The advantage of scale, in theory, is that it insulates businesses from one-off shocks – or even a cluster of unfortunate events. Global companies may face turbulence in one or a number of markets – but an overall trend toward stability will mean those should be easier to absorb.
In practice, the digital age – and the interconnectedness of systems and economies — combined with the extremely fast flow of information around the world and back — means that messiness in one corner of the map has a tendency to spread rapidly. And 2016 has been a year that’s particularly good for illustrating this point: Between Brexit, Chinese economic uncertainty, the cratering of Brazil’s economy and Turkish coups, country-specific events undoubtedly impacted the the global stage.
Global scale, therefore, can become as much of a challenge as it is an advantage, Verifone’s Paul Galant told Karen Webster in a recent discussion on the changing payments landscape, coming on the heels of Verifone’s last quarterly earnings report.
“The world is working in such a co-tango way – when Brazil goes down, the rest of South America does not stay-up. When Turkey falls to an attempted coup, suddenly everyone with concerns over the possibility of an internal conflict thinks that can happen here.”
Galant sort of knows this since no matter where “here” is, Verifone is probably there, too. One half of all the payments transactions on the planet Earth run through their terminals and platform – an astonishing $7 trillion every year.
Just to put that in perspective, the 2016 budget of the United States is estimated at $4 trillion.
And the strain of operating at global scale in a world that has spent much of the last ten months acting – well, oddly, to put it mildly – has taken a visible toll. Verifone’s latest earnings reports disappointed analysts and stock prices have taken a hit.
But Galant is less focused on what went wrong – particularly given the large ration of things beyond Verifone’s control like the Brexit – and more focused on what’s next, because what’s next is where it gets pretty exciting, he says.
“We’re in the best industry in the world. Payments is truly interesting and I think payments is also evolving very rapidly but not in the sense of just paying for something. Payments is now able to inform the entire consumer experience,” Gallant told Webster. “And I think ultimately we are going to see the world do more, not less with electronic payments. But it won’t be linear – and can’t be.”
A Different Challenge
The payments space may be interesting, but it is also complex – a complexity defined by legacy systems that have grown up over decades. These rails may be “old school,” but they operate at scale – authenticating consumers, authorizing transactions, plus clearing and settling those transactions in a nanosecond, billions of a time a day. That means that changing anything in payments, even the most seemingly small thing, involves essentially rewiring the DNA of a hardened infrastructure. And, at the same time, the system has to operate at scale, safely.
“The scale of payments is amazing – it’s become the core infrastructure of life – think of anything that you do that doesn’t involve payments in some measure,” Gallant remarked. “Digital pure plays who have no legacy can invent, legacy players have to reinvent.”
These legacy systems are one reason why the EMV rollout in the U.S. has taken longer than expected, Gallant says. Retailers used the opportunity of EMV, not only to upgrade terminals, but to “crack open the hood” to start some of that rewiring.
This rewiring has included taking a good hard look at the issue that ushered in EMV in the U.S. – the Target breach, something that became political shorthand for “make retail safe again.”
“When merchants opened up their payments systems, most of them used the opportunity to open up encryption, which is good. But in doing so, they upended the IT department’s entire way of doing payments,” Gallant said.
In other words, EMV opened up an entire payments ecosystem for “rewiring” – the merchant, the network connection, the acquirer, the private label processor, the terminal manufacturer.
“When people say that EMV has taken too long, they are absolutely right. But its not just EMV. It’s having to re-engineer, re-imagine and then re-certify the entire payment architecture of some of the biggest merchants in the biggest commerce center on the planet.”
As the payments system evolves, and as retailers continue to re-engineer, re-imagine and then re-certify, Gallant views Verifone’s job as one that has to evolve as well. He says that this means that this year, Verifone will be putting new products into market – commerce platforms, marketplaces, new enterprise management programs – that let retailers manage their business as a single unit from end-to-end.
Those solutions will look different in different parts of the world. In the developing world, they may mean creating “leapfrog” solutions that really do allow merchants and consumers to skip from a cash-only economy to one based on mobile technology.
In the developed world, the solutions will be about expanding Verifone’s purview past payments hardware and into the world of software, services and assets that it will offer as a full payments system solutions provider.
One such solution could mean helping retailers move to a world that isn’t defined simply by the channel – physical or digital – that the consumer shops. Galant sees initiatives like that which Verifone has done with Visa and Cybersource as important stepping stones to helping retailers blur the lines between the physical and digital shopping domains.
Transformations of any kind are not easy, of course, nor without growing pains– but Gallant remains optimistic that both the world and its payment systems will emerge better for the wear: More stable, more secure and more accessible to everyone.
“We’re here to stay, we’re here to grow, and we’re going to be more and more relevant everywhere and to everyone we serve, Galant said. “We see how the various payments threads are coming together across the globe into a new, interconnected and actually ubiquitous architecture that changes financial services and commerce for the better for all the players involved – and Verifone is well positioned to bee that commerce change agent.”