of how the current credit card ecosystem works. And, more fundamentally, how platform ecosystems ignite and scale \u2014 and are monetized.\nStarting with the small detail that Amex and Discover aren\u2019t really three-party networks.\nBoth allow banks to issue their card products \u2014 there just hasn\u2019t been much of an appetite for banks to do that. But Katie, bar the door now.\nIf passed as currently proposed, the effect on the merchant community may be the direct opposite of what Sen. Durbin and his CCCA legislation intended.\nWhat Happened to Consumer Choice?\nAlthough the Administration, Congress and CFPB are all very concerned with consumer choice, their voices have been surprisingly muted on this bill.\nLet\u2019s say that issuers \u00a0choose to cut into their own fee income and put a low interchange alternative on the back of their cards \u2014 basically issuing all of their cardholders a Discover card. There will be a material hit to card rewards \u2014 and that will have a noticeable effect on consumer spending and wellbeing.\nIt is also flawed thinking that merchants will re-allocate their interchange fee savings to consumer promotions and rewards, if past is prologue.\nResearch in the aftermath of the first Durbin reduction to debit interchange finds that merchants didn\u2019t \u2014 and if they did, the savings were so insignificant as to be imperceptible to consumers. Home Depot even admitted in a 2011 earnings call that they realized a $35 million net margin increase from interchange fee savings after pledging to reallocate those savings to consumers.\n\n\n\n It is flawed thinking that merchants will re-allocate their interchange fee savings to consumer promotions and rewards.\n\n\n\n\nHowever, consumers did pay more to keep their checking accounts at the banks that issued their debit cards, and to support other value-added services related to those accounts.\nBut these arguments are familiar and well-trodden.\nOne that isn\u2019t: the CCCA, if successfully passed, would create potentially enormous confusion for the consumer at the point of sale.\nIt is crazier than it seems at first glance.\nWait, I Thought I Had a Mastercard from Citi?\nDual network routing for credit card transactions is a very different animal than dual network routing for debit. Debit transactions pull money out of a checking account. Processing a credit card transaction is about managing risk, extending credit and managing issuer balance sheets using a network that supports the issuer who underwrites the risk and establishes a credit line for that consumer.\nThat means that a consumer with a Visa or Mastercard \u2014 issued by a bank they know and trust \u2014 signed up for a card with a rewards program that suits their needs, a line of credit they know, and an interest rate on balances that they understand. When they present their card at the virtual or physical point of sale, their expectation is for those card program attributes to be honored as agreed. If there is fraud, they know who to call. If there is a dispute, they know who to call. When they get their statement, those transactions are easy to see and understand; their bills are easy to pay.\n\n\n\n The CCCA would create potentially enormous confusion for the consumer at the point of sale.\n\n\n\n\nWhen merchants get to decide the network rail that processes the transaction, it is unclear how any of this will work.\nWill the consumer have to be underwritten for credit by the alternative network? If so, will they have a different credit line and interest rate? Does the consumer have to agree to those terms for the bank to issue a card with an alternative logo on that card? What if they don\u2019t?\nWill all issuers and networks be forced to accept all consumers from the alternative network? If a consumer has a Mastercard from one issuer that chooses to add Amex as the second network, does Amex have to match interest rates and credit lines for that consumer? Can they say no?\nAnd since this is all on a single card, when a consumer presents that credential at the virtual or physical point of sale, when will the consumer know what the implications of that transaction routing are? Did the merchant choose the card with the higher interest rate or one where the consumer was close to their credit limit and could be declined? Who is responsible if there is fraud or a false decline?\nOh, I forgot. The industry has 12 months to figure that out.\nAs written, the bill takes all these decisions out of the consumer\u2019s hands to let the merchant decide what\u2019s best for the consumer, based on what\u2019s best for their bottom line.\nIt\u2019s no different than ordering Skippy peanut butter from a grocery store online and being given a store brand for the same price because it buffs the merchant\u2019s balance sheet.