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 Aug 22, 2012

Payments, Payments Everywhere

In order to sell a new product, you have to solve a problem.  Emerging payment methods, by themselves, aren't really solving any problem.  What's the pain point? Credit and debit cards work just fine (although EMV certainly helps reduce fraud, and retailers would love lower rates). Yet over the last couple months there seems to be a new announcement in this area every week, and they get lots of attention.  As Rick Oglesby, a senior analyst with research firm Aite Group LLC., puts it, "This is not about payments -- it's about something bigger."

At stake is the relationship between the consumer and retailers, banks, CPG companies, telcos, and card brands.  Steve Ranger over at CNET put it best when he said, "Right now, the mobile payments market reminds me a lot of the old cartoon show Wacky Races."  I've described some of these solutions in past postings, but for a quick summary refer to Paula Rosemblum's recent posting.

Payments are table stakes.  The jewel is the digital wallet, which typically contains value-added services beyond the payment itself. For a consumer it might be nice to put all her cards "in" her mobile phone, but its when loyalty cards, coupons, and offers are added that things get interesting.  For a retailer, its all about two things: lowering fees and bettering the customer experience.

PayPal and Square are injecting much needed competition into the payment space, which in turn may lead to lower fees for retailers.  Retailers aren't looking for zero because they know that card-based transactions lower their cash handling cost and decrease checkout time.  There's value that's justifies reasonable fees, but I stress the word reasonable.

But its customer experience and that relationship I mentioned earlier that is the driving force here.  Mobile phones suddenly make it possible to reach consumers as they shop, much like retailers do online.  And thus they can be enticed with offers, coupons, and product information across channels. Payments are along for the ride.

So each time you read another announcement touting NFC or cloud-payments, look past the payment and consider the impact to customer experience.  That's what will separate the winners and losers.

Wednesday Aug 01, 2012

EMV on its way to the US

At a past job I recall slaving away in Mastercard's facility in Purchase, NY testing my implementation of a stored value system called Mondex when the project manager walked in and told me to stop working so hard.  I was completely confused as there were deadlines to meet, but a few days later Mastercard announced is was dumping Mondex in favor of something called EMV.  That was over 15 years ago and EMV has yet to take hold in the US -- but its coming soon.

EMV is simply a standard for payments made using smartcards, which look like standard credit cards but have integrated circuits embedded.  You can think of that chip as a tiny computer that can talk with the POS to perform encryption and authentication tasks to help prevent fraud.  Chip-and-PIN is the UK's implementation of EMV.

Last year Visa announced its intention to transition the US from mag-stripe to EMV cards with a target of October 2015.  Mastercard, Amercian Express, and Discover have also aligned to that target.  This means that retailers need to upgrade their POS hardware to be able to accept contact (insert the chip card into a read) and contactless (wave the card near a reader) cards.  Acquirers must have their software updated by April 2013.

To encourage retailers, the card brands are providing both a carrot and a stick.  When 75% of a retailer's transactions are chip based, it no longer has to annually perform the PCI certification (yeah!).  However, after the deadline acquirers and retailers will take on the liability of non-chip card transactions (boo!).

Contactless chip cards use a technology called NFC to communicate with the reader.  In this case the chip can be embedded in a card or it can also be inside a smartphone.  Therefore, by adopting EMV hardware retailers will also be ready to accept mobile payments like Google Wallet and Isis.  Those payment systems include the added benefit of combining loyalty cards and digital coupons alongside payment data.  We're still waiting to see if Apple includes NFC in its next generation iPhone, but their Passbook concept is a good sign.

Here's some free advice:

  • Discuss EMV with your acquirer (and payment switch vendor) right away so you understand their roadmap.
  • Plan to upgrade your existing payment terminals to meet EMV requirements ASAP.  All the major payment terminal vendors have solutions.  Consider if you need network-addressable terminals (ones connected to your LAN).
  • Consider also participating with Google and Isis in their NFC programs.  They have pilots running in several cities with aggressive expansion plans.
  • Work with your POS vendor to understand any changes required to integrate the new payment terminals, but also to support value-added features like loyalty and digital coupons.
  • Discuss lessons-learned with peers that have already gone through the EMV migration in Europe.

This transition away from mag-stripe cards will not only reduce fraud, but there's an opportunity to use the technology to improve shopping experiences.  There will be pain along the way, but we'll all benefit from this move in the long-run.

Friday Jun 15, 2012

The Apple Passbook

In a previous job I worked on smart card systems.  Our vision was to replace the physical wallet with a chip card that contained stored value, credit cards, and loyalty cards.  The technology was up to the task, but the business model never worked out.  When all those things go onto a single card, who owns the card and maintains the applications?  Each bank wanted their own card with branding, so instead of consolidating lots of cards onto one, we ended up with the same number of cards, just more expensive chip cards.  The Costanza wallet would not die.

