Tuesday Nov 04, 2014

The Payment Experience

I've used Softcard (fka Isis) before, and it works just fine.  But ApplePay is a much faster experience, taking just two steps instead of four or five.  I've not used CurrentC yet since its still in pilot, but I understand its similar to the Starbucks approach, taking at least three steps.  But these companies have different goals for their mobile payment platforms, and thus have different experiences.

I believe Softcard's goal is to profit from offers made via their application. Not only do they handle payment, but they also link consumers to coupons and deals from retailers.  This helps retailers drive demand, and helps consumers save money.  This means the experience must appeal to both retailers and consumers.

ApplePay, on the other hand, does not address coupons and offers.  Its experience is streamlined to appeal to consumers, with little regard to the needs of retailers (although "fast" probably appeals to both parties).  While the banks are currently covering Apple's fees, those fees may eventually be added to existing card fees that retailers pay.  This is why retailers are less excited about ApplePay.

And that's where MCX enters the picture.  Members are refusing to accept ApplePay in the hopes that CurrentC will eventually take off.  CurrentC's goal is, first and foremost, to minimize card fees.  Their second goal is to support the retailer's marketing activities with coupons, offers, and loyalty programs.

Then there are lots of other emerging payment methods popping up everywhere.  The latest is MasterCard's trial with the Nymi wristband.  I mentioned the ApplePay two-step which is "tap and touch."  What if you could drop the second step?  This wristband uses heartbeat authentication instead of a fingerprint, so you can simply tap to pay.  I guess I'll have to trust the science on that one.  If it works, I'm guessing the technology will go into smartwatches.

Of course none of these approaches really changes anything for online purchases, which have been the same payment experience since the start. What concerns me is that as we tighten security in stores, fraud is just going to move online.  (Reminds me of treating my yard for fire ants only to have my neighbors complain about the sudden ant problem.)  I guess we'll cross that bridge next year.


Monday May 26, 2014

Why Haven’t NFC Payments Taken Off?

With the EMV 2015 milestone approaching rapidly, there’s been renewed interest in smartcards, those credit cards with an embedded computer chip.  Back in 1996 I was working for a vendor helping Visa introduce a stored-value smartcard to the US.  Visa Cash was debuted at the 1996 Olympics in Atlanta, and I firmly believed it was the beginning of a cashless society.  (I later worked on MasterCard’s system called Mondex, from the UK, which debuted the following year in Manhattan).

But since you don’t have a Visa Cash card in your wallet, it’s obvious the project never took off.  It was convenient for consumers, faster for merchants, and more cost-effective for banks, so why did it fail?  All emerging payment systems suffer from the chicken-and-egg dilemma.  Consumers won’t carry the cards if few merchants accept them, and merchants won’t install the terminals if few consumers have cards.

Today’s emerging payment providers are in a similar pickle.  There has to be enough value for all three constituents – consumers, merchants, banks – to change the status quo.  And it’s not enough to exceed the value, it’s got to be a leap in value, because people generally resist change.  ATMs and transit cards are great examples of this, and airline kiosks and self-checkout systems are to a lesser extent.

Although Google Wallet and ISIS, the two leading NFC payment platforms in the US, have shown strong commitment, there’s been very little traction.  Yes, I can load my credit card number into my phone then tap to pay, but what was the incremental value over swiping my old card?  For it to be a leap in value, it has to offer more than just payment, which I can do very easily today.  The other two ingredients are thought to be loyalty programs and digital coupons, but neither Google nor ISIS really did them well.

Of course a large portion of the mobile phone market doesn’t even support NFC thanks to Apple, and since it’s not in their best interest that situation is unlikely to change.  Another issue is getting access to the “secure element,” the chip inside the phone where accounts numbers can be held securely.  Telco providers and handset manufacturers own that area, and they’re not willing to share with banks.  (Host Card Emulation, which has been endorsed by MasterCard and Visa, might be a solution.)

