By Dale S. Laszig
Innovations abound in payments, causing continual metamorphosis in our maturing industry. Previously, payment technologies were simple, but the user experience was cumbersome. Today, technologies are more complex, yet the user experience is becoming more simplified. This is the first article in a three-part series in which industry executives chart the evolution of payments, share their transformative journeys, identify successes and failures, and look toward the next big technology trends.
When it comes to tracking new developments, The Electronic Transactions Association has a bird's eye view. The international trade association registered a record number of attendees and exhibitors for Transact 17, which will take place in Las Vegas from May 10 to 12, 2017. Founded in 1990, the ETA was one of the first industry organizations to take major steps to connect the tech and payments spheres.
"At this year's show, we'll see a burst of new energy from our sales channel partners and technology companies that sell services and products to merchants," said Jason Oxman, Chief Executive Officer at ETA. "Twenty-five years ago, it was brick-and-mortar stores and mag-stripe cards. Today it's about solutions, security and new technology."
As he reflected on payments innovation, Oxman said payment technologies come and go, but the industry's focus on commerce enablement remains unwavering. "The technology we deploy to enable commerce has changed significantly, and our industry is changing with it," he said. "We're still the enablers of commerce, adapting our technology in response to consumer demand, and consumers want to engage online, in mobile and in stores."
Oxman said the payments industry is focused on helping merchants to accept the form factors and technologies consumers want to use. For 40 years, it was the plastic card with a stripe. Today, for an increasing number of shoppers, it's wearables, voice-activated commerce and other advanced applications of technology.
"I'm optimistic about new technology," Oxman said. "The fact that we haven't completely replaced the ubiquitous plastic card should not be surprising to anyone. It will take years for mobile wallets to replace stand-alone plastic cards as a primary payment method. Eventually, we'll use payment card accounts as stored credentials in Samsung and Apple mobile wallets."
Payments industry history is replete with examples of wide-scale migrations, from paper to electronic data capture, and from mag-stripe to contact and contactless EMV (Europay, Mastercard and Visa) cards. At each milestone, merchant level salespeople (MLSs) have been the trusted partners who have helped merchants embrace change.
Fintech startups can't develop relationships with 8 million U.S. merchants on their own, Oxman noted. Their only hope is to rely on the merchant sales channel. The ETA facilitates partnerships between fintech companies and U.S. acquirers; the resulting collaborations are devised to produce safe, secure, reliable and easy-to-use payment processing technologies. "As technology companies come into payments, they recognize there is no better way to reach merchants than through the ISOs," he said. "At bottom, they are the merchant sales channel, the best pathway, bar none, to reach merchants."
Some payment veterans recall the first big migration from paper to electronic technologies. Others remember standard-issue directories of fraudulent payment cards. Merchants would thumb through dense columns of tiny numbers to see if the credit card in hand was listed in "the big bad book."
"Payments started out as something you did at the end of a transaction," said Jeff Wakefield, Vice President Americas, Sales Enablement at Verifone Systems Inc. "Before electronic payments, we tried to solve the fraud problem by replacing the giant manuals filled with bad card numbers with electronic machines."
Older terminals had limited capabilities; even multi-application devices were running out of memory, Wakefield said. As Verifone evolved, we knew we needed to adapt quickly to update software and EMV kernels, he added.
It became important to have open machines with rich development environments and the ability to connect when needed to get updates and make changes quickly. Verifone designed Linux-based, open source development kits with built-in hooks to enable a seemingly magical ecommerce experience uninterrupted by manual checkout. Wakefield calls it "making payments go away."
John Leekley, founder and CEO of Atlanta-based RemoteDepositCapture.com, has seen check processing evolve from paper-based systems to complex, electronic platforms. As first generation, single-feed scanners evolved into high-speed, browser-based systems, remote deposit capture (RDC) became a multifaceted e-payment platform. Thin-client solutions replaced CD ROMs, reducing customer acquisition costs and enabling businesses to capture additional information and integrate RDC with QuickBooks, Peachtree and other accounting software.
"Early on, financial institutions were concerned about file size," he said. "They used to say, 'I need x amount of time to transfer an image.' Now it doesn't matter; images are transmitted instantly. The architecture moved to thin-client applications with next to no software installed on a computer."
In 2010, smartphone cameras had more than enough technology to capture check images, creating an inflection point in mobile banking and unlocking new technology for banks. "For consumers, remote deposit capture eliminated a trip to the bank," Leekley said. "For corporations, it accelerated cash flow, automated receivables and mitigated risk."
U.S. financial institutions process approximately 20 billion checks per year, but Leekley expects checks will one day be entirely electronic. RDC has evolved into a payment platform that supports numerous forms of payments, he stated. In addition to changing the payments flow, moving the point of capture and consolidating bank relationships, RDC enables end users to process payments on their schedule, from anywhere. "They're not tied to a banking system," he added. "The power of payments resides with the end user."
"The B2B side of payments is a $36 trillion market that is still paper-bound," said Karla Friede, CEO of Portland, Ore.-based Nvoicepay. "Accounts payable is the last spot to get automation; we try to simplify the process and reduce friction."