More recently I've been able to move lots of these cards into iOS apps using products like CardStar, TripIt, and Fandango.  I guess moving from physical to digital is progress, but still no consolidation.  But this week Apple announced its Passbook, an iOS feature that consolidates boarding passes, loyalty cards, and movie tickets.  Another step in the right direction.

We've been waiting for Apple to announce a NFC solution to take advantage of the 400 million credit cards it stores in iTunes for its customers.  Perhaps Passbook is the first step in that direction.  It wouldn't take much to add credit cards to Passbook, then enable secure transfer of the track data using a NFC equipped iPhone.  I've got to think this has to be part of the larger vision, but of course Apple is very secretive.

I think the steps will be loyalty, coupons, and then payment when it comes to the evolving Passbook.  Retailers should keep an eye on Apple, and expect these things to happen in the Apple stores first.

Monday Jun 11, 2012

Comparing Isis, Google, and Paypal

Back in 2010 I was sure NFC would make great strides, but here we are two years later and NFC doesn't seem to be sticking. The obvious reason being the chicken-and-egg problem.  Retailers don't want to install the terminals until the phones support NFC, and vice-versa. So consumers continue to sit on the sidelines waiting for either side to blink and make the necessary investment.  In the meantime, EMV is looking for a way to sneak into the US with the help of the card brands.

There are currently three major solutions that are battling in the marketplace.  All three know that replacing mag-stripe alone is not sufficient to move consumers.  Long-term it's the offers and loyalty programs combined with tendering that make NFC attractive.

NFC solutions cross lots of barriers, so a strong partner system is required.  The solutions need to include the carriers, card brands, banks, handset manufacturers, POS terminals, and most of all lots of merchants.  Lots of coordination is necessary to make the solution seamless to the consumer.

Google Wallet

Google's problem has always been that only the Nexus phone has an NFC chip that supports their wallet.  There are a couple of additional phones out there now, but adoption is still slow.  They acquired Zavers a while back to incorporate digital coupons, but the the bulk of their users continue to be non-NFC.  They have taken an open approach by not specifying particular payment brands.  Google is piloting in San Francisco and New York, supporting both MasterCard PayPass and stored value. I suppose the other card brands may eventually follow.  There's no cost for consumers or merchants -- Google will make money via targeted ads.


Isis

Not long after Google announced its wallet, AT&T, Verizon, and T-Mobile announced a joint venture called Isis.  They are in the unique position of owning the SIM in the phones they issue.  At first it seemed Isis was a vehicle for the carriers to compete with the existing card brands, but Isis later switched to a generic wallet that supports the major card brands.  Isis reportedly charges issuers a $5 fee per customer per year.  Isis will pilot this summer in Salt Lake City and Austin.


PayPal

PayPal, the clear winner in the online payment space beyond traditional credit cards, is trying to move into physical stores.  After negotiations with Google to provide a wallet broke off, PayPal decided to avoid NFC altogether, at least for now, and focus on payments without any physical card or phone.  By avoiding NFC, consumers don't need an NFC-enabled phone and merchants don't need a new reader.  Consumers must enter their phone number and PIN in the merchant's existing device, or they can enter their PIN in the PayPal inStore app running on their phone, then show the merchant a unique barcode which authorizes payment.

Paypal is free for consumers and charges a fee for merchants.  Its not clear, at least to me, how PayPal handles fraudulent transactions and whether the consumer is protected.


The wildcard is, of course, Apple.  Their mobile technologies set the standard, so incorporating NFC chips would certainly accelerate adoption of many payment solutions.  Their announcement today of the iOS Passbook is a step in the right direction, but stops short of handling payments.

For those retailers that have invested in modern terminals, it seems the best strategy is to support all the emerging solutions and let the consumers choose the winner.

Wednesday Nov 23, 2011

Reviewing Retail Predictions for 2011

I've been busy thinking about what 2012 and beyond will look like for retail, and I have some interesting predictions to share.  But before I go there, let’s first review this year’s predictions before making new ones for 2012.

1. Alternate Payments
We've seen several alternate payment schemes emerge over the last two years, and 2011 may be the year one of them takes hold. Any competition that can drive down fees will be good for everyone. I'm betting that Apple will add NFC chips to their next version of the iPhone, then enable payments in stores using iTunes accounts on the backend. Paypal will continue to make inroads, and Isis will announce a pilot.

The iPhone 4S did not contain an NFC chip, so we’ll have to continuing waiting for the iPhone 5. PayPal announced its moving into in-store payments, and Google launched its wallet in selected cities.  Overall I think the payment scene is heating up and that trend will continue.

2. Engineered Systems
The industry is moving toward purpose-built appliances that are optimized across the entire stack. Oracle calls these "engineered systems" and the first two examples are Exadata and Exalogic, but there are other examples from other vendors. These are particularly important to the retail industry because of the volume of data that must be processed. There should be continued adoption in 2011.

Oracle reports that Exadata is its fasting growing product, and at the recent OpenWorld it announced the SuperCluster and Exalytics products, both continuing the engineered systems trend. SAP’s HANA continues to receive attention, and IBM also seems to be moving in this direction.