Square recently gave up on its wallet, and MCX (the group of retailers trying to create a mobile payment platform) is very slow out of the gate.  That leaves PayPal and a slew of smaller companies trying to introduce easier ways to pay.

But is it really so cumbersome to carry and swipe (soon to insert) a credit card?  Aren’t there more important problems to solve in the retail customer experience?  Maybe Apple will come up with some novel way to use iBeacons and fingerprint identification to make payments, but for now I think we need to focus on upgrading to Chip-and-PIN and tightening security.  In the meantime, NFC payments will continue to struggle.

Monday Mar 03, 2014

Two Really Cool Approaches to Payment

As if the oodles of emerging payment schemes weren't enough, two more approaches have arrived on scene.  Aside from enabling your phone to make payments, they are very unique and well worth some consideration.  The first solution is called LoopPay, and its creators claim it works on 90% of existing payment terminals without any new hardware.  Install the wallet on your phone and plug-in either the fob or charge case, then tap on any existing payment terminal to pay using your credit or debit card.  Now think about that.  How's it done?

No, they're not using NFC or bluetooth to communicate with the terminal.  That would involve additional or updated hardware, and I said this works with existing terminals.  Are they using sound like ShopKick?  Nope.  QRcodes?  Good guess, but no.  Think about it from the terminal's perspective.  The only way to enter card data is the keyboard or the magstripe.  Wait for it.  Yes, the phone via the fob emits a magnetic field that contains the track data.  Its pushing the track data into the magstripe head of the terminal.  From the terminal's perspective, we have a traditional, card-present transaction.

Here's the rub: like I said, it only works on 90% of the terminals, and in real-world tests maybe even less.  Its a tough sell for banks and retailers to say "works most of the time" to their customers.  Obviously there are security concerns as well, but I'm assuming they are able to vary the track data just as EMV would, so its at least as secure...maybe.  But then again, I'm still not convinced that tapping my phone is any more efficient than swiping inserting my card.

The second approach is a bit more traditional.  If you'll recall, Google Wallet only worked on certain phones when it was first released.  iPhones were out because they don't support NFC, and only select carriers were supported with Android.  That's because the wallet made use of the secure element, a place were crypto algorithms are run and data can be secured.  The secure element can be built into the phone, but most of the time its in the SIM chip that's owned by the telcos.  And as Google found out, if the telcos don't allow access to the secure element, you can't do NFC payment.

That's where SimplyTapp enters the scene.  They're advancing Host Card Emulation (HCE), a method by which you can do NFC payments using a secure element that resides in the cloud instead of the phone.  Android has included HCE in their latest version, KitKat, so now all NFC-capable phones are ready for NFC payments.  The big news here is that banks are now free to create payment schemes without getting approval from the telcos.  Both MasterCard and Visa recently endorsed HCE so I'd expect existing banking applications to begin adding the ability to pay soon.

So where does that leave us?  The telcos continue to want a piece of mobile payments via Isis; Google gets access to more handsets; banks are well positioned to support their own mobile payments; MCX continues to focus on reducing merchant fees; and Apple is the wildcard.

Wednesday Feb 12, 2014

Push Payments for MCX

Today MCX announced its adding Paydiant's cloud-based payment technology to its platform.  Recall that MCX was formed by several leading retailers to build new payment technologies.  Although not overtly stated, they are clearly trying to bypass the fees charged by the credit and debit networks for processing payments.  These fees are quite significant.  For example, the NACS estimates that in 2007 the 146,000 convenience stores in the US paid $7.6B in credit card fees while generating $3.4B in profits.  Granted, credit cards have several benefits for merchants such as speedier checkout and elimination of cash handling, but those fees seem very out-of-line.

So how does Paydiant help retailers avoid fees?  They are taking a "push payment" approach that turns payments upside-down.  Typically the consumer hands over their account number to the merchant so that the merchant can extract the appropriate funds for the purchase.  That account number can be a checking account, debit card, credit card, etc.  The merchant hands off to the acquirer (the merchant's bank) which sends the data through one of several payment networks (like VisaNet) to reach the issuing bank (banks that issued the account) where the transaction is approved or denied.  And of course everybody gets a cut along the way.

