Point of Transaction 301 Lesson 1: PoT Landscape

by Tim Attinger

Point of Transaction 301 (elective. PoT 201 and Cloud Payments 210 prerequisites): The Network is the Terminal

Lesson 1 Discussion Board: Why is the merchant point of sale so complicated, and so challenging a place to implement new point of sale capabilities? Or is it, really? Click here to respond.

Our course this week will drive us deeper into a discussion of the forces at work at the point of transaction. We’ll take a look at the effect of cloud computing and distributed network processing on the competition for consumer payment choice. We’ll also discuss how innovations and new processing capabilities developed in and for the eCommerce channel may change the way consumers and merchants interact in all electronic channels, including ultimately to the physical point of sale. As complexity and commensurate value in processing payments moves to the network platform, or “cloud,” endpoints will increasingly access that value through flexible thin-client interfaces. For remote payments, this may take the form of API-enabled alias-registration and checkout services. For physical retailers, this may take the form of IP-enabled PoS terminals and self-serve kiosks.

In our first section on the point of transaction (see Point of Transaction 201: Competition for Consumer Choice), we reviewed the basic motivations of each of the stakeholders in the payments value chain. Consumers want to check out quickly, reliably, conveniently, and — wherever possible — use a card to get after deposit funds to pay. Merchants want to get consumers through the checkout as quickly and cheaply as possible. Acquirers want to help them do that and make money doing it. Networks are trying to attract those transactions. Issuers want to grab, hang onto, and help the consumers who make those transactions — and, if at all possible in the new regulatory environment, make themselves unique and make money doing it.

What’s New? Innovation at the point of transaction has taken two primary forms. If you’re a payments network or payments product issuer, you’ve most likely created new value propositions on top of the core payments business you’ve already built and in which you continue to invest. If you’re a merchant processor, you’re likely to have invested in new ways to get consumers to get after their deposit accounts in new ways. In either case, you’re more likely to have made those investments in changes either in your back office, or in your processing systems, or online for eCommerce transactions.

Why invest most of your innovation resources in either systems that may sit well enough away from the consumer point of transaction as to be lost in the consumer’s process of deciding what payment vehicle to use or in a channel that is not much more than 5 percent of all consumer spending? If you’re looking for a high return on investment, you’ll want to make a difference in consumer choice at the physical point of sale, in the heat of the moment when a consumer is reaching for her wallet while the checkout clerk is ringing up a purchase, because that’s where most of that consumer’s purchases are made. So why not make the investment there?

Can’t Get There From Here. And in the answer to that question lies the peculiar challenge that is often referred to, as almost anyone in the merchant processing part of the payments business might tell you, as the “problem of the last mile” or the difficulty of “finding the channel to the sea” in the merchant marketplace. Payments have evolved in most markets as an outgrowth of the sustained investment by issuers of payments products to consumers. Most of the product innovation in the marketplace is focused here; most of the investment in the growth of the business has come from here; and, perhaps most pertinently, most of the revenue in the business flows to here.

Rules, guidelines, processing deployment, network provisions, and much of the product capability delivered by the current payments business have been developed, maintained, managed, and propagated by the companies that deliver payments to consumers. And while those companies have done wonders to drive the growth of electronic payments across the globe, and while almost all of the major players also have merchant processing businesses, the perspective of those merchant business managers have not necessarily made it to the fore in the strategies of global payments businesses.

Meanwhile, the role of managing the efficient processing and settlement of a wide variety of consumer payments from the point of sale has fallen to the unsung heroes of the payments business – the merchant processors. Managing complicated and often highly-complex transactions from a wide variety of payment products and consumer segments, and working to make those as seamless and efficient as possible, merchant processors have found themselves confronted with the thankless task of managing the interface between large — often seemingly monolithic — payments networks, issuers and the increasingly complex retailer systems that generate the sales on which the entire system depends.

In our next class, we’ll talk about how these merchant processors are applying the lessons learned in processing eCommerce payments and, along with a few basic technology innovations from the world of open platforms, are as a result slowly changing the way new payments capabilities come to market. The physical market.  In our last class, we’ll look at what that evolutionary change might mean for the pace and nature of innovation at the point of transaction. In the interim, let’s discuss this…

Lesson 1 Discussion Board: Why is the merchant point of sale so complicated, and so challenging a place to implement new point of sale capabilities? Or is it, really? Click here to respond.

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