Don't completely outsource payment system rollouts: Coles

While many retailers may rely on third-party service providers to roll out new payment technologies in stores, Coles Group has found success in relying on itself to implement a contactless payment system across its retail brands.

This was one of the lessons the retail giant learned on its contactless payment journey, which first began nearly two years ago.

Coles now processes AUD$30 billion worth of card transactions a year across all its retail groups, including Kmart, Coles supermarkets, and Myer. Around AUD$5 billion of that is cash out for customers. Recognising card payments had become a sizable part of its business, Coles wanted to offer more convenience to shoppers.

"We believe we are at the tipping point of a significant change in how customers want to pay with us," Coles Head of Payments Douglas Swansson said at the Future of Payments conference in Sydney. "Over the next few years, we expect to see a significant increase in card transactions, as customers' payment choice shifts from cash to card.

"So we needed to support payment needs across multiple channels and across multiple form factors, make it available at any time, and to do it at the lowest cost possible."

In May 2011, Coles ran a trial of Fast Pay in 118 stores across all brands, which saved customers from having to type in their PIN codes for card transactions under AUD$35. The trial was deemed successful, and Coles has since expanded into rolling out MasterCard's PayPass terminals, with a tap & go contactless option for purchases under AUD$100.

The terminals, which were deployed between February and June this year, also support NFC payments through compatible mobile phones.

Having gone through an extensive research and testing phase, Coles Payment Services Delivery Manager, Cris Topfner-Rigby said that the step-by-step approach in implementing contactless for its outlets has been a success. Deciding on what hardware to use and how to implement it was a critical part of the process.

She warned against allowing third-party partners to drive the design and implementation process.

"You have to lead the design process," Topfner-Rigby said. "Do not outsource your design, do not outsource your lead — don't look at the vendor to give you a solution."

"It will be the best of what they think they can give you, but they don't know your business, and they don't know your customers."

Coles had undergone a lengthy research process looking at different types of contactless payment terminals, and found that many of them were unsuitable for the company. Topfner-Rigby was not discouraging retailers that want to deploy contactless from finding a technology partner, but emphasised that it was important to take charge of the project.

Another challenge for Coles was to get customers to trust and use the new payment system. While in the past, newfangled payment options would be presented as a perk to customers, Coles avoided making too much noise about the contactless option.

"We used to look at payment instruments as something that would potentially attract customers, but it is part of what is expected now," Swansson said. "Rather than trying to advertise it, we are almost trying to transform it into something people wouldn't notice."

The retail group opted to encourage customers to use the service by offering extra rewards through its store-issued credit cards. The strategy has worked well, and customers have responded positively, according to Coles.

The company has also seen a growing acceptance for mobile payments through NFC.

"We have had a number of payments made through the Commonwealth Bank Kaching app on iPhones with [specially designed NFC] covers," Swansson said.

Coles is currently halfway through its major IT project to replace its old settlement and reconciliation systems.