As I was slogging through the many payments-related articles and blog posts reminiscing about 2015 events and making predictions for what may or may not be ahead in 2016, I thought of a conversation I had with Scott Loftesness around 20 years ago, sometime in 1995 or 1996. Both of us were at First Data Merchant Services, then headquartered in Palo Alto, standing near his door discussing what we thought were the “grand challenges in payments” (what I affectionately called “The Holy Grails of Payments”).
Grand Challenges in Payments
There were two that I actually remember (a grand challenge in itself given how long ago that was). One was “anyone can be a merchant.” The other I remember was something along the lines of capturing SKU-level data with each transaction.
PayPal, of course, solved the ecommerce version of the “anyone can be a merchant” problem only a few years later (I don’t have a merchant account but you can still buy a poem about my dog using your credit or debit card via PayPal). Square, and many others behind it, enabled every hot dog cart, pool cleaner and dog walker to accept cards cost-effectively and with relatively minimal effort.
Regarding getting SKU-level data with a consumer payment transaction, retailers with private label cards have been able to do that that for ages, but those transactions remain only a small part of the overall payment mix (a situation that may noticeably change with the advent of payment-enabled merchant apps). Issuers, acquirers, and the payment networks have been chasing this Holy Grail for decades, but, having said that, merchants jealously guard this data, leaving others to try and get a feel for consumers’ behavior based on merchant category codes. That may be good enough for restaurant purchases, but it’s impossible to know whether I bought aspirin or motor oil at Walgreens.
Over the holidays, a few of my partners here at Glenbrook and I found ourselves thinking about the next set of “Grand Challenges in Payments”.
At the very top of my list is one that I’m sure will resonate with a large number of you – that merchants and many others in the payments value chain never have to even think about security anymore and certainly never utter that four letter word “PCI-DSS”. Instead, payment security will be built in at the issuer, network, and other parts of the payments value chain. Envision a world where merchants are never again even presented “radioactive payment credentials” from their customers at physical POS or in remote commerce transactions (that’s part of the fun we at Glenbrook have when we work on payment systems in developing countries – we get to design systems without the huge burden of a large installed base).
… with the added bonus of fixing recurring transactions
And while we’re on the subject of tokens, I know most, if not all, of our recurring payments clients dream of an overhauled or replacement for the broken card account updater service through the use of ubiquitous token-based solutions.
Truly Global Acquiring
We are always having emotional discussions with our merchant clients regarding global acquiring. Still essentially reserved for airlines and other T&E segments, virtually all of our global retail and ecommerce merchants want to minimize the number of relationships and systems they have to maintain. They want as few relationships as feasible in order to benefit from scale pricing, consolidated and consistent reporting and reconciliation processes, etc. Of course there are many acquirers that offer multi-national services, but our clients regularly report trade-offs in issuer approval rates, amongst other challenges.
Finally Fix Cross-Border Payments
One of the other Grand Challenges in payments is dramatically improving cross border money movement. In general, the current systems are in dire need of simplification, certainty, efficiency, and speed — think about how long a cross-border wire transfer can take, and forget about trying to figure out where the money is at any point in time as it hops from one correspondent bank to another (and when you add in weekends and national holidays in several different countries, you’re really pulling your hair out). As we’ve said before, there’s no such thing as an international wire.
And how about the challenge of giving Mother Earth a break from our antiquated payments systems? We at Glenbrook as well as the rest of the world would love to see eco-friendly consumer payments – eliminate hundreds and hundreds of millions cards getting dumped into our landfills every single year, not to mention how many forests we wipe out for paper receipts thrown in the trash as customers are walking out the store. Indeed, those shiny thermal paper receipts probably shouldn’t be recycled because they contain BPA. (thankfully some progressive merchants have starting asking if their customers want a copy of the receipt). Finally, let’s not forget the high electrical consumption and environmental cost of the Bitcoin mining process.
Realigned Value Chain Economics in a Push Payment World
Another is the figuring out the economics of push payments. Push payments solve a lot of problems in a number of use cases, not the least of which is reducing risk and associated costs (lower losses, less complex authorization systems/processes, etc.). Push payments can, and will likely, be quite disruptive, but pricing and economics that make sense for all participants in the value chain will be quite challenging. As transactionvolume shifts to push payment rails, the risk premium disappears (you can’t send it if you haven’t got it) and those that have enjoyed sizable payments revenue via the assumption of risk will have to find new means to add value to merchants. Perhaps we’ll finally see a wave of deep accounting integrations for businesses large and small?
The last Grand Challenge I’m thinking of involves more “invisible payments”. When we ask our Glenbrook Payment Boot Camp attendees about their favorite payment experiences, they invariably mention Uber (a truly invisible payment transaction) and often mention Amazon’s low friction One Click Checkout. One of my partners’ favorite payment experiences is paying his tolls at 60 MPH driving under the wire on the highway. While there is a lot of attention being paid of late on reducing payments friction, we’ve barely scratched the surface.
I’d love to hear what you, my fellow payment professionals, view as our “Grand Challenges” – please feel free to add a comment or email me directly at Allen@Glenbrook.com