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The Green SheetGreen Sheet

The Green Sheet Online Edition

August 28, 2023 • Issue 23:08:02

Payments, a retrospective:
The extraordinary life of a payment transaction – Origins

By Dale S. Laszig

The Green Sheet Inc. and payment transactions have followed similar paths, from paper-based transactions to multichannel, digital communications. Today’s hybrid online and offline environments have spawned new payment methods, transforming refrigerators, garage doors and cars into sentient devices that monitor human activity, anticipate needs, communicate and transact.

The Internet of Things (IoT) is one example of how advanced technologies can transmute button clicks into continuous interactions with richly layered data points that populate buying histories, preferred payment methods and predictive analytics.

As security analysts and payments experts have noted, these data points can live on indefinitely, which makes protecting personal data, buying histories and digital identities a critical necessity.

As part of our retrospective series, this article explores the extraordinary life of a payment transaction, as experts compare early prototypes with today’s digital-first commerce. The journey will continue in future installments focused on identity and data protection strategies, past and present.

Analog to digital

Ruston Miles, founder and CEO of Payfactory, suggested the modern electronic transaction is a product of its environment, which has progressed from card-present to virtual, mobile and multichannel commerce.

"Payment transactions have evolved tremendously over the last several years," he said. "We were already well on our way to more digital payments, like ecommerce and mobile, but the arrival of COVID and stay-at-home orders greatly accelerated the usage of both non-POS channels and alternative payments to credit cards and debit cards, such as P2P services like Venmo and Zelle, as well as buy now, pay later apps."

Moving forward, Miles predicted consumers will require a blending of all payment channels into a seamless buyer journey. This will entail POS interacting with online, which will interact with mobile, to create a truly omnichannel experience, he stated. The transaction types will also need to easily flow through the different processors and acquirers a merchant may have, he added, giving everyone in the payment chain the ability to accept and process all types of payments to facilitate the most ideal customer experience and to remain competitive. 

Partners, platforms

Peter Karpas, CEO of Bold Commerce, pointed out that digital wallets and payment platforms have changed merchant/acquirer relationships and subsequently, the payment transaction journey. "The rise of wallet pays and platforms has had significant impacts on payments over several decades," he said. "PayPal was a wallet 20 or 30 years ago, but consider today's button war, and the huge transaction volumes flowing through these wallets, that disintermediate who owns the customer as third party service providers get between processors and merchants."

Karpas noted that consumers pre-fill digital wallets with account information and payment preferences; and the first checkout button they see could be PayPal, Apple Pay, Google Pay, or Amazon Pay, followed by a second button, which could be buy, now pay later; and through it all, the card brands strive to remain top of wallet across all these different sites.

Disintermediation changes the face of commerce, Karpas stated. He noted, for example, that merchants may say, "I use Clover for payments," unaware that Fiserv is on their back end, and ecommerce merchants using Big Commerce, Oracle Commerce Cloud, Salesforce or Adobe may know a third-party service between their platforms and customers but not their payment company.


Miles agreed modern payments must flow through several parties to be accepted, processed, settled and funded back to the merchant, citing key players as the merchant, payment gateway and third-party vendors that facilitate payments for the gateway, a back-end acquiring bank, issuing bank and depository bank. 

"The lack of interoperability among the parties creates switching costs, road map impacts and execution risk," he said, emphasizing that open architecture is crucial to solving this and that modular payments—systems that can seamlessly work with the platforms of gateways and acquirers without significant coding and development—are key to the future of payments.

Looking ahead, Miles sees the industry moving away from walled gardens to a more plug-and-play model, with merchants freely orchestrating compatible providers that work together to facilitate a frictionless payment experience.

"Interoperability and modularity are key to improving the transaction journey," he said. "We need to make it easier, as a payments industry, for merchants to plug in solutions to their existing infrastructure easily and quickly. So much of a developer's time, whether as an ISV or a gateway, can be spent on integrating existing infrastructure to new infrastructure."

