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
Increasing Collections & Satisfaction: Real-Time Payments for Loan Servicing
The old adage that “cash is king” is precisely that: old. In today’s world, convenience is king and real-time payments deliver it in spades. Consider that convenient ways to pay can reduce late payments by up to 76%, while reducing call center volumes by up to 83%, and it’s no wonder lenders are expanding their offerings over time to include checks, ACH, debit cards and now real-time payments.
GDPR: Modern Wealth Is In Your Digital DNA
Hands up if you don’t really know what GDPR is… don’t worry, you’re not alone in fact, 6 in 10 people have never heard of it.
And why should the average consumer know about the General Data Protection Regulation (GDPR)? The regulation itself, which will become enforceable in May 2018, is designed to stop businesses using our data without our knowledge or consent. And that consent means complete transparency on how our data is being used. This sounds like a very reasonable expectation for consumers to have, which of course begs the question; why hasn’t this been the standard up until now?
Fintech Frenzy and Fun
I’m in vibrant Singapore for day one of the inaugural Money20/20 Asia... or is this day two? I’ve lost all concept of time this week (and didn’t realize how close Singapore is to the equator… it’s like wicked hawt outside!) And I’m joined once again by my ever-intrepid Rantings colleague to rant about what’s happening in this fun-filled world of payments.
A Master Class in Convenience: Faster Payments for Higher Education
Paying for college can be a real pain, and the act of paying tuition itself has not kept up to speed with the times.
According to Aite Group, 40% of tuition payments are made by ACH (electronic check), making it the most popular method of payment for higher education. Yet, these payments can sometimes take several days to process. In a world where college students send and receive over 120 text messages per day, immediacy is key. Especially when large dollar amounts are being spent. Students and parents demand that payment options conform to their expectations of speed, to prevent their accounts from being overdrawn.
The Hidden Cost of Digital Payments for Retail Payment Players
It is not exactly breaking news that non-cash payments are on the rise globally, with column inches dedicated to the launch of digital financial-inclusion projects. But going cashless is not only a challenge for humanitarian endeavors, or developing countries. We all agree that removing cash from the system will save payments players big bucks in the future, but we must also consider the immediate impact of digital transformation on the legacy infrastructure of the powerhouses of the payments ecosystem.
A Prescription for Profitability: Real-Time Payments Come to Healthcare
When it comes to important numbers in the healthcare sector, you’re probably familiar with 120/80 (that’s ideal blood pressure for the non-medically inclined), but I’d like to introduce you to two more numbers: 15 and 47.
15 is the percentage of healthcare spending due to billing and payment inefficiencies, while 47 is the percentage of patients who would leave a hospital for a better payment experience1.
Telcos Have a Unique Opportunity to Drive Mobile Payments
We are witnessing a significant and inevitable shift in digital payments towards mobile commerce. In the next ten years, we will see an exponential expansion in the number of devices and applications we will use to make mobile payments. You could pay for your groceries on your mobile, for delivery at home, then two days later receive a message from your fridge alerting you that the milk is running low. By the time you get back home, a new bottle of milk could be waiting for you, thanks to real-time delivery, even by a drone.
How the Merchant Payment Ecosystem Can Create Value in Instant Payments
Recently, ACI conducted some research into the appetite to make use of instant payments among corporates. The results were overwhelmingly favorable, but when we think about the benefits of immediate payments for corporates, it does seem obvious that they would want to leverage this new payment type.
Securely Growing Online Sales in 2018: An Australian Perspective
Back in November 2017, I participated in a panel discussion for NORA (National Online Retail Association), where I looked at fraud trends in Australia over the previous holiday shopping season and made predictions to help retailers prepare. Now looking back, I am sorry to say that my predictions were painfully accurate.
It’s A Hard Knock Life: Digital Transformation for Payment Service Providers in the New Payments Ecosystem
Is it a hard-knock life for processors and PSPs? Margins are constantly under pressure, and there’s the need for constant innovation, not to mention rock-solid #SleepAtNightability of solutions. And if there’s even the slightest crack in the fundamentals, customers will surely let you know all about it!