Disruptive Technology in Payments: Is a Process Change in Order?
In our most recent post we discussed the disruptive nature of new technologies to the financial service landscape. This week let’s take a closer look at one of the most lucrative segments in the business: payments.
Payment has always been an integral part of a successful business, be it the local coffee shop or a continental air carrier. As more and more transactions move to mobile devices, so do payment systems. But is payment a process due for major upgrades? And which system(s) would be dominating the field?
There are two critical aspects the payment provider needs to ensure: the first being security. For years transactions have been plagued by frauds mostly rooted in the handling and storage of customers’ credentials. Tokenisation, a recent concept for the payment industry, offers the much needed solution. With customers’ credentials only matched through the tokens, important data is no longer exchanged or stored. Further encryption can enhance the process making sure no information is extracted at POS.
Another side of security is authorisation. Traditional card recognition usually involves either the PIN codes or signature verification. While these certainly are reliable methods, they are not necessarily as intuitive and user-friendly as some of the newer solutions, most notably the fingerprint verification method developed by phone manufacturers and tech giants Apple and Samsung. With payments going more mobile, the technology is highly promising.
Certainly when it comes to making the payments secure, there is no shortage of solutions. However service providers still need to ensure these come with full user accessibility: most often this means adoption by a wide range of merchants. It is at this junction that a platform war brews. Take Apple Pay, the most recent entrant to the market who has partnered up with just about everyone (banks, merchants and payment processors), except for Paypal. The Cupertino giant’s confidence in quick user adoption is clear, though many merchants are not prepared to accept Apple’s new NFC (near field communication) technology just yet. Coupled this with the fact that retailers themselves (Walmart being the focal point) are rallying against the extravagant fees to create their own payment system, it does look like Apple Pay still has a long way to go. Another contender – the Google Wallet – attempts to make it easier to adapt for merchants by storing tokens on Google’s cloud instead of hardware like Apple. However in doing so the wallet becomes less secure and more open to attacks. Paypal, whose mobile payment vehicle Braintree is obviously one of the hardest hit, is now working with the Apple’s archrival Samsung to provide their own fingerprint-based payment service. The two recently finished work on the Samsung watch, a payment-capable device that Apple themselves look to compete against with their own smartwatch range.
The short to mid-term market, thus, looks fragmented. As platforms battle for dominance, merchants will most likely stay with their preferred providers, until the tipping point. Customers’ movement towards a more omnichannel experience is undeniable however; so is the shift from physical payment to e-payment and mobile payment. Consequently, whilst there might not be an immediate need for a total process overhaul, businesses should expect big changes to come soon