3. Social Analytics
There are lots of tools that provide insight into how a brand is perceived across popular internet sites, but as far as I know, these tools are not industry specific. The next step needs to mine the data and determine how it should influence retail operations. The data needs to help retailers determine how they create promotions, which products to stock, and how to keep consumers engaged. Social data alone does not provide the answers, but its one more data point that will help retailers make better decisions. Look for some vendor consolidation to help make this happen.

In March, Salesforce.com acquired leading social monitoring vendor Radian6 and followed up with acquisitions of Heroku and Model Metrics. The notion of Social CRM seems to be going more mainstream now.

4. 2-D Barcodes
Look for more QRCodes on shelf-tags, in newspaper circulars, and on billboards. It's a great portal from the physical world into the digital one that buys us time until augmented reality matures further. Nobody wants to type "www", backslash, and ".com" on their phones.

QRCodes are everywhere. ‘Nuff said.

5. In the words of Microsoft, "To the Cloud!"
My favorite "cloud application" is Evernote. If you take notes on your work laptop, you will inevitably need those notes on your home PC. And if you manage to solve that problem, you'll need to access them from your mobile phone. Evernote stores your notes in the cloud and provides easy ways to access them. Being able to access a service from anywhere and not having to worry about backups, upgrades, etc. is great. Retailers will start to rely on cloud services, both public and private, in the coming year.

There were no shortage of announcements in this area: Amazon’s cloud-based Kindle Fire, Apple’s iCloud, Oracle’s Public Cloud, etc. I saw an interesting presentation showing how BevMo moved their systems to the cloud.  Seems like retailers are starting to consider the cloud for specific uses.

6. F-CommerceTop of Form

Move over "E" and "M" so we can introduce "F-Commerce," which should go mainstream in 2011. Already several retailers have created small stores on Facebook, and it won't be long before Facebook becomes a full-fledged channel in the omni-channel world of retail. The battle between Facebook and Google will heat up over retail, where both stand to make lots of money.

JCPenney and ASOS both put their entire catalogs on Facebook, and lots of other retailers have connected Facebook to their e-commerce site. I still think selling from the newsfeed is the best approach, and several retailers are trying that approach as well. I just don’t see Google+ as a threat to Facebook, so I think that battle is over.  I called 2011 The Year of F-Commerce, and that was probably accurate.

Its good to look back at predictions, but we also have to think about what was missed.  I didn't see Amazon entering the tablet business with such a splash, although in hindsight it was obvious. Nor did I think HP would fall so far so fast.  Look for my 2012 predictions coming soon.

Monday Oct 31, 2011

Self-Checkout at Apple Stores

Back in mid-2010 Apple launched their own iOS application to support their stores, but it was overshadowed by the release of the iPhone 4.  I finally downloaded the app, and it appears to be well-done (no surprise there).  Users can get detailed information about stores and products, and even buy some products via the app.  The app locates the nearest store where you can reserve products, make a genius bar appointment, arrange for training, or see the event schedule.

Now MacRumors is claiming the next version of the app will allow self-checkout in stores for items on the floor.  This makes lots of sense since the high-value items aren't stocked on the floor anyway.  If you'd like an iPad, you still need to talk to an associate, but if your just looking for a case or adapter, then grab one and check yourself out.

Now for the interesting part: self-checkout uses your iTunes account for payment.  I have been predicting that Apple will someday enter the payment field, and this seems like the start.  In theory, Apple could extend the ability to purchase items outside Apple using the iTunes account.  That might be particularly valuable once Apple adds an NFC chip to the iPhone.  Some big hurdles to overcome but still on the path.

Thursday Jul 07, 2011

NFC in Austin

Back in December in my predictions for 2011, I said this year will be the year when NFC pilots are launched in order to determine the winners for the coming years. There are at least 163 NFC projects in flight across the world at present, with a few big ones planned for the US.  As Randy Vanderhoof explains, there are really three major project in the US for NFC.  First, there's Google Wallet which will be piloted in New York and San Francisco and led by Google and Sprint.  Then there's Isis, which will be piloted in Austin and Salt Lake City and led by AT&T, Verizon, and T-Mobile. Lastly is the approach using a microSD cards which is preferred by financial institutions such of Bank of America and Wells Fargo.

You can read more about the Google Wallet and see a video here.

You can read more about Isis in Austin and see another video here.

I'm sure these pilots will last well into 2012 before we can draw conclusions, but I'm really encouraged the industry is moving forward.  There are two benefits for retailers.  First, there are possibilities to innovate alongside the payments, with loyalty programs, coupons, etc.  Payments alone won't justify the hardware investments required to support NFC, so we'll need NFC to streamline several consumer interactions.

Second, there are potential players (like Paypal) that can offer alternative payment methods that create more competition in the space.  That competition may, in turn, lower processing fees for retailers and finally do away with paper checks.  So keep your eyes on these pilots.

 

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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