The push model instead has the merchant give the consumer their account number so the consumer can "push" their money into the merchant's account.  When the merchant sees the money in their account, they release the product.  By skipping the acquirer and network and going directly to the issuer, most of the fees are avoided.  This method has the added advantage of better security because the consumer never exposes their account information.  Think about that.  Plus, this approach works fine with the existing POS.

The trick here is getting the merchant's account number to the consumer.  Paydiant does that by displaying a QR code at the POS that represents both the merchant's account and the transaction amount.  The consumer must use their mobile phone running the white-label Paydiant application to capture that data and process the transaction.  The request goes into the cloud, and the authorization is sent to the POS where the merchant is informed of successful payment.

Snapping a picture of a QR code at the checkout isn't exactly the most natural thing.  Using NFC or Bluetooth would certainly be preferable, but I assume that's a follow-up innovation.  Now that brings the customer experience into focus.  Thus far we've seen the huge benefits to the retailer, but what does the consumer get out of this?  Well, nothing.  In fact, this payment process seems more complex than swipe-and-sign.  Perhaps those consumers worried about privacy will love this approach, but most people appreciate the simplicity of a swipe.  (I still use a paper boarding pass at the airport even though I can get my boarding pass on my phone.  Less can go wrong with paper.)

Payment is a really tough area to win because all the different constituents have to buy-in.  Merchants wants low fees; Banks want low fraud; Consumers want convenience.  It sounds easy, but its far from it.

Tuesday Jan 22, 2013

Picking a Winner for Payments

Probably the most common question I get asked is, "which emerging payment system is best?"  Its a good question, and unfortunately, my crystal ball is a bit cloudy.  Remember, it took credit cards a while before they got traction.  Some of the same things I hear today ("we don't need a new payment scheme," and "it compromises my privacy") I'm hearing in reference to emerging payments.  And just as those complaints eventually quieted, the same thing will happen and people will adopt new ways of paying.  One thing I can say confidently is that the payment landscape will change over the next 3-5 years.

Is NFC dead on arrival? No. I'm not going to count Google, AT&T, Verizon, T-Mobile, and MasterCard out this early in the game. They are behind thanks to a lack of NFC support in iPhones, but they are still viable solutions.  With retailers needing to upgrade their POS terminals to accept EMV cards, now is a great time to also install NFC capabilities.  Once there are more NFC readers out there, more and more innovation will occur around them.

PayPal is definitely in the lead since they are able to leverage their e-commerce base of users.  Their lack of reliance on NFC has worked in their favor, at least in the short-term.  Of course if NFC takes off, I'm sure PayPal can add that technology as well.  Their flexibility and reach are strong points.

Google and Isis have great systems, but since they are limited to Android devices they are not serving enough of the market.  That, of course, will improve over time. While all three (Google, Isis, PayPal) are addressing consumer convenience, none are really addressing transaction costs for merchants.  That's where MCX, the retailer led mobile wallet, could shine. Since they are not on the forefront, they have the luxury of watching the market and picking the best ideas.

At the recent NRF conference, MCX representatives said they are planning to use barcodes for payments in order to support all mobile phones.  They are also focused on lowering transaction costs for merchants as well as protecting customer data, something that differentiates them.  The approach sounds right, but they are far behind in development unless they acquire or partner to gain access to an existing wallet.  Best potential of all the solutions, but furthest behind.

I suppose I could put all my retirement savings into one stock, but I'd rather spread the risk across many.  By the same token, there's no reason for retailers to pick winners at this early stage.  The best advice is to get into the game and try supporting one of the new wallets. In many cases, there's funding available to help offset costs.  This invaluable experience will prepare you to take advantage when winners are more apparent.

About


David Dorf, Sr Director Technology Strategy for Oracle Retail, shares news and ideas about the retail industry with a focus on innovation and emerging technologies.


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