Amy Zirkle, Vice President of Industry Affairs, the Electronic Transactions Association (ETA)
Technology by its nature changes the market. The introduction of efficient solutions spurred by technology to meet consumer demand creates new positive effects across an economy. Plenty of industries – entertainment, transportation, the press, and retail, for example – have experienced changes to business models, delivery methods and their competitors due to the development and deployment of new technologies. And of course, technology creates entirely new markets. The modern payments industry was shaped by critical innovations that made credit and debit cards as we know them today possible.
After all, we live in an age where virtually everyone carries a connected device more powerful than the computers that sent Buzz Armstrong to the moon. Our smartphones connect us to a massive, near limitless network of social media, retailers, websites, financial service providers, and entertainment platforms. And this access has totally overturned expectations of the analog era, replacing them with the promise of faster, better, more convenient and more secure experiences at every juncture.
Imagine twenty-five years ago, in the nascent days after the commercial use restriction on the Internet was lifted, if someone told you that you would be able to buy something in a matter of clicks and expect it to arrive in days – or even hours, this might have been met with some skepticism. Or imagine someone told you that you would be paying your babysitter, or taxi driver, or your favorite vendor at the farmers’ market without ever pulling out your wallet. Now imagine leaving your wallet at home altogether and using your phone to pay. Or forgoing the use of cash and brick-and-mortar experiences completely. Where e-commerce accounted for around $27 billion in retail sales in the U.S. in 2000, it accounted for around $504 billion in 2018 – nearly 10% of total retail sales. It is projected to grow to $735 billion by 2023.
These changes have created transformational new ways for consumers and merchants to interact with each other, thereby changing the products, services and consumer experiences that payments technology companies provide to merchants. In past decades, the forms and factors of making and receiving payments were simple. A consumer would rely on checks, magnetic stripe cards, cash and coins; a merchant on ledgers, registers, carbon copy slips and simple processing terminals. Put simply, the product that payments companies and financial institutions provided to merchants was a singular one: acceptance of a magnetic stripe card at a point-of-sale terminal.
The role of a payments technology company has become more complex as merchants pursue business models that blend e-commerce with brick-and-mortar, pursue new sales channels and aim to offer consumers frictionless payments experiences.
Take the recent boom in mobile order-ahead for restaurants as an example. That payments innovation – allowing the digital acceptance of payment information via a mobile platform in a card-not-present environment – makes a transaction that would otherwise be limited to an offline, in-person affair to an expanded online touchpoint. With six in ten American consumers between 25-34 years old reporting to use restaurant or coffee shop mobile order-ahead, and two in three Americans reporting that they’ve been patrons at restaurants specifically because of order-ahead payment options, this new opportunity has driven payments companies to integrate mobile order-ahead capability into their platforms, making more sophisticated the products that payments companies provide and creating an e-commerce experience for a merchant segment mostly limited to brick-and-mortar.
Payments acceptance is changing as the growing use of smart devices like smartphones and tablets expand into merchant countertops as point-of-sale devices. In 2017, the value of transactions on these devices grew 55.3 percent as the number of merchants using them approached 800 million. Their popularity makes sense. The devices, often modified with simple hardware additions that allow for card acceptance, can leverage software innovation designed to provide sleek interfaces, fast operation, secure transactions and powerful analytics to merchants at an affordable price. They can integrate directly with suites of software designed to help businesses do things like manage inventory, track invoices and manage employee hours; they can also power in-aisle checkout and help businesses integrate their ecommerce operation with their storefronts. Walmart, as an example, has launched a smartphone app for its store associates that enables them to place online orders for customers in the aisle if they don’t have an item in stock at the store. It’s easy to envision that these types of products that are powered by advanced payments technology will further allow brick-and-mortar stores to move beyond their traditional limits and take advantage of the convenience and agility of ecommerce.
