In Depth

Survival Of Retail’s Fittest (And Faster) Payments Network

Phil Heasley, the President and CEO of ACI Worldwide, knows his payments history.

If you espouse to him a popular belief that the credit card was created either by the airlines or by Diners Club, he’ll let you know that, as a matter of fact, the first functional credit card system was invented by Sears and Roebuck (and, yeah — don’t forget that the company commonly referred to as “Sears” is still officially named after both of its founders). He’ll discuss the lingering impact to this day of the 1929 stock market crash on the retail industry; he’ll walk you through the evolution of BankAmericard into Visa; and he’ll talk to you about the Durbin Amendment.

Heasley will also talk to you about the future of payments. That’s where his mind is at, and that was the focus of his recent discussion with MPD CEO Karen Webster. ACI, with Heasley at the helm, has set a course for a world of commerce in which a new type of network infrastructure built on faster payments can give retailers flexibility and efficiency at levels never seen before.

“Retailers are very dependent on the point of sale and on payments for their business,” Heasley told Webster.

While this may seem on its face to be an obvious point, it brings forth a more complex, underlying issue: major economic changes — be they engendered by changes in demographics or financial infrastructure or both — mean that the payments industry must change. Consequently, retailers must adjust to that ever-modifying landscape.

The most recent major change for payments occurred when it went from what Heasley calls “the credit card era” to the online era. Real-time payments have now become “a very obvious option,” he says, and the proliferation of smartphones and other mobile devices have “armed the consumer as well as…businesses with the means to have the options to operate in a real-time environment of purchase, [and] to pay.”

It would seem, as Webster infers from Heasley’s perspective, that all of the ingredients are in place. But, he asserts, there is one thing missing.

“You can think through change a lot easier than you can execute change,” says Heasley, “so what’s missing is the execution phase.”

Historically, with every instance of a new retail channel being created — in-store shopping expanded to phone ordering, which itself laid the groundwork for computer-based eCommerce — the initial perception among retailers was that the new channel would displace the old one.

This is not the reality, of course. The retail business by and large has reached the understanding, as Heasley puts it, “that the consumer wants convenience, not [to] replace one channel with another channel.”

The fact that a consumer can (and often will) make a purchase online, check the status of that order by phone, and pick up the merchandise in person — running the gamut of channels, as it were, in a single order — creates an “immense” challenge for the retailer, says Heasley, in terms of having to coordinate multiple channels to successfully complete a transaction.

What retailers need, then, is agility. And they need to be empowered with that agility — that ability to execute — Heasley explains, “in a way that maintains or increases their margin on the payments side…on the people they’ve relied on historically.”

The solution is not — as many retailers have tried and do try — to lay claim to additional channels as add-on services, as surcharges can more or less negate the benefit to a consumer of lower-priced items. Retailers, says Heasley, need to take advantage of the fact that evolving payment methods are eliminating steps in the purchase process, rather than attempting to include additional steps of their own.

Executing a more direct connection between the consumer and the merchant, observes Webster, would be a major change for retailers — the consideration of which gives them cause for concern, particularly in terms of cost efficiency and their bottom lines.

Heasley believes that for retailers to have such hesitation is a natural part of evolution — not just in the payments space, mind you; he draws it as analogous to the basic biological definition of evolution.

Charles Darwin observed that proliferation of a species exists before a major change occurs within it. Heasley believes that the payments industry, right now, is going through that stage of proliferation.

Pointing out that it currently takes several brands to enable a transaction at the point of sale, Heasley attests that the current proliferation in payments is approaching an apex — a point after which things will stabilize.

The end result of this finalizing evolutionary stage, believes Heasley, will be omnichannel taking hold at even the largest retail chains.

Heasley states that he is a “big believer” in omnichannel, and he thinks that it “will prevail, whether [or not] the retailer will actually be able to control the experience,” including what emerges as the payment of preference.

Webster wonders, though, if consumers — who have gotten used to having several options for how to pay pretty much anywhere they shop, as well as getting rewards from general-purpose credit cards — will adjust to the practice of merchant-specific payment methods.

To support the case that consumers will adjust, Heasley gets philosophical — specifically, quoting the philosopher Marshall McLuhan: “The medium is the message.”

“For a long time,” Heasley goes on to say, “the medium was payments.” In his perspective, though, the business and culture of retail have moved beyond that.

The medium now, he believes, is the real-time shopping experience.

“I don’t think [payments are] the center of the universe anymore,” Heasley tells Webster. “The [experience of] shopping is the center, and the whole reward.”

Referencing the effectiveness of Macy’s loyalty program, Plenti, Heasley says what makes it a positive experience for the consumer has “nothing to do with how you pay.”

“It used to be about how you paid for [things]… Now it’s about how you purchase [them],” he said.

Returning to his point that his industry is no longer the center of the universe (which he admits pains him to say), Heasley puts forth that payments — while still critical and elemental — now exists in support of the purchase experience.

Omnichannel has made ubiquity the prevailing reality. The role of payments in this new paradigm, according to Heasley, is to give retailers “as much choice as they’re trying to give their consumers as it relates to delivery, type of purchase, type of return,” and so on — and that’s one of the tasks that ACI has undertaken.

Heasley believes that the ability to make changes on their own, rather than relying on suppliers to make changes, is what will distinguish the more successful retailers from the not-so-successful ones in this new world of ubiquity in commerce.

At Webster’s behest, Heasley paints a picture of his vision for a real-time, any-commerce environment. He tells her that it starts with the consumer.

“The consumer doesn’t have to do anything new, except to embrace additional choice,” so it’s a win-win in that regard, he says.

The retailer, for its part, would have to effectively unplug from any terrestrial connections (save for power, perhaps) and go completely wireless. This would allow for the acceptance of any number of payments channels (Heasley gives the number of 120 as an example) and give the retailer great flexibility.

Citing the example of 120 different ways of paying as “mind-numbing” to consider, Webster nonetheless agrees with Heasley’s general point: Retailers need to easily accommodate change. One aspect that makes that difficult for them, though, is that the details of payment aren’t necessarily top of mind; retailers are more concerned with moving product and satisfying customers.

Heasley attests that payments isn’t top of mind for retailers in large part because they lack control over it in the current ecosystem. ACI’s plan would change that, he says, by “giv[ing] the retailer the same capabilities a bank would have.”

In that sense, the very agility that those capabilities bring would serve as a tool for retailers, giving them the freedom to decide just how directly they deal with payments. After all, retailers want to be competitive, and Heasley sees faster payments as a key asset in that regard — and not just in the sense of retailers competing against other retailers.

He points to the fact that 31 countries are implementing faster payments “[not] because 30 other countries are doing it,” but actually to compete against the more expensive payment structures that are in place. Sovereign governments around the world are establishing efficient national payment structures that will actually induce benefits at the local level.

To put that in context, Heasley returns to a little bit of history.

“When I was a kid,” he says, “a larger percentage of the global population could [afford to] do an electronic payment [than can now], with 7.1 billion people on the planet.”

As a result, Heasley believes that governments — given that central banks are the “primary provider of payments” — will have to intervene in order to facilitate the ubiquity of electronic payments. From that origin point, the network of faster payments of which Heasley conceives might be able to go from future to present tense before you know it.

 

Phil Heasley, President and CEO of ACI Worldwide, will lead a discussion on ACI’s next wave of payments and commerce disruption taking place at Retail Reinvention in Chicago on Aug. 4-5.

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