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.
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