Looking ahead at the top trends in payment technology
The ease with which consumers and businesses can make payments has a significant impact on their loyalty and propensity to return to a brand or service provider. Online merchants have long understood this and innovated to create frictionless payment mechanisms for their customers. But payment methods are evolving in the real world too, and in 2023 we are likely to see some of these become part of our everyday transactional activity.
Card terminals in the cloud
Card acceptance at the point of sale in retail outlets is set to get more flexible as POS terminals begin to be hosted in the cloud. Previously cash registers in shops were linked via the traditional Open Payment Initiative (OPI) or, in Germany, ZVT protocols, and others that serve specific countries. Hosting POS terminals in the cloud brings freedom in two respects. On the one hand, freedom of movement, because the terminals can now be placed anywhere there is an Internet connection, regardless of whether the cash desk is nearby. On the other hand, system freedom, because in future the terminal can also be controlled by an ERP system or even a website. This brings a multitude of use cases within reach of card payment. Kiosk systems or vending machines, for example, can be freed from terminal control, which now comes from a central instance on the web. Local services can be converted to become self-service via an app or a website and still offer contactless card payment. And in retail, payment can be taken anywhere in the store, from a traditional cash desk through to a promotional area, or just on a tablet via a sales assistant.
Payment acceptance on mobiles
The trend towards card acceptance on the smartphone or tablet takes ease of payment a step further. In this case, there is no need for a POS terminal at all, and the payment method is enabled via a commercially available “COTS” device (“Consumer-Off-the-Shelf”). What Apple offers on its devices in the USA as “Tap and Pay”, for example, is what we know in the UK on Android devices as “PhonePOS”. With the help of an app and a terminal ID, retailers with a modern smartphone can register with a payment service provider to take card payments. These transactions are carried out contactlessly or through a ‘device-to-device’ connection because the payment from the wallet of the customer’s smartphone can also be accepted via the NFC interface.
This solution is not only suitable for small shops. Even large department stores can use it to bring the customer service and check-out functions closer together or to make their delivery fleet fit for payment on delivery. What is important here is that there is no limit to the amount that can be paid because authentication can take place via PIN entry on the screen of the device, so it is as secure and PSD2-compliant as with a card terminal.
The token is the future of the credit card
While it is easy to pay with a card in a shop, online the 16-digit card number still must be entered far too often, along with the expiry date, the name and the verification number (CVV). This adds to friction at the checkout, particularly on the small screens of mobile phones. It’s also why the big card companies are launching a new procedure called “Click to Pay” and confidently calling it the future of the credit card. In the background, a highly secure token contains all the necessary data, even the card’s graphics for easy recognition. The data itself is only stored at Visa, Mastercard or the appropriate card company and transmitted with an individual key for each transaction. Once a device is connected to the card, it is recognised the next time a purchase is made. The necessary data for payment no longer needs to be entered and instead the transaction can be completed with a click. With this quantum leap in the user experience, credit cards and debit cards of the major card companies are making a leap forward in terms of delivering convenience to the payment process.
Open Banking strengthens the customer relationship
In addition to card payments, which can be a relevant cost factor for retailers due to interchange fees and other charges, the PSD2 requirements for open banking offer merchants the opportunity to provide transfer-based payment services. One component of embedded finance is the embedding of the payment process in eCommerce. In this situation, the retailer obtains a white label service from its PSP, which acts as a payment initiation service (PIS) in accordance with PSD2. The customer’s IBAN can be stored securely and is available without having to be re-entered. The bank’s procedure can, of course, be used for authentication. However, it is easier for the retailer, and for customer support, to use biometric-based authentication, which is also provided for in PSD2 as delegated authentication. This can be carried out at the beginning of the checkout process or when logging into the customer account, so that the subsequent payment execution runs without interruption – a booster for the conversion rate.
Obviously, the instant payment solution, SEPA Instant Credit Transfer (SCT Inst), which the UK is still a member of, is in the foreground in this situation because retailers need immediate certainty about the receipt of payment. That’s why it is essential that the gaps in the offer of instant payments be closed on the part of the bank. The use of an account information service according to PSD2 (AIS) brings improved risk management for the retailer, which can be used for many payment methods, or risk-based payment method management. There have been delays, but this is expected to become available before the end of the year and is eagerly anticipated by retailers.
The clear message is that both online and physical retailers will be able to take advantage of several emerging innovations in the months ahead. However, while discussions circle around future options such as the Metaverse and CBDCs, payments are not standing still, and solutions are being enhanced to support convenience right now. In the interplay between banks, payment service providers and retailers, the range of options for consumers will only improve. It has become obvious that consumers do not want to be restricted to just one or two methods for making transactions, and the industry is expanding to meet this need.