For ecommerce merchants, the development of mobile payments and fintech has also had an impact. If abandoned carts are the enemy, and friction in the payments process is the means to that end, then payments innovation has certainly come along way in progressing the fight. Gone are the days of bad authentications, complex and cumbersome checkout processes. Integrating mobile wallets from consumer-facing tech giants like Apple and Google, plus well-known checkout buttons from PayPal and the credit card networks like Visa and Mastercard, creates consistent, seamless checkout experiences for consumers. Payments technology companies are investing even more in providing leading-edge payments products for online merchants - the new Secure Remote Commerce (SRC) standard from EMVCo will add even more simplicity and security to online payments for merchants and consumers.
Further, the nascent Internet of Things (IoT) has provided new opportunities for ecommerce merchants. Take IoT ordering buttons as a prime example – with a simple click of a button, free from web browsers, interfaces and other barriers, consumers can order pre-determined products they love and pay for them with ease. The Internet of Things turns any location into a point of commerce – your home, your car, or anywhere in a store. Beacons, which are low-cost devices that communicate with nearby smartphones via Bluetooth, are used to send coupons directly to shoppers based on what’s available in-store. Beacons will be invaluable for communicating detailed, targeted information to consumers. Business Insider projects that beacons will drive over $44 billion in retail sales this year. In the meantime, Visa is debuting a connected car that allows drivers to make payments from the dashboard. These new types of communication technology are creating new points of commercial interaction. Commerce no longer requires a physical terminal or a point of sale – it can happen anywhere.
Similarly, voice assistants are creating a new touchpoint for ecommerce merchants to make more sticky their relationship with consumers. Juniper Research predicts that 55% of U.S. households will have voice-enabled smart speakers by 2022. Retailers – both online and offline - like Dunkin Donuts and 1-800-Flowers have developed systems that integrate with voice assistants and allow consumers to order and seamlessly pay for goods and services with just a few commands. The payment process is divorced entirely for the consumer from burdensome steps and even from a recognizable point-of-sale device. Voice technology allows merchants and consumers alike to effectively multi-task, making simple transactions – “Alexa, order more paper towels” – a background task rather than forcing users to switch contexts from what they’re doing. A critical factor driving the development of voice commerce is voice recognition – how good is the physical device at picking up voices, recording them accurately, and translating them to text? Right now, most retail environments are too loud for voice technology to work reliably, but this could change as the devices and text-to-speech software improve. For example, Google Assistant can differentiate between as many as six different voice signatures, allowing users to log into their Google accounts with just their voice. As this type of voice differentiation technology improves, it will be possible to restrict device access to certain approved users as well as change levels of access and finely tune security controls.
And with the growing use of biometric authentication, advanced behavioral biometrics, artificial intelligence and advanced data analytics, ecommerce fraud, while growing, will face stiff challenges from payments companies. In fact, payments technology companies will invest more in detecting and preventing ecommerce fraud than any other industry - $10 billion by 2023.
The logical end to the increasing hybridization is a commerce experience that subverts the traditional understanding of transacting at a point-of-sale, offline or online. It may seem like a science fiction dream, but the technology being deployed today by payments companies is laying the groundwork for an economy that functions as a series of seamless touchpoints between life and commerce. There will always be a place for cash, for registers, for in-person transactions, checks and cards. After all, the number one goal of the payments technology industry is to provide consumers with a robust array of the most secure, affordable and convenient payment options available. With the proliferation of so many devices that can securely and easily be the touchpoint for a payment – think a voice-enabled device, an IoT device, a smartphone, tablet, turnstile, even a doorway – it’s easy to envision a world where some of the norms of commerce we know now are no longer necessary. Such a reality blurs the line between online and offline commerce. Consider this scenario: your IoT-connected refrigerator notices you’re low on your favorite honey and automatically orders more from the local beekeeper, who in turn is using a smart device to manage their inventory and fulfill orders. Is this ecommerce or is it more like going to a virtual farmers’ market? Perhaps the question is altogether moot, for the advancement of payments technology – today and far into the future - allows for consumers and merchants to extend beyond the typical understanding of a transaction and build new horizons for commerce.