The payment transaction is becoming a core part of the online shopping experience. The right payments-processing platform can provide the operational infrastructure that creates and supports a truly agile ecommerce business.
But the whole payments arena is experiencing some fairly seismic shifts, and the real challenge is ensuring that current technology does not hinder future business. A number of key trends have emerged that will dictate technology requirements.
- GREATER VOLUMES
The first trend is simple: growth. Pure-play Internet companies, ecommerce units of traditional bricks-and-mortar retailers and catalog operators are all seeing significant, ever-growing online transaction volumes.
Expansion of ecommerce goes hand in hand with greater adoption of electronic payments — which are expected to grow in volume at nearly 5% a year to reach 299 billion items by 2012. All retailers are affected. Some of the world’s largest are ready to handle a million-plus Visa, MasterCard, AmEx and proprietary card transactions a day across their physical and online channels.
- MULTIPLE PAYMENT TYPES
Growth of electronic payments is not confined to debit and credit cards. The second trend facing retailers is the growing use of new and varied payment types.
Credit and signature debit cards still account for 90% of the market in the U.S., but PayPal, Bill Me Now and other payment types are gaining market share. In Europe, where EMV (Europay, MasterCard and Visa) standards have long been in play, credit and debit cards dominate.
But electronic bank transfers and other local solutions, such as giropay in Germany and iDeal in the Netherlands, are still common. Various e-wallet schemes are also in use in almost all countries, and online cash vouchers, such as Cash-Ticket and uKash are gaining in popularity.
The international dimension is particularly important for those selling “virtual goods” — downloadable music, software and services — which require no physical distribution. Increasingly, multiple languages, multiple currencies and differing fiscal, legal and financial regulations must be addressed.
- CUSTOMER FOCUS
The potential of loyalty schemes is yet to be realized: According to a recent survey for ACI Worldwide, nearly half of all loyalty scheme members in the U.S. never or only rarely take advantage of program benefits online. Eighty percent said that easy online access to their membership account would encourage them to shop at websites that honor their loyalty programs.
What’s more, online accounts to speed up repeat orders and payment processing are increasingly popular, but they must be compliant with PCI regulations.
More than ever, online retailers, like their physical counterparts, have to understand who their customers are, and then deliver the same quality in terms of service, “shopability,” merchandise and fulfillment online as they do in-store. The challenge is to establish a clear online identity, and to use customer data to inform everything from goods offered to payment types accepted.
This goes to the heart of the online retail challenge. We are entering the era of the omni-channel merchant who offers a seamless customer experience across all channels — online, mobile and store — and has the front and back-office systems to tie it all together.
- TACKLING FRAUD
Multichannel merchants must also address the ever-present issue of fraud. The delay between payment authorization and settlement makes online retailers fertile ground for fraudsters.
Card-not-present fraud is a perennial problem, but fraud is not static: Criminals constantly create new mutations of old methods — keeping merchants, customers and banks on their guard.
Card issuers have already attempted to mitigate the problem. The 3D Secure protocol, which underpins Verified by Visa, MasterCard SecureCode and J/Secure, further enhances online payment security by adding an additional layer of authentication.
Visa Europe has also announced the CodeSure payment card, which provides cardholders with additional security online by generating single-use codes that the customer enters online to authenticate a transaction. With 3D Secure, financial liability shifts to the issuer, but the reputational loss still remains with the merchant.
Rob Seward is senior marketing manager for payments system provider ACI Worldwide (www.aciworldwide.com).
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The technology imperative
Merchants need consolidated, flexible, scalable and efficient platforms to help them realize their strategic goals and tactical programs without compromising customer confidence.
There is a parallel with the banking sector, where payments hubs have become the essential ingredient for an agile business. The key characteristic of a payment hub is that it collapses the system silos that separate business, operational, customer service, risk management, fraud prevention and regulatory compliance. All these functions can then be consolidated into operational units that provide optimal support to payments that are received through any channel.
The same is true in the online retail space, where merchants should look for an integrated system that can acquire, authenticate, route, switch and authorize financial transactions across all channels to create a safe and seamless customer experience and deliver internal efficiencies.
So if you are assessing current or potential systems for processing payments, these are a few questions to consider.
Is the system able to meet current volumes, and does it have the inherent scalability to grow with the company and handle increasing volumes without loss of performance?
Does it offer out-of-the-box support for all leading card types, devices, acquirers, networks and host systems? And is it flexible enough to easily adopt new payment types, devices, currencies and languages as they are required?
Does it offer a comprehensive electronic payment and authorization system that facilitates all business applications now being used, as well as those being anticipated for the future (such as automated clearing house; check and refunds authorization; and credit, debit and EBT processing)?
Does it offer a single point of integration to back-office systems? And is it able to handle multiple payment service providers, gateways and payment networks?
Does it support value-card fulfillment, issuance and redemption of proprietary cards, and manage loyalty card programs? Can it manage multiple concurrent programs for one customer, and consolidate schemes from several organizations to create effective loyalty and rewards programs?
Will it reduce risk by offering real-time, intra-transaction authorization based on data from a variety of sources across the retailer’s estate? Does it offer rules-based fraud management strategies? And does it protect transaction data in accordance with PCI regulations?
Does it offer a flexible delivery method (for example a hosted or software as a service model) to minimize costs while enhancing speed, security and convenience, and enabling merchants to retain absolute control of their payments infrastructure?
Perhaps most important, you’ll want to know if the system can integrate real-time data from multiple internal sources. You need this function to create a more complete view of each customer — and keep that customer focus as events change.
If your payments processing system can do all this, you can face a rapidly changing world with confidence.
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Facing the Future of Payments
The Durbin Amendment to the Dodd-Frank Act, which regulates interchange fees, took effect on July 21. It seems likely to change the debit card dynamic in the U.S., with greater use of PIN debit, prepaid and possible EMV cards at the expense of signature debit cards.
The cap on interchange fees is higher than many merchants would have liked, but it still changes the playing field. Durbin also opens up opportunities for more retailers to get into financial services with closed loop payment schemes as well as prepaid cards of their own. Retailers will also have to consider the practical implications for connecting to multiple networks now that network exclusivity is on the way out.
Legislation aside, the other next big thing coming down the track is mobile payments. There is a strong overlap between mobile users and online shoppers, but the infrastructure is not yet in place for widespread adoption of payment initiation via mobile phone.
Nonetheless, applications have been developed for mobile banking, bill paying, check deposit and store of value — as well as turning a phone into a mobile POS terminal. The timetable may not yet be clear, but it is almost certain that smart-phones will leapfrog smart cards as the multi-application payment device of choice. Mobile shopping apps are already here, changing shopping behavior once again.