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Bots and payments: closing the conversational commerce loop.

Augmented by recent advancements in payment integration, the use cases and implications for bots in conversational commerce are emerging quickly. In parts one and two of our series of reports on chat bots, we discussed how bots became one of the key tech trends in 2016 (/report-short?entityld=88964) and detailed emerging technologies and vendors that are defining the bots space. (/report-short?entityld=89940) In this report, we look at the topic of conversational commerce and what this means for the enterprise within the context of the end-user experience.

The 451 Take

The hype created by Facebook and Microsoft has put the spotlight on smart bots and their use for customer engagement and 'conversational commerce.' We contend that chat bots hold great potential and will eventually take their place in the enterprise, but this will take longer than initially anticipated. However, the integration of payments within bots is an important advancement that will help bolster their overall utility and enterprise value. With a transactional component, bots will begin to evolve from simple marketing and branding mechanisms to tools that convert shoppers into buyers, driving real business outcomes. Early developments indicate that much of the near-term activity will occur on messaging platforms such as Facebook Messenger and involve digital wallets to streamline purchase flows. Longer term, we anticipate retailers will look to add bot-enabled conversational commerce to their existing e-commerce and mobile application platforms to reduce cart abandonment and improve conversion rates.

Bot hype is at peak levels

Media hype in chat bots reached peak levels this year, driving developers to build bots with near cult-like enthusiasm. Bots are being developed at an unprecedented rate, and a wide variety of vendors and startups are jumping on the bots bandwagon. We believe that chat bots hold great potential for transforming how organizations interact with customers and employees. With few exceptions, however, they have yet to deliver on that promise.

We are seeing early progress with bot use cases for sales and marketing, (/reportshort? entityld=89969) as well as security, (/report-short?entityld=90109) but these examples are few and far between. The artificial intelligence (AI) and machine-learning components associated with bots, in particular, have been at crux of the attention; we believe, however, that there are still challenges that need to be addressed for chat bots to fulfill the promise of true conversational interfaces. Among the largest obstacles is incorporating contextual understanding to enable a natural conversation--a process that is admittedly very early on.

There is no question that the potential for chat bots to redefine the end-user experience is latent, but it is still early days for actual 'smart' bots. In a sense, their current state can be described as an upgraded interactive voice response that allows for automated service responses before diverting to a live service representative. This in itself represents the beginning of an important innovation for the end-user experience, but we are not yet close to meeting the expectations that chat bots have raised for human-like interactions.

Payment integration brings conversational commerce to the forefront of the bots revolution

One of the areas that stands out as an exception to the 'overhyped and underwhelming' state of chat bots is conversational commerce. We define conversational commerce (/report-long?icid=4023) as a 'digital experience that nurtures relationships across the customer journey, typically using machine learning to trigger contextual responses to a connected device throughout the customer lifecycle.'

The addition of payments to the arsenal of bots development tools effectively enables developers to introduce end-to-end capabilities across the customer lifecycle, spanning impression, conversion and service. Payment acceptance fills a blatant gap that has limited the overall effectiveness of bots as a sales tool. A recent 451 Research study of US e-commerce merchants showed that 61% cite 'improving conversion rates' as a top three challenge this year, underscoring a latent opportunity for bots to capture sales that otherwise may have been abandoned. While the technologies for bots development remain the same, we believe payment integration can help bots evolve from simple marketing and branding mechanisms to tools that convert shoppers into buyers, driving real business outcomes.

What enterprises need to know about bot-enabled conversational commerce

Admittedly, bots still have a long way to go. We expect it will still be several years before AI, machine learning and natural language processing advance to a degree where they enable natural, bidirectional conversations. This, however, does not undermine the relevance that chat bots have in the near future. In fact, there are many value-added use cases that are ready for deployment, and in some instances already deployed. Enterprises can utilize bots to provide faster resolution to client inquiries by automating replies on any of the major messaging platforms or web chat. Similarly, bots can be used to help customers more easily provide information before a customer service representative begins interacting with them. While still powerful, the typical present day chat bot use case remains relatively simplistic and certainly not to the extent of a completely automated and emulated human interaction.

With recent advancements in payment integration, chat bots will be particularly relevant in the near future for conversational commerce. There are several examples of businesses already using chat bots to enhance the user experience, in some cases with payment capability:

* Retail. In September, messaging platform Kik launched a fashion and beauty bot category that seeks to enhance the mobile shopping experience. Brands with chat bots in this category include H&M, Sephora and Victoria's Secret Pink. The chat bots provide shoppers with a customized shopping experience, mimicking a sales clerk providing style tips; they also allow users to complete their purchases online.

