Published in Retail Solutions Online, October 28, 2010
Thursday, October 28, 2010
The strategic advantages and advances offered by new and emerging innovations in payments processing either outweigh or mitigate the majority of the deployment and investment concerns.
Unsurprisingly, economic challenges of contraction of consumer spending and reduced budgets play a large role in innovation stagnation in the payment processing arena. Retailers’ business priorities of enhancing security and reducing fraud are also pushing payment processing innovation lower on retailers’ priority lists; as in the ‘if it isn’t broken, we’re not changing it’ philosophy. Digging a little deeper into this attitude towards innovation, the study uncovered that the reticence to embrace payment processing innovation is not lack of vision, but rather being constrained by in-house systems that have been incrementally adjusted over multiple years, to the point that any major innovation could prove simply too unwieldy or risky to integrate.
Other key issues restricting innovation revolve around the chicken-and-egg factor of retailers waiting for customers to demand new payment processing options; and the potentially cost prohibitive levels of hardware/IT investment required to roll out new systems. This is exacerbated by the often limited life-span ROI that innovation brings. Examples of this are abundant across the globe; in the U.S., biometrics was expected to be a game changing innovation, in the U.K., chip & PIN was a major investment. Now mobile with contactless capabilities is being billed as a potential replacement – while the industry still has not recouped these investments.
While the issues raised by retailers all have merit, it is the opinion of companies such as RSR and ACI Worldwide that the strategic advantages and advances offered by new and emerging innovations in payment processing either outweigh or mitigate the majority of the deployment and investment concerns.
The RSR research also revealed that, while payment processing is clearly viewed as mission critical throughout the retailing industry, it has not yet been embraced as a key strategic business issue and asset. This, it is argued, represents one of the most significant, yet easy to resolve, inhibitors to innovation. Currently, the CIO is typically the default owner of payment processing.
While this helps ensure operational excellence, it also means payment processing systems are probably being managed without sufficient insight of or attention to the customer experience or expectations.
Imagine a payment processing strategy being managed by an executive team comprising marketing, head of retail and the CIO; then you have the insight and means to elevate a mission-critical system to a strategic asset because it can be deployed to the utmost business advantage. One CEO interviewed during the RSR study, that has followed this executive team strategy to payment processing, explained how their business now has a common platform between point-of-sale and e-commerce. For example they are able to issue email receipts across all transactions, providing a single transaction and consistent experience to the customer, and a rich stream of customer data to the company. And, because the company deployed a common platform across in-store and e-commerce, it was relatively easy for the team to expand its online PayPal capabilities to anin-store capability as well. This is rare in retailing today, and visionary; and of significant strategic advantage considering the impact that cross-channel shopping is having on retail. By addressing payment processing as a strategic business asset through the attention of an executive team, this company is creating significant short- and long-term business and competitive advantage.
With the growth in loyalty cards, e-commerce, digital coupons, 2D/QR barcodes, online comparison shopping, in-store touch and feel, mobile apps and online purchasing, retailers with siloed, store-based payment processing architecture are faced with transactions that are difficult, if not impossible, to execute, customers that are difficult to track, and purchase patterns that become impossible to recognize. Moreover, with the advent of payment transactions via apps on mobile/smart devices, social media-based store fronts, wireless and contactless payments – the potential iterations for how a consumer could ultimately engage with a retailer around a purchase becomes daunting. Retailers that are not prepared or preparing for what is shaping up to be a perfect storm of evolution in payment processing will lose the ability to connect with customers and understand their behavior as they cross multiple channels. Ultimately they will lose competitive edge, brand position and customer loyalty.
Given the depth and range of innovation on the horizon for payment processing, the RSR report uncovered a surprising absence of involvement by retailers in payment industry standard bodies. Near Field Communication (NFC) is a strong example of an emerging standard that will have significant implications for payment processing through contactless payments enabled via chip in a mobile device. The NFC Forum comprises participants including Visa, American Express, mobile providers and hardware manufacturers – all seeking to create standards. However, there is not a single retailer participating in the forum. Considering retailers will ultimately be the most impacted by the decisions and agreements that this forum makes, it would be highly advantageous that they seek to proactively participate in defining their future.
On-demand and SaaS (software as a service) are fast gaining interest in the retail community. By moving to managed hosted services, retailers will be able to access and develop advanced payment processing systems without having to carry the cost of hardware and operating system expenses. Moreover, there is significant financial and strategic advantage in the burden of PCI compliance and data security shifting from the retailer to the on-demand service supplier. The double-whammy advantage of access to advanced systems and infrastructure, and reduced cost of compliance opens up the investment door to payment processing innovation and the capability to get ahead of the wave of customer demand and expectation for seamless, transparent, always on, everywhere transaction processing.
Addressing payment processing as a strategic asset, managing its course at the executive level through an integrated leadership team, and strong involvement in the course of future industry standards are important steps for retailers to take in order to break out of innovation stagnation, and to be on the front foot of industry leadership. Of course the proof of payback and ROI is in the successful deployment of new systems; and with cost pretty much at the top of the inhibitor to innovation list, it is smart, strategic lower cost/higher return infrastructure and software investment solutions, such as the move toward centralized architectures and on-demand SaaS, that will help to successfully re-open the door to innovation.
Retail payment processing innovation —there’s most definitely going to be an app for that.