\nWell, at least GenAI can help make bank call centers more efficient, since they will be flooded with calls from confused consumers if CCCA becomes the law.\nBring in the Surcharges and Friction\nThe CCCA is coming while merchants are using a variety of tactics to shift more of their costs of doing business onto consumers, often in sketchy ways.\nMerchants can add fees to cover the cost of payments processing in all but two U.S. states now, even as many states have implemented caps on the amount charged. It is speculated that merchants will increase their use of surcharging regardless of the CCCA\u2019s outcome.\nAccording to PYMNTS Intelligence data, half of consumers surveyed in March of 2022 said they recall paying a surcharge to cover credit card fees. In that same survey, half of consumers who paid a fee said they would switch to a merchant that didn\u2019t charge one \u2014 so consumers may have paid it once but were unwilling to pay it twice.\nOnly one in ten consumers who never paid a surcharge \u2014 or remembered doing so \u2014 said they would be willing to pay a surcharge at a merchant, which means nearly all say they would not.\nAt the same time, there has been a noticeable increase in tip options at the point of sale in places where the service element of the customer experience is questionable. Fast food, grocery and convenience stores have become notorious over the last several years for forcing tips on transactions for which the only \u201cservice\u201d is ringing up the items and putting them in a bag. Processors make it easy to add a tip option on the checkout screen, so why not?\nConsumers don\u2019t like it.\n\n\n\n It seems odd that merchants seem so willing to introduce friction at the point of sale for their own benefit, particularly when consumers are more interested in their own balance sheets than those of the merchants they shop.\n\n\n\n\nMore than third of consumers surveyed by PYMNTS Intelligence in October of 2023 say that the pressure to tip in these situations has gotten out of hand. Thirty percent of consumers recalled being asked to tip at retail and convenience stores, twenty percent at self-checkout. Nearly all consumers say that being asked to tip where there is no tip precedent is never acceptable, with 65% saying they will find alternatives rather than be pressured to add another 10 to 15% tax to their transaction.\nSurcharging can only work if all merchants do it. The consumer\u2019s willingness to pay weighs heavily on those decisions, which is why most merchants don\u2019t. It seems only a matter of time before forced tipping in the absence of service will be marginalized if merchants want the pitter patter of consumer feet in their stores.\nOperation Interchange Fail\nIt seems odd that a CFPB so focused on junk fees hasn\u2019t expanded their definition to include one or both of these merchant-directed items.\nIt also seems odd that merchants seem so willing to introduce friction at the point of sale for their own benefit, particularly when consumers are more interested in their own balance sheets right now than those of the merchants they shop.\nI predict that the CCCA will collapse under its own weight for some of the reasons I pointed out, and the many more that a deeper look under the hood will uncover. People in payments who know the industry, know networks and know credit know that this is an unworkable idea.\nJust as Borneo discovered around the same time that the four-party model was introduced in the U.S., what may look good at the time creates years of chaos that can be hard to recover from. As I write this, the CCCA legislation has not been reintroduced. With any luck, it stays that way.\n \n \nThe post Why the Credit Card Competition Act Won\u2019t Lower Merchant Interchange Fees appeared first on PYMNTS.com.", "date_published": "2024-03-11T07:00:05-04:00", "date_modified": "2024-03-11T06:54:33-04:00", "authors": [ { "name": "Karen Webster", "url": "https://www.pymnts.com/author/karen-webster/", "avatar": "https://secure.gravatar.com/avatar/5b27788b9b2e77749b3dc9da766486d8?s=512&d=blank&r=g" } ], "author": { "name": "Karen Webster", "url": "https://www.pymnts.com/author/karen-webster/", "avatar": "https://secure.gravatar.com/avatar/5b27788b9b2e77749b3dc9da766486d8?s=512&d=blank&r=g" }, "image": "https://www.pymnts.com/wp-content/uploads/2024/03/oops.jpg", "tags": [ "American Express", "CCCA", "credit card competition act", "Credit Cards", "Discover", "Durbin", "Government", "Interchange Fees", "Karen Webster", "KLW Commentary", "Legislation", "Main Feature", "MasterCard", "News", "PYMNTS News", "regulation", "Visa" ] } ] }