To know how we will shop tomorrow, there's no point in merely studying the behaviour of current consumers. The key to the future can be found by observing the first-generation 'digital natives' -- consumers born in the digital era. That was my take-away from a workshop session at the World Economic Forum in Davos.
It is impossible to have any meaningful discussion about the future of shopping without looking at how you pay.
Sitting at the heart of a world-wide payments network, it is clear to me that we are seeing a retail revolution as electronic payments become the currency of commerce, whether the purchase is from the corner store or a website located anywhere across the globe.
The main driver for the revolution is technology, which is fuelling the growth of non-face-to-face sales, where customers buy from the comfort of their home or office via telephone, or increasingly, on their computers, without ever handling notes and coins to make a payment.
The Internet is a seemingly ever-expanding highway of electronic commerce with the number of transactions and the value of those transactions rising all the time.
In the United States in 2003, non-face-to-face purchases made up 24 per cent of the volume of total transactions, according to the Tower Group. By 2008, they expect that 44 per cent of all retail transactions will be virtual.
This radical change in the way we shop is taking place despite the bulk of the purchasing power being in the hands of people who didn't grow up with technology.
I like to call them "digital immigrants". They have migrated to the brave new world of technology but still remember how retail used to be in the old country and continue to have inhibitions about buying online.
On the other hand, we are seeing the first generation of digital natives -- the PlayStation generation -- who have no qualms about grazing in a virtual retail world.
At present, their spending power is limited. But in the next 10 years, we will begin to see the greatest inter-generational wealth transfer in history, as family wealth is passed down and these digital natives begin to earn salaries.
At the same time, the potential of virtual retailing has limitations. The digital natives are part of a generation that wants instant gratification. But with many online purchases, there is a delay in delivery.
You can buy your groceries or a washing machine online, but you still have to wait for the truck to arrive. Companies that can figure out how to speed up the delivery process will gain a significant competitive advantage.
The availability of a safe, secure electronic payment system is transforming bricks-and-mortar retailers as well as their virtual cousins.
Stored value cards are already transforming the pattern of retail sales. Many big US merchants used to gear up for holiday sales by increasing marketing and hiring extra staff for the pre-Christmas rush.
But now they expect to see a big growth in sales in the first part of the year as people redeem the holiday gift cards they found under the tree -- the sales only register when these cards are exchanged for goods.
But the ease with which these cards can be purchased and used is generating increased business. These cards also have the potential to open up new channels and provide secure means of payments for parts of society, which until now have been practically excluded from the electronic payments system -- the unbanked.
Using pre-paid cards people on social benefits can buy goods and services online from the "virtual main street" with the same ease and convenience as those with credit and debit cards.
The present consumer wants to spend more time shopping rather than paying. Anything that can speed up the check-out process is welcome. Quick service restaurants like McDonalds are looking for contactless payment solutions.
Another powerful differentiator that will change the way we shop is increasing customisation. In Davos, Gail Fosler, chief economist of the Conference Board, made the point that there has been a multi-cultural shift towards differentiated ethnic markets that are becoming more affluent.
In the US, Hispanic households are the largest single ethnic group and an increasing number are generating incomes of more than $100,000. These consumers are increasingly demanding products tailored to their specific needs.
Global companies in developing markets overseas will be challenged if they try to sell a uniform global product without taking account of global differences.
As the product supply becomes more segmented along ethnic and cultural lines, the market structure becomes more complex and demands newer business models.
In Asia, several small companies have taken on global giants by providing a targeted local product. In Indonesia, a major international consumer products company lost its market share in detergents to a local entrepreneur who sold a detergent paste, rather than powder.
The local producer knew that the paste was easier to use when washing clothes by hand. Elsewhere in Asia, local manufacturers producing local versions of tea and dairy ice-cream have succeeded in taking marketshare away from the multi-national giants.
Many of the CEOs at Davos, like Sanjiv Ahuja, the head of the European mobile telecom company Orange, acknowledge that the one-size-fits-all business model is becoming increasingly inappropriate in a more complex market.
The global consumer is becoming more picky. They want and expect a level of value-added service that is only possible with digital technology.
Like the example of washing products in Asia, value-added electronic payment systems (pre-paid, debit and credit cards) can be customised to suit the needs of customers in all markets. In the future, digital shopping will no longer be the sole preserve of the Internet.
A hybrid click-and-mortar retail model will unlock the huge potential of both the affluent and unbanked consumers throughout the world.
When that happens we will begin to see an electronic retail superhighway that is fundamentally different than what we recognise today.
Chris McWilton is the CFO, MasterCard International.
