Vanilla Payments Don't Always Cut the Mustard
Five years ago, there was a clear trend among major brick-and-mortar retailers to bring in their own payments software. Except for very small retailers that used bank-owned stand-alone POS terminals, retailers wanted to own and operate their own systems – usually licensed products from a small number of specialist payments software vendors. This approach gave retailers flexibility, control and cost savings through centralization. Other than the bank-owned terminal approach, there were few viable alternatives.
Tastes are changing…
Over the past few years, the market has changed, as have the attitudes of retailers. Traditional product vendors still exist and many retailers still run their own payments systems, but the trend is now clearly toward managed service providers – and in a growing number of cases these are cloud payment services.
This trend is largely driven by the potential for reductions in operational expenditure, and the ever-increasing burden of security regulations and practices; point-2-point encryption (P2PE) being used as a means to deal with PCI DSS requirements being one example. Accordingly, many of those traditional product vendors have evolved to use their own technology as the basis for managed payments services.
The question of choosing the right vendor for their payment services is a complex one for retailers, and price is always a significant factor. Retailers are master negotiators by nature, and they desire the lowest cost with the least risk. As a result, a number of vendors provide a simple ‘vanilla’ service — sharing the same payments service across many retailers — in essence, a POS terminal (or PIN Entry Device) and a rapid onboarding process, with little flexibility.
Flexibility is becoming a prerequisite, not just a ‘nice to have’
But for many retailers, flexibility and control over payments must not be sacrificed, especially as payments is increasingly seen as a key means of improving customer engagement and meeting consumers’ expectations of convenience.
However, if a retailer that has opted for ‘vanilla’ needs something with a different flavor— prioritization over competitors, quick changes to their setup, access to different acquirers, different POS terminals, or the ability to enter a new market — the answer from the vendor may simply be “no” or “it’ll have to wait.” But, at this point the retailer is locked in.
The more flexible, unbundled approach may come at a higher price, but likely includes a dedicated payments system that is customizable to the specific needs of that retailer. So, the retailer still retains some control over their own destiny, but with the advantages of it being run as a managed service. The payments vendor operates it, but with the ability to configure, customize and shape the service to retailers’ demands.
The more innovative the retailer seeks to be, and the more the retailer sees payments as a competitive differentiator, the more the demand will grow for the sort of flexible solutions that a simple vanilla service cannot offer. It’s the more exotic ‘flavors’ that will allow retailers to react to their business drivers for mobile app payments, faster payments, biometric payments… or whatever else is coming down the line.
Long-term roadmaps for payments are difficult for retailers to establish, because the rate of change is so rapid. Having a flexible payments service provider at least positions the retailer so that it can adapt to meet that challenge of change, and react to the unpredictable.
Getting the balance right is the dilemma. It’s clear that retailers won’t be running their own payment systems in the future as they have in the past, but when it comes to finding a supplier to provide a payments service, each will need to decide whether their tastes are plain, or whether they need something with a little more zing.
Download the report: ‘The role of payments in the customer experience’, by Retail Week and ACI Worldwide, drawing on interviews with 30 leading retailers in the United Kingdom, France, Germany and the U.S. and containing insights on enabling seamless shopper journeys, choosing payment technologies, and consolidating payment platforms.
Related Blog Posts
Payments in Gaming: The Female Gamer Powers-Up
The global games market is booming, with revenues set to reach USD $137.9 billion by 2021. But along with the growth, gaming is also transforming and diversifying; in genre, gaming devices, platforms, economics and demographics. Notably, female gamers are ‘powering up’ – representing 40% of paying gamers across all platforms – and there are implications for how gaming companies deliver their products and the role of payments in the overall customer experience.
Mid-Year Payments Reflections… And What 2018 Has Left Up Its Sleeve
It has been a while since I had a chance to my thoughts, nee, reflections. My all-time favorite movie reminds us all that “Life moves pretty fast. If you don't stop and look around once in a while, you could miss it.” And with this advice in mind, I want to share my thoughts on the ‘Big 3’ of 2018 so far… and prep us all on what to look for as the calendar churns through its last six pages.
Could Blockchain and Cryptocurrencies Revolutionize Payments in the Gaming Sector? [Q&A]
ACI recently partnered with Nextpayway, a company offering a specialist payment solution for the gaming industry. The Israeli start-up is implementing ACI’s UP eCommerce Payments solution to deliver next-generation payments and fraud prevention. We spoke with Nextpayway’s CEO Angela Behar just after the GES World Gaming Summit in Barcelona.
Hat in Hand with 17 Heads: Payments Innovation and the Fraud Pitfalls to Avoid
Imagine that you live in a world that is revenue-agnostic, where payments revenue is so far decoupled from the payments channels that they ride on, and that startup culture and venture capital allow for the creation of all sorts of innovations that have some creative monetization that keep the train on the tracks. If you got halfway through that horrific sentence and realized we’ve been there for quite a while already, I’m impressed. It is essentially the cornerstone of banking, in many capacities.
Time is Money: A Millennial View of UK Faster Payments’ 10th Anniversary
As a millennial, I’ve often been the butt of jokes of those a little bit older than I am (whether colleagues or my own family). One of the clichés perpetuated is that we are constantly glued to our smartphones: In a way that’s correct, but misses an important point. As a young millennial professional, the most important thing to me is TIME. And that’s the reason my phone plays a crucial role in my life – much to the annoyance of my girlfriend and family. It means I can do things on the move, which in turn makes my life a whole lot easier.
Pints, Penalties and Payment Fraud: Welcome to the World Cup
You’d think that England already had the World Cup in the bag, based on the nationwide scenes of jubilation after the Three Lions’ penalty-takers had gone against the (painful) grain of football history, and emerged victorious at the end of a scrappy match against Colombia. However, those cries of “It’s Coming Home” from English football fans may just be a little premature, given that there are still three matches to play (and win) before the English can lay claim to being world champions for the first time in half a century.
Success Speaks: Blue Cross Blue Shield of Michigan Talks Meeting Member Demands in Healthcare
When looking for a payments success story in the world of healthcare, you’d be wise to turn your attention to the Great Lakes and the work done by Blue Cross Blue Shield of Michigan (BCBS MI). In a recent webinar with AHIP (America’s Health Insurance Plans) and ACI, Faran Farooqi, Strategic Capability Implementation and Operations for Blue Cross Blue Shield of Michigan, shared his insights into how his organization addressed the challenges of today to deliver a great payments experience for their members.
Innovate and Integrate to Accumulate: Investing in Payments Systems to Drive Growth
Today’s merchants face numerous challenges, which boil down to one central issue: how to succeed in a constantly changing, complex market, while also investing for the future.
Merchants need to deliver on growing expectations around the customer experience in an increasingly competitive environment, while battling growing costs and squeezed margins. This pressure extends through the whole business for every merchant, in every sector, and it’s driving merchants to look into every corner of their operations for ways to cut costs and redirect resources.
Taking Payments and Fintech for Granted? (A Lyrical Edition)
Based on a very quick search of the Googles, there are 128,014 songs that contain the lyrics “take for granted”— from the likes of Mary J. Blige, Social Distortion, Madness and Frank Sinatra as well as countless other great (and not-so-great) crooners. And that would make for a sizable Spotify playlist… and I do love my Spotify playlists (I’ve been on a Wham! kick lately).
Instant + Open Payments = A Winning Combination
I recently joined a panel discussion at EBAday 2018, alongside representatives from across the payments ecosystem, and the clear consensus was that real-time payments will be the new normal. This was evidenced by some of the interactive polls carried out.