Across many publications, payments innovation is making headlines – but that is hardly surprising, considering the rapid pace of evolution in the payments and technology spaces. There’s always something new and exciting to report.
More surprising, perhaps, are numbers like this: 57 percent of consumers are now willing to make payments via their connected car. This number, quoted by Mercator Advisory Group in a recent webinar with Discover® Global Network, reveals that inventors, tech-savvy users and early adopters are no longer the only ones on board with emerging payment methods and form factors; consumers are becoming increasingly comfortable with them, too.
Consumer engagement will open the door to new avenues of opportunity for all players in the payments space. Tim Sloane, VP of Payment Innovation at Mercator Advisory Group, and Raymond Pucci, Director of Merchant Services at Mercator Advisory Group, sat down with Claudia Schaefer, Business Development Executive for Strategic Initiatives at Discover® Global Network, to discuss what that might look like.
Payments in the News. And in Your Car?
What is it about payments innovation today that’s capturing everyone’s imaginations?
Part of it is a volume game: With more (and better) vertically-oriented solutions and platforms in the market, payments have become much more available to businesses looking to enter the marketplace, both for money in and money out.
Another thing that seems to be true across the board is how FinTechs and mobile order ahead platforms are pushing consumers into the payments future perhaps faster than would otherwise happen.
For example, the technology of connected cars created an opportunity for mobile order ahead to become even more convenient. Now, customers don’t even have to take out their phone to let Starbucks know they’re on their way for that grande skinny vanilla latte; they can do it all (including pay) with their voice, in the car, on the way to the café.
Consumers might not trust their dishwasher to order its own detergent or their freezer to stock itself, but the connected car’s value add for mobile order ahead is so tangible that it has broken down that trust barrier, creating an entry point for connected commerce to really begin to take hold.
Compare that trend to universal digital wallets like Apple, Google and Samsung Pay. Pucci said the main reason these wallets have struggled with adoption is because they currently fail to add value. Until they do, he said, consumers are not going to unlearn the muscle memory of reaching for their good old plastic card. By then, people may be so accustomed to using individual merchant apps to pay that Apple and other companies will have missed their chance.
Platform APIs: An Old Technology with Many New Applications
APIs might be making the news, but that doesn’t make them new; they’re just being used in new ways. Sloane outlines six of those key models:
- Internal integration – This was the original application for APIs when they were first introduced two to three decades ago. Because these integrations were done on a case-by-case basis, it could become challenging when a supplier or capability needed to be swapped out.
- Supplier integration – This is the next level of APIs, allowing organizations to integrate directly with suppliers and avoid the challenges of Model 1 of the internal integration model.
- Basic open banking – With new regulations in the EU, APIs may evolve to collect basic information that may satisfy the regulation and other essential transaction data.
- Corporate client integration – Enterprise clients can now tie their bank into supply chain payments, integrate into payroll and more.
- Solution sourcing – Companies invite FinTechs, college students and others to play in their payment sandbox and offer prizes for innovative new solutions that can be brought to market.
- New capabilities phased in – Existing customers are provided with new products and functionalities as capabilities are added to the current API platform, creating new revenue opportunities for the organization – even when the new products have actually been developed and are being managed by third parties.
Schaefer highlights, “the importance of developing an API strategy that drives value for customers and business partners.” The outlined key models are six very different approaches to using APIs to deliver value in multiple areas for various types of companies.
Artificial Intelligence Will Have a Major Role
Similarly, artificial intelligence (AI), machine learning, and biometrics are already being used, but their application depends on the need – and their further acceptance and growth will depend on the value add to everyday experiences. Sloane notes some surprising ways it’s being used today:
- Legal departments (reviewing contracts)
- Onboarding (KYC for both merchants and customers)
- Network management (intrusion and theft detection, and security)
- Branch automation (teller cognitive assistance, branch monitoring and predictive maintenance)
Sloane adds that even these functions have been enough to ingratiate AI with some of the biggest banks in the game and in almost every possible division.
“If you aren’t already asking your suppliers how they intend to use AI,” said Sloane, “you’re probably falling behind.”
To add, Schaefer speaks to the impact of AI saying, “AI is growing rapidly. And I think as technology becomes more conversational and more natural, I believe it may exponentially change how brands interact with consumers. I think a barrier for conversational commerce is the need to make sure security with voice authentication is precise, and I think we are still a ways out.”
How Smart Devices Are Changing the Game
If you have a smartphone, you really have a powerful computing device in your pocket. Sometimes we forget that, says Sloane. Already, the technology is advanced enough to recognize speech and convert it to text, leverage dual cameras with automatic depth perception and facial recognition, and measure minuscule, individualized typing movements with an incredibly sensitive accelerometer. All of these factors can be used to help identify and authenticate individuals, creating a more secure digital environment.
Now imagine adding to GPS location the ability to determine whether you’re at your usual spot at 3 p.m. – and identify whether you’re truly in your office based on ambient noise.
Just how accurate and unique are these measurements? Sloane concedes that this remains to be seen, but he’s confident that one day all of them could be integrated into the way users are authenticated, particularly through 3D-Secure 2.0.
The Golden Age of Mobile Pay? You bet.
Can we really talk about the “heyday of mobile pay” when universal wallets are not meeting their forecasted market share? According to Pucci, we can. Mobile devices make up roughly half of all eCommerce transactions in the U.S., thanks to providers (banks), network platforms and eCommerce platforms, like Amazon, making the experience so frictionless that it’s almost impossible not to use them once you start.
It can only expand from here, adds Sloane. Today’s phones, cars, watches and browsers will intermingle with the Internet of Things (IoT) as consumers grow comfortable with the new ways of doing things.
That means each of these devices will need to provide security and identity verification while interacting on behalf of its user. Don’t skimp on tokenization, says Sloane. Know your customer. Know their device. Ensure that the right person has been enabled to make payments. It takes research and skill, but that work is necessary to create a safe environment for facilitating payments.
It remains to be seen whether tokenization is the primary way things will go with the IoT, and whether tokens will stay on the consumer side or shift to become more of a back-end, card-on-file situation in which the merchant or supplier holds the token instead.
The Challenges Facing Mobile Pay Providers
Mobile payments is still new territory, and the challenges are myriad as providers look to meet the needs and requirements of their customers.
Patchwork merchant acceptance at the point of sale was an early sticking point. Consumers were not about to adopt an NFC-based tap-to-pay form factor that only worked a small fraction of the time. Now, well over half of in-store merchant point-of-sale terminals are NFC enabled.
Even if security is not a problem, it’s a concern because consumers have seen many household names make the news for massive security breaches. Therefore, consumers have concerns about using a device to make a mobile payment, despite that fraud management techniques have greatly improved and are evolving all the time.
The biggest hurdle comes back to muscle memory. These verticals have demonstrated that consumers need a good reason to start reaching for anything other than plastic, whether it’s for a loyalty program, cross-vertical usability or delivery and mobile order ahead. According to Pucci, it’s on providers and merchants to give consumers the use case for mobile payments.
Interested in learning about how mobile enablement drives growth in digital commerce? Check out this Discover Global Network whitepaper or contact us directly at [email protected].
