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When it comes to innovation in retail, digital-first, midtier merchants are leading the charge, according to research from universal payments provider ACI Worldwide and consultancy firm Ovum.

“Digitally driven midtier merchants that are able to bring new and innovative products and services quickly to market as well as deliver a consistent focus on customer experience are winning the global innovation race,” said authors of the “Culture of Innovation Index” report. The research showed that 37 percent of these types of retailers (who have revenue of between $5 billion and $10 billion) are classified by the index’s criteria as being either “advanced” or “trailblazer” in regard to developing and deploying various types of innovation.

This compares to 23 percent in the midtier group who are classified as “laggards.” The index identifies five types of merchant organizations, “as defined by their approach to innovation and business transformation.” Aside from trailblazers, advanced and laggards, there are also “emerging” and “tech-led.”

“When it comes to the world’s largest merchants, the situation reverses,” the report stated, adding that 37 percent of merchants with annual sales of at least $10 billion are “laggards,” while 22 percent are pegged as “advanced” and 8 percent as “trailblazers.”

ACI Worldwide and Ovum said the index is based on interviews with senior-level executives at nearly 1,200 companies. Each business was scored on its “plans and behaviors across a range of cultural, organizational and technology-centric factors.” ACI Worldwide said for the merchant segment, 538 companies, globally, were surveyed.

Andrew Quartermaine, vice president of merchant retail at ACI Worldwide, said digital-led, midtier merchants “may well be on the way to becoming the super-merchants of tomorrow. Today, growing numbers of consumers globally expect a digital-led shopping experience. Businesses that have a strong digital presence and strategy, whether they are big or small, will, therefore, have the edge in today’s competitive environment.”

The authors of the report said there is “no single formula” for driving innovation, but the company offers a playbook, “How to Become a Payments Trailblazer,” which outlines the characteristics of innovation leaders. “Among those key features are: a strong central function tasked with driving innovation, an agile culture that is responsive to customer needs, taking advantage of emerging technologies and focusing on customer experience by bringing innovative products and services quickly to market.”

Quartermaine reiterated that there is “no single recipe for success in today’s new retail environment, but our research provides a blueprint for what the most innovative and successful merchants do right. Catering to a growing customer preference for digital-led or digital-influenced purchasing is key. This includes new payment options; a focus on mobile, especially in-store, and a stronger, more seamless cross-channel payment experience.”

Fintech solutions that are helping empower retailers to innovate include alternative payment options, real-time payments, mobile payment apps, and cloud services. Security and fraud prevention also play a role.

“Security initiatives like PSD2 and SCA are driving the need for technology innovation in order to balance fraud prevention with maximizing conversion rates; regulatory requirements may drive merchants to close the innovation gap relative to banks,” ACI Worldwide said.

Other key findings from the survey include that in Europe, 35 percent of all merchants were ‘laggards” compared to 30 percent, globally. The researchers said this reflects “the challenges that many have faced as a result of the rapid shift in customer habits toward e-commerce.”

In the Asia-Pacific region, 32 percent “fall into the ‘tech-led’ group, with 26 percent in the ‘advanced’ category; only 19 percent are ‘laggards.”

In the U.S., 34 percent were “laggards” with 16 percent falling into the “trailblazers” category. The researchers said this reflects the “growing gap between more traditional merchants and many of the more digital-native businesses.”

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