Commerce trends are
the primary drivers of innovation in retail payment.
Folks it has been several weeks
since my last post, and I continue to learn a lot about the evolution of
payment industry. Last few weeks I was fortunate to be a part of AFP Conference
(Association of Financial Professionals) in Washington DC and Money 20/20 in
Las Vegas. It was simply amazing to meet many professionals, evangelists and
silicon valley disruptors, all working to make Mobile Payments – safe, cheap
and relevant to the times we live in. I
got to speak at AFP Conference on the technology trends that impact Payment
industry. At Money 20/20 I got to meet many Mobile Payment Players – old and
New, with many new value proposition around Bitcoin, P2P payments and retail
payments. I was refreshingly surprised to see interest around Bitcoins, cyber currency
and Block chain technology with a large participation from startups and
established players in the Bitcoin network, exchanges and consortiums. I am personally
very interested in Bitcoin technology and the network while still a skeptic
around the currency itself.
So while a
lot is going on in the payment world, in this weeks post I would like to focus
on retail payment trends as we approach the biggest shopping event of the year
– Turkey Day shopping or Black Friday. I
find these noteworthy shopping events interesting as they not only set the
trend but also set the tone of what is to come in future. I firmly believe that
it is these commerce trends that are primary drivers of the innovation in
retail payment industry. I have listed a few anecdotal evidence below as news
worthy announcements. These and many such trends indicate that the focus is
shifting from the issuers, rewards and payment network to the end consumer and
merchants. The biggest of all is the emergence of “Contextual Payment” which is
driving the dynamicity around retail payments technologies and systems. For a
consumer it is the device, location services and mobile Wallet or a payment
instrument. For enterprises such as retailers, Banks or a Merchant, the story
is not that simple. The growing
diversity of payment acceptance such as in-store, in-App, online, social media,
cyber currency puts the focus back to consumer that choose a certain way to buy
and pay and merchants that support technology for an Omni channel payment
experience.
This weeks blog posts I will attempt to
discuss my hypothesis that Commerce trends are the primary drivers of
innovation in retail payment, by discussing the e/m –commerce trends,
technological evolution and it’s impact
on retail, banking and payment industry. My goal is to discuss the inflection point that described
the intersection of retail industry and
payment industry.
Here are a few news
worthy announcements:
1.
Beating
the numbers - Alibaba announced that total sales on
Singles’ Day — China’s largest online shopping festival — reached a record $9.3
billion, And Alipay, its Paypal-like affiliate, saw the volume of payments
processed increase by 60 percent to reach $5.8 billion
across the entire day.
2.
mPayment
as a Value Add Service for Merchants : Square Register - cloud-based
point-of-sale tool to track sales, and manage items and inventory. This
point-of-sale software will be soon available to businesses worldwide
3.
Mobile
Shopping and mCommerce: According to IBM Digital Analytics
Benchmark hub predictions, more than half of all online shopping on
Thanksgiving, roughly 53 percent will come from a mobile device, up 23 percent
year-over-year. Mobile sales are also expected to grow, reaching 28 percent of
all Thanksgiving online sales, an increase of more than 9 percent over 2013.
4.
mWallet
Wars - Google is to give away $100,000 to
users of its mobile wallet who recruit a friend to the platform, as it prepares
to do battle with Apple Pay and Softcard for market share over the
all-important US holiday season.
5.
Competitive
pressures and Coupon Fraud –
Fake Amazon pages created by consumers to get cheap electronics at Walmart, due
to Walmarts price match policy.
6.
Bitcoin
is gaining momentum - PayPal can now easily start accepting
payments from customers that use Bitcoin - entering the world of cyber/digital
currency. And joining the likes of Amazon, Overstock and Tiger Direct to name a
few.
