Payments Industry Braces Itself for Big Changes
By Marcia Frellick
February 9, 2012
The payments industry is going through some growing pains.
With both MasterCard and Visa throwing their weight behind the chip-and-PIN payment systems already popular in Europe, magnetic stripe cards will likely soon fall by the wayside in the U.S. Meanwhile, the success of online shopping and mobile payments have also become game changers that have left brick-and-mortar businesses struggling to keep up.
Leaders in the payment industry talked about these developments and what’s coming next when they gathered this week in Salt Lake City for the Smart Card Alliance 2012 Payments Summit. CreditCardGuide’s Marcia Frellick took part in a press conference call to learn about some areas that will see the biggest changes — and challenges.
Thanks to the Internet, stores are now dealing with a new breed of customer, says Patrick Gauthier, head of market intelligence for PayPal.
“For the most part, stores are now dealing with educated consumers who know what they are looking for — buyers, not browsers,” Gauthier says. “People see an item they’d like to buy on their laptops at home, research it on their tablets as they commute to work and compare prices on their mobile phone while in the store.”
That means stores will have to seize on what makes online payments successful to compete, according to Gauthier. Utilizing wish list technology, for example, would allow consumers to register for items that they like in advance, giving retailers the opportunity to notify them of sales or special discounts. Coffee shops could allow customers to order and pay for their favorite beverages via mobile phone and skip the line.
“Imagine if you?were [to have] a completely parallel experience with what’s happening online,” Gauthier says. “When you come to a store, the merchant would know where you’re coming from, who you are … they would know which products you’ve picked and put back, which one you looked for information on, which one you asked people about.”
With ease of payment in mind, PayPal is testing a new in-store payment system at 51 Home Depot stores in the San Francisco area. It allows customers to pay for items via their PayPal accounts at the stores, either by using a PIN with their mobile phones or by using PayPal cards that would draw from their PayPal accounts. A customer who forgot his wallet could pay just by entering his mobile number and a PIN.
Merchants have been reluctant to get rid of their magnetic-stripe-only readers because the transition to EMV, until recently, wasn’t imminent. No more, says Jim Stapleton, chief sales officer for mobile wallet developer Isis, a joint venture of AT&T, Verizon Wireless and T-Mobile USA. According to Stapleton, electronic payment technology company VeriFone has declared that every one of its readers will soon support EMV technology.
“So there isn’t a merchant out there that I’ve spoken to who would conceive of buying a reader today without this technology embedded in it,” Stapleton says.
The U.S. embracing EMV technology would have a big impact on global standards, according to Ed McLaughlin, chief emerging payments officer of MasterCard Worldwide. Payment devices manufactured in other countries could be sold in the U.S. Travelers who used to encounter problems using their magnetic swipe cards abroad would have EMV cards they can use worldwide.
“People have to realize the U.S. is pretty much an island now surrounded by this advanced EMV technology,” McLaughlin says.
Proponents of EMV also tout its security. Instead of relying on the three- or four-digit security code on the back of a credit card, EMV generates a unique security code for each transaction, one that dies after a single use.
“The ability to clone, counterfeit… is incredibly thwarted,” Stapleton says.
New York, Washington, D.C., Chicago, and Philadelphia are among the cities greeting the future when it comes to paying for fares. New York, for instance, is moving away from stored-value fare cards toward online management of travel expenses, says Amy Linden, senior director of new fare payment systems with New York’s Mass Transit Authority.
The goal is to make paying for transportation as easy as buying a cup of coffee, allowing riders to travel when they’re ready to travel, without waiting in line to buy fare cards, encountering the unforgiving block of a turnstile arm or facing the flashing “insufficient fare” notice.
“What this does is let the customer choose to pay their fare anywhere, anytime and any way they choose,” Linden says.
Mobile wallets let consumers make payments with their phones rather than their cards — and the wallet wars are on. Google launched its Google Wallet last May. Companies such as American Express and Visa are exploring versions of their own, as are banks, mobile carriers and payment service companies such as PayPal.
What’s certain is the wars won’t result in a single wallet solution, says PayPal’s Gauthier.
Consumers already have a wealth of options when it comes to transactions, Gauthier points out. They can use an actual credit card. They can use QR codes (a pattern similar to a bar code that can be read by smartphones). They can shop online with passwords and PINs. They can even make contactless payments by hovering a card or a smartphone above a payment reader, a technology known as near field communication (NFC). According to Gauthier, there is no reason to limit these options.
“The fundamental approach is to not make ourselves beholden to any particular modality at the point of sale, because that limits the value we can deliver for merchants and consumers,” Gauthier says.
This summer, residents of two major American cities will get hands-on experience with NFC technology. Isis is rolling out its payment platform to the populations of Austin, Texas, and Salt Lake City for testing.
“We will be launching a full frontal attack across carriers, banks and merchants, a conversion opportunity for consumers to experience this world that we’ve all talked about,” Stapleton says.