Top 10 trends

Bart Kohler, ETA CPP, chief sales officer and senior vice president of merchant products and services at Paynuity, noted that electronic transactions have branched into myriad forms. "We have witnessed these technological developments become commonly practiced and implemented," he said, citing the following top ten developments:

  1. Digital wallets: Apple Pay, Google Pay, Samsung Pay and other apps facilitate convenient, secure, contactless smartphone payments, with biometrics like facial recognition and fingerprints enhancing security.
  2. Near Field Communication (NFC): NFC enables users to make payments by simply tapping NFC-enabled cards or devices on payment terminals, creating agile, seamless EMV transactions.
  3. Touchless commerce: Contactless payments are gaining widespread acceptance as numerous countries raise transaction limits, further promoting this convenient, hygienic payment method.
  4. Peer-to-peer payments (P2P): Popular P2P platforms like Venmo, PayPal and Zelle allow users to send money to friends or family, split bills, and repay loans with just a few taps.
  5. Distributed ledger technology: Unlike traditional centralized databases in a fixed location, distributed ledgers, such as blockchain and cryptocurrency, exist in multiple locations, eliminating third-party intermediaries and establishing secure, transparent, immutable records. financial intermediaries and aids in developing the digital economy.
  6. Fraud prevention: Biometrics and other secure authentication methods enhance payment security, protecting against card-not-present fraud and reducing reliance on passwords.
  7. QR code payments: Customers scan a QR code with a smartphone to initiate payment, enabling merchants to accept digital payments without using a traditional POS terminal.
  8. Internet of Things (IoT): Wearables and voice-assisted microphones and other IoT-powered devices enable users to transact with simple gestures and voice commands.
  9. Ecommerce: Integrated payment gateways, secure checkout procedures and virtual wallets are essential components of the omnichannel, digital-first shopping experience.
  10. Embedded payments: Popularized by Lyft, Grubhub and other non-financial companies, embedded or invisible payments integrate digital commerce into their offerings, making transactions smoother and more convenient for everyone involved.

These various payment methods collectively shape the world's economy, offering convenience, speed, security, and flexibility to consumers and businesses alike, Kohler noted.

"Technological advancements have revolutionized how we transact and will likely continue to shape the future of payments," he said. "Let's face it, electronic commerce is the spine of the global economy that ties us all together, making resources and trade possible."

Next-gen checkout

Karpas pointed out that merchants want to personalize the entire customer journey, from an initial product inquiry on a search engine or a website, through product comparison, to buying decision. However, as Bold Commerce researchers have noted, a subpar checkout experience can kill a sale.

The Bold Commerce 2023 Omnichannel Personalization Index found 65 percent of shoppers surveyed were dissatisfied with checkout recommendations, 45 percent expressed frustration with inconsistent offers, and 35 percent were dissatisfied with speed of service and post-purchase issue resolution.

Rather than focus exclusively on conversion or speed to reduce cart abandonment, Karpas advised merchants to follow the money by upselling and cross-selling to enhance checkout optionality, which he believes is critical to growth.

"Third-generation checkout is all about tailored checkout," Karpas said. "It introduces the checkout power trio: conversion, average order value and lifetime value. Turn one of these interconnected dials and it impacts the other two."

Improving conversion

Philip McHugh, executive director at FlexCharge, urged payments industry stakeholders to tackle declined transactions, a leading cause of shopping cart abandonment.

"All of the big trends mentioned above—online channels, more payment choice and security-based solutions—are all part of an ever improving transaction journey," he said. "Regardless, acceptance rates continue to be a challenge with merchants losing anywhere from 5 to 40 percent of their sales due to declines."

McHugh mentioned a number of variables can impact transaction declines, such as fraud concerns, merchant risk profiles or just inefficiency in the ecosystem, and there is no single silver bullet for solving this issue. Merchants, he said, need to evaluate payment performance and consider investing in solutions designed to mitigate chargebacks and improve transaction acceptance rates to make digital commerce smoother and more efficient for everyone.

"The bar for winning business in ecommerce has never been higher," he said. "Top players have to be local and global, with easy and effective integration capabilities and strong but cost-effective controls on fraud and losses. Above all, they need to perform, which means they need high acceptance rates."

The journey will continue in future installments focused on identity and data protection strategies, past and present. end of article

Dale S. Laszig, senior staff writer at The Green Sheet and founder and CEO at DSL Direct LLC, is a payments industry journalist and content strategist. Connect via email dale@dsldirectllc.com, LinkedIn www.linkedin.com/in/dalelaszig/ and Twitter https://twitter.com/DSLdirect

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