Role on Mobile Wallet
and battle for Mobile Payments
ApplePay has certainly been
the focus of conversation around important of a slick payment instrument. AppplePay
has been a stunning success and has certainly
stirred up the mobile wallet wars. And
while we all understand the concept of Mobile wallet, this concept that is
simple for the consumer can get quite complicated for industries such as retail
and banking. The notion of digital wallet is very confusing. The market of
digital wallets is fragmented and changing rapidly. The innovations to the
likes of Google wallet, Square, and PayPal to name a few have truly disrupted
the traditional payment schemes such as cash or bankcards. This led to digital wallet frenzy where every
bank, including payment processors such as a Visa and MasterCard has launched
their own version of Digital or Mobile Wallet. So which is an Ideal
Mobile/Digital wallet? The Answer happens to be in our own wallet. An ideal
wallet should be
a. Customizable
– Like our own wallets
b. Does
more than Pay (such as a Person to person, like cash, and have the ability to store other credit or
cash instruments)
c. Work
Anywhere (open frameworks technology implied),
d. Inclusive
of rewards management – either links the apps, or drive the reward
management from the back end systems
e. Simple,
Secure and Easy to use – Simple and easy to encourage
adoption, Secure to institute trust.
Key Battleground for
mobile Payments include:
1.
Proximity
Technology – With ApplePay endorsing NFC technology, there still remain a
competing battle for other technologies that include QR Code, Bluetooth Low
Energy (BLE) and Option for in-App purchases.
2.
POS
Support – The question for POS vendors is not just survival but reaction
of modular system that can evolve with
the Mobile proximity payment options. One school of though suggests using the
same technology that is in hands of the consumer i.e Mobile devices, such as
use of Tablets as a POS option.
3.
Payment
credential Storage or mIdentity –
This includes the security or identity technology. For instance ApplePay
has a secure element that stores a
payment token issues by a bank or a network, Google or Android has a HCE or
Host Card emulation alternative. Other competing technologies include SIM Based, MicroSD etc. The idea is to ensure
that the payment identity is secured either locally on the device or in the
cloud and is unlocked with various 2nd factor authentication
mechanisms.
4.
Payment
Account - This is where things get interesting
as the battle for the “Account of choice” ensues. This includes credit cards, open and closed
loop accounts, loyalty accounts, Mobile network provider accounts etc. The goal
of the every player in payment value chain is to maximize benefits fir themselves and the end users.
5.
Interface
and Interaction technologies – These sets of technologies sets the focus on
the consumer, where the interface or Interaction(in case of wearable) will set
the tone on usage and popularity. Easier to use payment instrument with implied
security tends to win the mindset and ecosystem share. ApplePay is a good example of simplified security and ease
of use.
Conclusion:
Mobile
Payment and payment related technology landscape is in constant state of flux.
Over past several years’ number of innovations in retail payments have emerged
and continue to evolve. These innovating that affect the retail and banking
industry along with the retail payment industry. The core objective of any
players in this ecosystem is to influence the users in choosing the payment
instrument and by shaping the payment experience with comfort of ease of use, assurance of
secure identity and transaction and lures of offers and loyalty. While e/mCommerce trends are the primary
drivers of innovation in retail payment, the focus is primarily driven by convenience,
experience and speed of the payment processing. There are a few imperatives
that can be concluded with the emerging payments trends, some of them are:
a.
Only a
handful of payment innovations thus far have had an impact of the payment
industry. ( NFC for instance with ApplePay and Android HCE)
b.
Many technological option piggy back on the exiting retail payment systems ( most proximity
payments rely on credit/debit rails)
c.
While most innovations have a potential for
a global reach, there is an emergence of regional payment options that dominate the regional market. (
Proximity payments in developed economy and Mobile Money ( like mPesa) in
emerging economies)
d.
Continued focus on speed of payment processing,
this manifest itself in form of faster settlement or faster payment
initialization. ( e.g. Stand-in services by PayPal, or batched approval for
micro payments such as bPay)
e.
While developed economies focus on speed,
engagement experience and contextual value add services, the emerging economies
see financial inclusion as a primary driven in development
and evolution of regional payment blocks. (BKash, Tigo, mPesa etc. are examples
that has enabled opportunities for financial participation in untapped markets)
f.
New entrants
and lowering the barriers to entry into payment ecosystem. The markets dominated by Banks, payment
processors and payment Networks; see a flood of new entrants. These new entrants
such as Dwolla, Ripple, Boku, Zong etc. not only provide technology innovation
for low cost of transaction, faster processing, settlement etc., but also
provide a competitive landscape to the seasoned players with long history and
maturity in payment business.
And more…
References and
Interesting reads:
