Open Banking
September 13, 2023
5 min

Maximizing Value Through Grocery Payments: How Open Banking Can Help

Timothy Shin

Open Banking Expert

It’s an open secret that the grocery industry has cutthroat margins, but many people still think that’s false. The general population of shoppers believe grocery stores net a 35.2% profit margin, which is significantly above reality. Unfortunately, grocery stores have to operate on margins way thinner than that.

Grocery stores have to deal with thin margins while adapting to changing consumer preferences and the rising cost of food. Open Banking can help grocery store merchants improve shopper experience, lower payment acceptance costs, and maximize value through payments during these more challenging economic times.

Adapting to the Growth of Curbside Pickup and BOPIS

Since the pandemic, many grocery stores have introduced new ways for consumers to buy groceries online. Despite more people feeling comfortable again going out and making purchases at brick and mortar, the rise of curbside pickup and buy online pick up in-store (BOPIS) hasn’t cooled off. A recent study has shown that 37% more consumers used BOPIS or curbside pickup throughout 2022 compared to 2021’s rates, representing 16 million shoppers in the US alone.

As the growth of BOPIS and curbside pickup continues to rise without any signs of slowing down, grocery stores provide online shopping and checkout experiences that meet consumer expectations. The average grocery shopper makes consistent purchases, regularly spending the same amount on groceries, roughly $412 a month.

While the way that consumers shop for groceries has transformed, the way they pay is slower to modernize. Card payments weren’t inherently designed for card-not-present online transactions, making them unsuited for curbside and BOPIS shopping experiences. Cards regularly expire, get stolen, manual input of card info is prone to human error, and are synonymous with friction-filled consumer experiences. 

The Need for More Cost-Efficient Payment Methods

The pain points of card payments for online grocery shopping aren’t just relevant to consumer dissatisfaction; grocers also suffer from the cost of card payments. Despite the demand, crushing card processing fees, including rising interchange fees, scheme fees, acquirer costs, and more, can make adapting BOPIS or curbside a costly endeavor, eating into grocers' already thin margins.

However, grocers can still incentivize payment methods that avoid costly processing fees. With Open Banking technology, grocers can provide a Pay By Bank method that establishes a direct and evergreen connection with the consumer’s bank account without costly intermediaries that are frictionless and easy to use.

Creating Better Experiences and Maximizing Profitability Through Open Banking

Card processing fees constantly fluctuate and eat into every sale made via card. One example illustrating how these fees eat into profit margins is Target’s introduction of the Target RedCard debit card. The RedCard is Target’s branded card; users get a 5% discount on all purchases at Target stores and on 

The RedCard debit card works by pulling money directly from a consumer’s bank account so that no processing fees eat into their profits. Target incentivized consumers to shop using the RedCard, successfully shifting 20% of transactions in 2022 to the owned payment method. If those same purchases were made using credit cards, Target would have been subject to millions in processing fees, eating into the year’s profitability. 

Most grocery stores aren’t going to have the infrastructure or resources to create their own debit card just to address high interchange fees. One of the best ways to avoid interchange fees altogether is to leverage the power of Open Banking technology because it allows consumers to pay directly with their bank accounts, meaning grocery merchants can avoid dealing with card processing fees altogether and maximize their profitability.

Don’t Let Card Fees Cut Into Your Sales 

Grocery is among the thinnest margins in all of retail, with most averages revealing that grocery stores typically only operate on a 2.5% margin, which is extremely thin, and this is usually before taxes and any interest. Even major companies like Amazon and its new line of grocery stores have been struggling due to the razor-thin margins of the grocery industry. The challenges presented by cards make it that much harder to stay afloat, especially when it seems like there aren’t any payment alternatives available. 

So what is the solution? Trustly Pay provides merchants with a viable answer to interchange fees and a way to improve the quality of life for their customers. With a payment system powered by Open Banking, merchants can adapt to the changing shopping landscape and bolster their bottom line. Request a free demo with us today.

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