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
How to Deliver on Customer Experience
Don’t Break the Bank – Building for the New Payments Ecosystem.
Pairing Payments Innovation with Security Needs in Southeast Asia
Many Asian governments – most notably those of Singapore and Hong Kong – have launched well-received initiatives to encourage collaboration rather than competition between the fintech start-up world and banks. This has enabled traditional banks to tap into the innovative solutions that fintechs offer, while the banks themselves bring to the table considerable experience with data, resilience, reliability and customer protection.
What’s Your Small Business Banking Bacon?
Every hip recipe has bacon in it these days. So why shouldn’t your digital banking experience be the same? After all, it’s a yummy addition that gives a standard dish that extra flair.
Small business banking has been a prodigious untapped market for over a decade. Banks desperately strive to make revenue from this market, but in most cases, they have struggled to do so.
The Constant of Change and the Future of Commercial Banking
Let’s clarify this before I lose anyone; the self-proclaimed “pioneer of wisdom,” noted Greek philosopher Heraclitus, is credited with the saying Panta rhei, "everything flows." More commonly, you have probably heard this as “the only constant is change,” but either way, this teaching has withstood the test of time, as it is not only applicable, but feels like a worldly truth when I find myself talking about today’s transaction banking landscape. A robust time of change is upon us; one that has brought us to the precipice of a new era in banking. Understanding the driving forces behind this change as well as embracing new business models will be a key to success, or even to survival.
The Hidden Risk of Complacency
Available in Spanish and English
As a professional in Latin American electronic payments, I often forget how it is to live not knowing what’s going on backstage every time I use my cards. My specialization makes me aware of trends worldwide, so while traveling, I’m able to analyze different technologies in action. My consumer side, also known as my ‘shopaholic’ side, exposes me to multiple situations, since any trip—be it business or leisure—always provides a good opportunity to shop. On a recent trip, I had the chance to experiment with my Argentinian cards during a semi-long-term stay. While out of country for 40 days, I experienced first-hand the challenges that consumers encounter with the EMV payments barrier.
Driving Toward Innovation in Digital Banking User Experience
The need for delivering on a user experience strategy necessitates the use of common and sometimes confusing lingo like CX, UX, information architecture, UX design and UI design. It introduces ways to gain deeper understanding of customers through methods like personas, journey mapping and Kano analysis. It commands phrases like customer-centric, experience-driven, and ideation/visioning. In the past 4 months, I have interviewed more than half a dozen agencies to engage one that could go beyond the buzzwords and the methods described above. I want to be convinced that great and meaningful changes can happen to UI’s. After all, talk is cheap.
Have US Issuers Done Everything To Help Customers Transition To EMV?
U.S. consumers with chip-and-signature cards may find some merchants outside the U.S. (and particularly in Europe) that are unwilling or unable to process their cards, even though they have embedded chips.
Bold Demonetization Plan Leapfrogs India Ahead in Electronic Payments
Indian Prime Minister Modi’s demonetization program launched on November 8th—with the objective of curbing fraud by removing counterfeit and illegally gained currency (aka “black money”) from circulation—is an incredibly bold initiative, which has short and long-term impacts for India and the global economy. Some have called this “the single biggest decision taken by the Indian government since Independence.” The surprise move will invalidate approximately 86% of all cash, as hundreds of millions of people exchange currency in the lead-up to the December 30th deadline to replace all invalidated notes.
Sweeping and overnight changes in Indian banking sector
In August, 2015, the Reserve Bank of India (RBI) approved 11 Payment and Savings Bank licenses to firms across India, which will be allowed to accept deposits, provide payments services and distribute third-party financial products, but not to lend or issue credit cards. Ranging from nascent FinTechs to established stalwarts like the Department of Posts (the mail delivery system of India), the progressive introduction of payment banks will make way for new entrants serving hundreds of millions of banking customers in India—and these new banks won’t require all of the formalities of traditional banks to bring competition to the marketplace.
Fintechs seeking bank charters? Yes, really.
The common understanding in the industry is that, as bank regulators gradually inch their way toward regulating financial technology companies that transact banking, lending, and payments, the fintech companies are retreating, trying to move as far from those regulators as possible, for as long as possible. The industry narrative is that, when the regulatory heat eventually gets too high, the fintechs will change business models, or combine with other companies, or seek to be acquired by the very banks they now compete against.