The Future of Retail Payments
A lively panel discussion on the first morning of NRFtech took up the question of “The Future of Retail Payments … Who wins? Who loses?” The session was moderated by Thad Peterson, principal of inCode, a retail consultancy focused on mobile commerce and payment. Panelists included Bill Deichler, manager of payment methods for Murphy Oil USA, owner/operator of the gas stations at Walmart stores; Michael Pazak, a former Amazon executive working with e-commerce and alternate payment platforms, now principal of Asterism; and Bill Ready, CEO of online and mobile payments company Braintree.
Peterson began by noting that there is a great deal of confusion surrounding the entire topic of payments today. “Until recently,” he said, “there weren’t too many choices in the kinds of instruments that could be used. In the last decade, though, the number of different payment types has simply exploded. None of them have really gotten traction, and it’s created a very chaotic environment.”
He suggested that some of the instability and confusion may be more apparent than real — the dominant payment methods are still debit cards, credit cards and cash. “In spite of all the noise, the net trend in what’s being used for payment really isn’t changing all that much. And remember, no payment method … has ever gone away. A hundred years from now, somebody’s going to show up with a check.”
Creatures of habit
“The only way to get somebody over the hump of doing something new is to have enough value there to get them to adopt the technology,” Peterson said, and merchants have to lead the way. “If the merchant doesn’t have the payment methodology in place, the customer doesn’t care and doesn’t want it.”
The payment method not only has to be there, it has to work. “A consumer will not accept a payment method that is not fully functional in the environment where it is being used,” he said. Cloud-based payment applications are being discussed and considered, but mobile devices don’t always connect with the cloud. “It’s entirely possible that you can go into store A and make a transaction and go right next door to store B and not be able to connect and have the transaction fail,” Peterson said. “As soon as that happens, the customer’s faith in the payment method dies.”
At this point, he posed a question: “What’s the biggest pain point in the payment ecosystem that needs to be addressed?”
One key thing developers in this field need to do, Ready said, is ensure that the pain point they’re addressing actually hurts. “One reason [digital] wallets haven’t gotten off the ground is that they are really a solution in search of a problem,” he said. “The first thing they tried to address was getting rid of the card swipe, but the card swipe is not a pain point. It’s one of the easiest things you can do.”
What is a pain point is the problem Peterson remarked on: the difficulty of getting a transaction to finalize on a mobile device. “You have consumers doing 30 to 40 percent of their e-commerce shopping on mobile devices now, and that’s doubling year over year,” Ready said. “By this time next year, the majority of e-commerce will be on mobile devices, but the conversion rates are much lower when the purchase comes from a mobile device than from a desktop or laptop. That’s a huge pain for the merchant and a huge pain for the consumer.”
EMV and NFC
With that, the discussion turned to EMV smart cards and the likelihood of their widespread deployment in the United States. Noting that his comments were his opinions and not those of Murphy Oil, Deichler said, “We are in the petroleum sector. If you count the fuel pumps, we have close to 17,000 customer facings. It’s going to cost us $20 million to invest in EMV. The carrot we’re getting from the network is a liability shift — if you get to EMVs before the financial institutions do, they’ll be taking the fraud and not you.
“I’ve got police officers on my payroll and they bust people, so my fraud costs are low. Will we put EMV at the registers in our stores? Yes. We’ll have it done by October 2015, when it’s mandated. Will we do it at the pump? Probably not in my lifetime.”
The primary problem of the next decade “is going to be every consumer walking around with a high-powered computing device in their pocket,” Ready said. “That’s what we really need to focus on. This EMV thing is a two-decade-old imagined problem.”
The panel next turned its attention to near field communication systems. “NFC has a couple of challenges,” said Pazak. “The first is lack of support from a major device supplier to the consumer base.” Other suppliers have embraced it, he noted, and are trying to get consumers interested in social sharing — tapping phones to exchange photographs, for example.
“It comes back to the question, though, ‘Is reaching into my pocket and taking out my device and tapping it any easier than reaching in my wallet, taking out a card and swiping it?’” he said.
“I think … before NFC could get off the ground, you had the arrival of cloud-based technologies that could do the same thing without having to change the hardware in the pockets of billions of people and the hardware at the countertops of millions of merchants,” Ready said.
Peterson then asked the panelists what payment-related issue they’d be most concerned about if they were retail chief technology officers.
“I think retailers have some very specific challenges with payments built so heavily around existing POS networks,” said Pazak. “I’m sure the challenge everyone in this room thinks about is keeping the lights on with the infrastructure while investing in the next thing the consumer is looking for. One thing we’re hearing from all the panelists today is to focus on the right customer experience. I think that will lead us to the right answers about payment methods.”
Provided you get there fast enough, that is, Ready said. “I completely agree that the consumer experience is going to drive this process. I’d be worried, though, that the rate of change for consumers is faster than anything we’ve ever seen before. The rate of adoption of smartphones and mobile devices, for instance, is far faster than the rate at which people adopted the Internet. There are incredible ramifications in that for retailers.”