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
The Art of Open Banking, Part 2: On the March
In the first part of my talk with @digitalbankguru (aka Mark Ranta) and @Lui_Zurawski (aka Lu Zurawski), we discussed plans that best prepare an organization for Open Banking, and in this second chapter, we explore some use cases for delivering value.
What Makes Latin America An Attractive Market for Cryptocurrencies? [¿Qué Hace a Latinoamérica un Mercado Atractivo para Las Criptomonedas?]
Cryptocurrencies are one of today’s hottest topics – seemingly in every corner of the globe. Bitcoin continues to be the most popular – and certainly the most well-known – though digital currencies have been blossoming at an unprecedented pace recently. There are currently more than 16 million Bitcoins in existence, and it is expected that there will be more than 22 million by 2022. Worldwide acceptance is growing, with over 9,800 businesses registered on the Coinmap website, compared to 2013 when there were only 133 businesses registered.
The Art of Open Banking, Part 1: Laying Plans
I recently had a great discussion with @digitalbankguru (aka Mark Ranta) and @Lui_Zurawski (aka Lu Zurawski) on what it takes to be ready for the revolution in Open Banking. It was a truly global discussion, with stories from North America, Europe and Asia; the conversation part philosophical treatise and part strategy roadmap. Following is a summary of the first part of our wide-ranging discussion on preparing for the Open Banking era.
How 'Mega Trends' Are Shaping Payments in India
In a previous blog post, I wrote about the impact of demonetization in India and the staggering growth of new digital payment types. Building further on this, I want explore some of the “mega trends” in payments, and how India is embracing the opportunities presented by these trends.
Bringing Home the Payments Bacon (And Other ‘Sizzles’ Such as PSD2, GDPR, AI and Big Data)
Mark, we’ve closed out another hectic Money20/20; my eyes are still dry; my throat is still sore; I still reek of cigarettes; I’ve eaten a lot of bacon on a stick (thanks to Zelle, a great group of people and a great partner)! So for the most part, this year’s event has been another win. And I haven’t even referenced the many terrific sessions during the week (well, I guess I just did).
What Do Open APIs Mean for Banking Business Models? PSD2 Points of View
As the January 2018 deadline creeps closer, PSD2 – and by association instant payments and open banking – is the hot topic in the payments industry. The impact of PSD2 will be felt beyond Europe’s physical borders, as it brings open banking to the fore. As with any global issue, ideas around how best to address the challenges of open banking are fragmented, and opinions differ between retail and corporate banking.
One Year Later: How Demonetization Has Impacted India
This month marks the first anniversary of demonetization in India, and it has undoubtedly changed the country forever. When I visit India, I increasingly see micro-transactions conducted via mobile phones. Cash is still used, but I see less and less of it with each visit. We are in the middle of a true paradigm shift – and India is poised to become a global leader in new types of payment acceptance.
Three Ways to Build Your Business Case for Real-Time Payments
In the UK, faster payments are well established, and we have seen new innovations as well as new businesses being built since May 2008. In Singapore, which went live in 2014 with its Fast and Secure Transfers (FAST) scheme, we are starting to see similar innovations. And we can expect similar seismic shifts in payments innovation for years to come, as Instant Payment schemes in Europe and Real-Time Payments in the US go live, ubiquity increases and real-time payments become the new normal.
Security, the New Payments Ecosystem and the Need to Educate the Consumer (Or Ask Them to Unclog Your Sewer!)
When it comes to any payments ecosystem, you must remember that we are talking about MONEY. More importantly, people’s money (like yours and mine). In any conversation in this space, secure is something that is assumed. A consumer simply won’t use a new system if they don’t believe it is secure. Unless of course it’s free Wi-Fi. As we have seen, folks are willing to do almost anything to get free access on their devices, even agreeing to clean toilets! (This was a real thing… one hotspot operator added it to their Terms of Service fine print). When we talk secure, it’s important that we keep this in mind: secure is not just a piece of the Hierarchy of Payment Needs, it’s an integral part of it, which is why it sits directly on top of the foundations. Without this layer, the whole ecosystem collapses.
Three Reasons Why Corporate Banks Must Invest in New Security Measures
The New Payments Ecosystem brings great opportunities, if banks can mitigate the new risks and threats that arise. Real-time and open payments enable a wealth of new revenue streams; however, the potential for growth must be balanced against maintaining payments security. They cannot break the bank.