Banks offer a big pipe that can impose additional manual effort on businesses, because not all suppliers accept payments in the same way, Friede noted. It's not unusual for a business to have 10,000 suppliers and process 100,000 payments a year, creating numerous payment flows and processes.
Friede stated she would like to see true "epayables" replace traditional purchase card products that are not fully automated and require clients to keep track of numerous suppliers and remittance methods. Nvoicepay works with suppliers on behalf of clients, identifying efficient payment methods, taking calls, tracking invoices in flight and providing technical assistance to reduce error rates.
"No one likes printing checks and walking around getting approvals and signatures, or overnighting documents to signers, stuffing envelopes and putting checks in the mail," Friede said. "The world of AP [accounts payable] is becoming a paperless world, facilitating electronic transactions regardless of location or size."
According to Friede, as AP evolves into a technology platform, it will change the way buyers and suppliers communicate, thus paving the way for dynamic discounts and unique payment types. "Imagine receiving an invoice and confirming you received everything you ordered ‒ in real time," she said. "It will take a while to get to that point."
"Accounts receivables [AR] has been largely overlooked in the corporate sector," said Jeff Althaus, General Manager and Executive Vice President at Flywire. "Flywire saw a need for international payments that flow over bank rails and facilitate local settlement and clearing," he said.
With consumers around the world making large payments from different time zones, the number and frequency of payment-related questions and inquiries can occur at all hours and in a variety of languages, Althaus added. Any entity accepting large, cross-border payments in any volume will need to be able to provide ancillary support services and 24/7 customer support. "For over five years, we've partnered with clients that have a global collection need, removing cost and friction, and localizing banks into payment options convenient to the payer," said Jason Moens, Vice President of Product at Flywire. "Fees, currencies and unpredictable manual reconciliations can slow down receivable cash flow, which can be a challenge for businesses. Hidden fees don't only impact receivers; these costs and fees are felt on both sides."
Moens said Flywire started in the education market, then moved into healthcare. In the process, the company recognized its massive receivables network could facilitate cross-border payments. "Each region presents a different kind of complexity," he said. "Our B2B platform provides payments and receivables, with the identifiers and formats our clients expect ‒ by web, by email and by SMS update."
"Global ecommerce is growing at a dramatic rate, estimated to be worth $1.915 trillion in 2016 and predicted to rise to over $4 trillion by 2020," said Paul Marcantonio, Head of UK and Western Europe at London-based ECommPay. "Consumers who pay in multiple currencies and various payment methods expect instant gratification."
As consumers adopt digital, online and smart payments, this heightened demand puts additional pressure on merchants to provide an efficient, streamlined and frictionless payments process, Marcantonio said. "It has been suggested that the best type of payment process is one that you do not realize is actually there," he added. "Once the initial verification has been handled, the rest should be very light-touch with all of the magic happening behind the scenes."
Marcantonio said automation is a critical factor in compliance, especially when dealing with payment regulations and taxes across multiple geographical territories. A streamlined payments ecosystem is only as good as its ability to safely convert online transactions, and inefficient compliance processes can distract and ultimately interrupt the all-important checkout process.
It is critical to comply with local payment regulations and automate sales tax reconciliation across multiple geographies to ensure that only the right transactions make it through the process, while also unburdening merchants and increasing customer conversion rates, Marcantonio noted.
Streamlining and speeding up payments is the way our industry is heading, but humans must set the parameters for automation, Marcantonio stated, adding that we must not overlook the importance of human interaction that reassures consumers their transactions are being handled safely and securely. "If everything becomes too automated and easy, might it make us lazy or less diligent?" he said. "That's certainly food for thought."
Michael Misasi, Product Manager at Boston-based BlueSnap Inc., has seen merchants spend a fortune optimizing their websites with flashy photos, descriptions, reviews and inbound marketing, all of which is aimed at helping their customers get to know them as a company. None of that will matter if they aren't prepared to accept a customer's preferred form of payment, gift wallet or reward program, he said. "Consumers from China who try to buy from a U.S. website are accustomed to a different commerce flow," he added. "If they are required to type their credit card information on a mobile phone, they may leave the website."
Shopping cart abandonment continues to be an issue for retailers, Misasi noted, adding that people say they'll come back, but they never do. One barrier to ecommerce and mobile commerce is that customers are not comfortable typing in their credit card numbers, but if the numbers are protected by a smartphone's secure element, consumers will tend to be more comfortable, he said. For example, Uber and Lyft provide a frictionless payment experience delivered entirely through the phone. Riders leave the car without thinking about paying.
Companies like BlueSnap help merchants make sense of the expanding world of mobile wallets by explaining how each technology works, its addressable audience, its impact on conversion rates and how it can be integrated into an online portal.
Misasi said cooperation between providers offering such programs as Visa Checkout and Android Pay will simplify integration and create consistent branding. He believes that when Visa Checkout supports lesser-known wallets, it will help drive consumer adoption.
Misasi also predicted the future will be more about software and less about hardware, as payments become embedded into systems merchants use to run their businesses. Every business has a software program that is more important than its processing technology. "Biometrics will be the next big thing," he said. "There's no reason for shoppers to use a keyboard or type on tiny little keys."
Part 2 of this series will explore how device manufacturers and technology providers have transformed their offerings from payment-centric solutions to holistic, interoperable platforms.
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