Online retail payments trends: What the future holds

By: Ralf Gladis

With the speed at which technology is advancing, and online retail is changing, you may be wondering: what’s next for payments?

You’ll be pleased to know that payment innovation doesn’t always mean new tech.

This article will look at past, present and future of payments and how online retailers can stay ahead of the curve.

Online retail payments

Money. Some say it is the root of all evil, others say riches bring them happiness.  Either way, it is essential for all commerce.  Up until recently, it would have been reasonable to say that money had not changed much since its first incarnation 2,700 years ago. Cash reigned.

Even more recently, as card payments were introduced in the eighties, plastic was used for domestic, rather than international commerce.  Only in the last two decades or so have we seen those technological developments which have made global markets available to those with secure international payment facilities.

The rise and fall of payment innovations

The key driver of changes in payments has undoubtedly been technology fuelled by a desire for convenience. Avoiding the effort and cost involved with handling cash has driven the global success of credit and debit cards ever since the first Diners Club cards in 1950.  Plastic cards, however, do not provide the convenience desired within the digital age.

Wallets - PayPal, founded in 1998, fast became a success and has grown from strength to strength, requiring only an email address and a password once verification was initially made. Convenience was the driver, leading to PayPal’s global success, soon followed by dozens of alternative payment methods in Europe and China.

SET - Security and trust have proved to be the greatest challenges faced.  Visa and MasterCard tried to bridge a lack of trust and security by introducing a security standard called Secure Electronic Transaction (SET).  However it was too complicated, banks failed to provide SET certificates and consumers didn’t install the software.

EMV Standard - For bricks-and-mortar business, the chip-based EMV standard has contributed significantly to both the security and flexibility of payments. Introduced in Europe in the 90s, the chip not only protects card details, it can also be used for additional services like ticketing or other applications. Together with EMV, Near Field Communication (NFC), both have a positive impact on the convenience of in-store payments.

Tokenization - The most significant milestone for online businesses however has been tokenization. Replacing plain credit card numbers vastly improved security for consumers and allowed merchants to provide convenience through one-click-payments. Given the dominance of card payments globally, so far tokenization has been a huge improvement for hundreds of thousands of merchants and billions of payment transactions. Today, Apple Pay still relies on the concept of tokenization.

But…

Innovation doesn’t always mean cutting-edge technology.

Innovation in payments today

The first iPhone was innovative however the technology wasn’t new. People already used mobile phones, MP3 players, e-mail and the Internet. However, the combination of all that in one single device was an innovation that changed our world significantly because it served our need for communication and convenience.

Innovation in payments doesn't necessarily need new technology, however, it has to serve the consumer’s convenience in omnichannel environments.

In China, Alipay is both innovative and successful with its mobile wallet that supports QR code payments at the POS, facial and pattern recognition and even Virtual Reality (VR). Also in China, WeChat combines a payment service with its mobile and social platform that makes it easy to pay for anything on a smartphone. That’s innovative, convenient and therefore very successful.

Image source: moneycrashers.com

However, payments innovation today also faces challenges.  At a time when merchants implement omnichannel strategies to provide a standardised user experience, the payment industry lacks a suitable choice of omnichannel payment methods.

Cards are both truly omnichannel and global solutions, but they are not yet convenient for online and mobile payments. PayPal has also failed to provide omnichannel capabilities. Only few payment methods can really cover all sales channels with a positive consumer experience.

There is also a lack of diversity in global payments. Merchants have to use different POS terminals for branches in different countries. They have to implement different payment methods in nearly every country. And merchants receive money and financial data from different sources in order to automate accounting. To integrate all of this requires extensive efforts from IT teams. Settlement technologies are as important - if not more important - than payment technologies.

Then there’s the question of security, trust and authentication. Every data breach, every stolen card and every account take-over is another blow for consumer trust. One technology, however, is capable of providing both security and convenience: biometric authentication. Fingerprint and voice recognition provide better security than user names with complex passwords. It is also more convenient to put a finger on a sensor and say a few words.

So:

What does the future look like?

The future of payments

The Internet of Things (IoT) is fast becoming a reality around the world. Small and large devices will process payments for us. Our cars will automatically pay for fuel and parking fees, our smartwatches will pay for taxis and our smartphones will prove to be a universal tool to buy and pay everywhere.

With that scenario in mind payment will have to become a silent, smooth and automatic process. Only payment methods that support silent, smooth and automatic procedures will have a future. We need established payment brands that consumers already trust. How do you want your car to pay for fuel? Credit card, PayPal or your company’s fleet card?

Handing that process over to our devices will be a big change in consumer behaviour. New payment brands with no history or trust would keep consumers from embracing new technology and would slow the process down. Established brands will probably make the decision easier.

Another reason to stick with current payment schemes like cards, e-wallets and bank transfers is technology. Automatic processing requires many features that only a few payment systems support.

Credit cards and e-wallets are most flexible and powerful. Merchants can first reserve a certain amount of money on a card – that’s called authorisation- and if necessary that authorisation can be increased.

For instance, if a hotel guest decides to keep his room another day or if a merchant could only deliver its goods with partial deliveries, credit cards and some e-wallets allow partial captures of the money. That’s the moment when money flows from consumers to the merchant. In the case of returns, partial refunds are another important feature.

Doing all of this automatically, worldwide and on all sales channels, is a tough requirement that very few payment schemes currently support.

Conclusion

In order to thrive, online retail and the payment industry needs to enhance current payment methods rather than inventing new ones. Apple Pay, Samsung Pay and Android Pay are all examples of how to build a better service with cards as an existing payment scheme. I am confident that most of today’s large payment schemes will prevail, while many new schemes won’t. However, only time will tell and, of course, I’ll be watching carefully.

 

By: Ralf Gladis, CEO, Computop

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