* Food service. In April, Taco Bell launched TacoBot on enterprise messaging platform Slack. The chat bot mimics a waiter taking an order and is able to answer questions and recommend items. Users can place an order, pay and pick up their food at any location.

* E-commerce. Amazon became a pioneer for conversational commerce with the launch of the Echo device and voice-activated personal assistant, Alexa, in early 2015. Chat bots are mainly known for working with a text-based user interface, but as we have previously pointed out, (/report-short?entityld=89345) the underlying technologies are the same. The integration between the services that make up Amazon's mobile cloud ecosystem tied into the Amazon Prime service have allowed the company to expand its e-commerce business into the emerging home automation market. 451 Research's Voice of the Connected User Landscape survey shows the early potential for Alexa as a commerce interface, with nearly 20% of leading-indicator respondents who own an Echo having made a purchase on Amazon via Alexa.

Financial services. Slated for launch in Bank of America's app next year, 'Erica' is a bot that leverages predictive analytics and artificial intelligence to provide insight and guidance around personal spending. The bot leverages more of a 'push' approach, in contrast to the 'pull' approach of many bots, offering personalized information and referring products via voice and chat based on individual customers' financial profiles and habits.

Key stakeholders and considerations

While bots remain in a nascent state, their rise at a time when conversational commerce is top of mind for retailers is opportune. Augmented by recent advancements in payment integration, the use cases and implications for bots in conversational commerce are emerging quickly. Below, we scope out the respective positions of the key stakeholders of this opportunity:

Bot framework platforms

Bot framework platforms provide the technology and tools for building and deploying bots for messaging platforms such as Facebook Messenger, Kik, Telegram and Slack. These include well-established companies such as Facebook, Google and Microsoft in addition to emerging vendors such as Chatfuel, Converse.AI, Chyme, Gupshup and Meya. The services provided by these vendors include hosting, testing and databases for storing bots, user and application data, and bot statistics and usage data. Many of them are now expanding their services to enable developers to embed payments into their chat bots. We expect this will become a source of differentiation alongside other features; some vendors will specialize in conversational commerce while others develop capabilities for customer service, enterprise productivity or sales enablement.

Payments vendors

Bots hold great potential for payments intermediaries such as gateways and processors to capture incremental revenue from sales that otherwise may have been abandoned. Similarly, they provide a pertinent and highly visible new channel where digital wallet providers, such as Apple Pay, PayPal and Visa Checkout, can increase acceptance. Early success will be achieved through partnerships and API accessibility. Developer-centric, card-not-present processors such as Stripe have an inherent advantage in that their clean and easy-to-implement processing APIs that can easily be adapted to new interfaces. Stripe has already begun partnering for bot-enabled payments with framework platforms such as Converse.AI and messaging platforms such as Smooch, positioning it as an early frontrunner among its peers. On the digital wallet front, Masterpass (Mastercard) has made early moves to enable purchasing of goods and services from within Facebook Messenger, while PayPal has tapped the platform to enable its merchants to distribute customer notifications such as receipts. We believe the integration of digital wallets will be an important component of any effective conversational commerce experience.

E-commerce platforms

As the providers of the underlying infrastructure for online shopping, e-commerce platforms play an important role in bringing conversational commerce to life. Shopify has been the earliest and arguably most aggressive e-commerce platform to embrace social as a sales tool, having utilized Facebook as a sales channel for several years now. In October, Shopify introduced an end-to-end Messenger shopping experience for merchants on its platform. While not powered by a bot per se, shoppers can browse for products, converse with the merchant and check out natively within Messenger through the use of web views. Large platform providers such as Magento and Salesforce Commerce Cloud (Demandware) have been slower to execute on conversational commerce, although third-party vendors such as BotCommerce have built out basic bot Messenger integrations. With the recent addition of payment capabilities into the bot developers' arsenal, however, we anticipate a renewed bot interest among ecommerce platforms moving into 2017, with M&A activity seemingly inevitable.

Raul Castanon-Martinez, Jordan Mckee (/Analyst team/ analyst/ jordan+mckee)

Raul Castahon-Martinez (/analyst-team/analyst/Raul+Castanon-Martinez) Senior Analyst, Enterprise Mobility Infrastructure & Services Jordan McKee (/analyst-team/analyst/Jordan+McKee) Senior Analyst, Mobile Payments
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Author:Castanon-Martinez, Raul; Mckee, Jordan
Publication:Database and Network Journal
Date:Dec 1, 2016
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