The Past, Present and Future of Payments - Payments Today

These developments - experienced over the past two decades - are reflected in a three-interview series on the Past, Present and Future of Payments. In part I of this series Ralf Gladis takes a close look at the payment industry over the past 20 years, the key drivers for change and the main challenges with payment options.

Who and what do you see as the real innovators of today’s payment scene?

Innovation is not always about new technology. For instance, the first iPhone was innovative but the technology was not new. People already used mobile phones, MP3 players, e-mail and the Internet. However, the combination of all that in one single device was an innovation that changed our world significantly because it served our need for communication and convenience.

Innovation in payments does not necessarily need new technology, however, it has to serve the consumer’s convenience in omnichannel environments. Once an innovation, PayPal has failed to provide omnichannel solutions over the last five years. Competitor Apple Pay is based on credit card standards of Visa, Mastercard and others working with millions of POS terminals worldwide giving consumers a broad reach. The same applies to Mastercard’s MasterPass wallet. Both Apple and Mastercard still have unresolved issues, but their solutions are genuinely innovative.

In China, Alipay is both innovative and successful with its mobile wallet that supports QR code payments at the POS, facial and pattern recognition and even Virtual Reality (VR). Also, WeChat combines a payment service with its mobile and social platform that makes it easy to pay for anything on a smartphone. Innovative, convenient and very successful.

Are payments truly ‘globalised’ now, or are there still cultural, technological and regulatory barriers to overcome?

For brick-and-mortar retailers, payments are still domestically-focused. International retailers have to deal with many local flavours of domestic POS terminals and domestic debit card solutions provided by local banks or PSPs. This is slowly changing: retailers who have to look at total cost calculations realised that standardised international solutions are better than slightly lower fees because integrating all those local payment solutions into the IT systems of an international retailer is very costly. I am now seeing more and more large retailers avoiding cheap local debit schemes like girocard debit in Germany or Carte Bancaire in France because they prefer standardised solutions over cheap processing.

In e-commerce, the only globalised payment methods are credit cards and – with a few restrictions – PayPal. Most other payment methods, like bank transfers, are only local or regional at best because they are popular in a few countries like iDEAL in the Netherlands or Boleto in Brazil.

How does culture influence the attitudes towards payments?

Payments are serious business and the industry is built on trust. And trust is built from experience. Every country has its own banking system and its own history of payment preferences and habits. German consumers, for instance, love to buy online and pay by open invoice after receiving the goods first. That leaves merchants at risk and requires skilful risk management. If Germans use a card, a debit card is preferred to credit cards because Germans do not like to accumulate debt. In contrast to that, people in Italy would laugh about trusting consumers to pay an open invoice after having received the goods first. The one thing Italians trust more than anything is cash. So, yes, payment preferences are based on culture, history and experience.

Do you believe we will ever reach a point where we truly have globalised payments?

Yes and no. I believe consumers will experience truly globalised payments. In fact, today’s credit cards are very close to that point already. However, from a merchant’s perspective though, the need to optimise costs and conversion will always lead to some kind of local solution that caters to local consumer preferences, local payment flavours or local cost advantages.

In places like India, China and Europe we see more regulation and standardisation around payment processing. In the long term, regulation and standardisation will make it easier to connect different local payment schemes in order to provide global interoperability. Faster Payments in the UK, and Instant Payments in Europe and other schemes elsewhere, will be interoperable. However, local flavours of domestic payment methods will survive and continue to play an important role when it comes to conversion optimisation.

What are the three big challenges the payments industry faces today?

Omnichannel

Challenge number one is omnichannel functionality. At a time when merchants implement omnichannel strategies to provide a standardised user experience, the payment industry lacks a suitable choice of omnichannel payment methods.

Cards are both truly omnichannel and global solutions, but they are not yet convenient for online and mobile payments. PayPal has also failed to provide omnichannel capabilities. Only few payment methods can really cover all sales channels with a positive consumer experience.

Diversity

The second biggest challenge comes from the diversity of global payments. Merchants have to use different POS terminals for branches in different countries. They have to implement different payment methods in nearly every country. And merchants receive money and financial data from different sources in order to automate accounting. To integrate all of this requires extensive efforts from IT teams. Settlement technologies are as important - if not more important - than payment technologies.

One of our best running products at Computop is not a payment method but a settlement file that includes financial data from all payment methods worldwide in just one single format. Instead of collecting data from 10 or 20 financial partners merchants prefer to import the standardised Computop Settlement File (CTSF). That reduces reconciliation efforts for merchants significantly.

Security

Last, but by no means least, comes security and fraud. Many of today’s large data breaches demonstrate the vulnerability of current IT infrastructures of merchants, hotels and other businesses. Today, omnichannel solutions require connectivity and interoperability but connected commerce needs better security and encryption. Secure solutions like Point-to-Point Encryption (P2PE) for POS terminals are available but only few certified solutions are up-and-running today due to long replacement cycles of POS-terminals. That’s a long-winded process. Millions of POS terminals will have to be replaced with secure P2PE solutions before P2PE is robust.

If you could change three things about the payments industry today, what would they be?

Firstly, I would require that all new POS terminals support P2PE security in order to protect consumer card data and to preserve trust in card payments. Secondly, I would promote and reward biometric authentication in order to reduce fraud and increase convenience. Lastly, I would enforce the interoperability of payment schemes worldwide and set standards for financial settlement data and reconciliation.

The next instalment in this three part series, The Future of Payments , will be published on September 25th in the Voice of the Industry section. In part III of this series, Computop will discuss about the future of payments, the role of banks in the future and the big opportunities and threats for the payments industry.

About Ralf Gladis

Ralf Gladis is the co-founder and CEO of Computop. In his early years, he worked as a software architect in the successful development of the Computop Paygate platform. Gladis had gained the necessary understanding of technology as a student of Business Information Systems at the University of Bamberg. Today, as founding director, he is responsible for international expansion and for Computops strategic direction.

 About Computop

Computop is a leading global payment service provider (PSP) that provides compliant and secure solutions in the fields of ecommerce, POS, m-commerce and Mail Order and Telephone Order (MOTO). The company, founded in 1997, is headquartered in Bamberg, Germany, with additional independent offices in China, the UK and the US. Computop processes transactions totalling USD 24 billion per year for its client network of over 14,000 large international merchants and global marketplace partners in industries such as retail, travel and gaming. Global customers include C&A, Fossil, Metro Cash & Carry, Rakuten, Samsung and Swarovski. Following the recent asset deal with the Otto Group, Computop is now processing payments for merchants that previously used EOS Payment, including all 100 Otto retail brands.