Point of Transaction 301 Lesson 2: PoT Evolution

by Tim Attinger

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

Lesson 2 Discussion Board: Why have eCommerce merchants been the ones to create simplified checkout processes for consumers? What have financial institutions been doing? Click here to respond.

In our first class, we reviewed that the forces at work at the place where all consumer transactions — and the revenues of every stakeholder engaged in the payments business — begin. We also observed that managing the business of processing payments from the merchant point of sale is a highly complex and challenging business, and that retailer environments are a challenging place to introduce new network-driven or alternative payment products. As a result, a number of payments innovations have never made it from the idea to reality. Like the Colorado River south of the border, many streams of innovative consciousness never make it to the sea.

Maximum Flexibility. Somehow, however, innovations in consumer payment have been making it to the point of transaction. How exactly? Or should the question be “where?” As we talked about earlier in the semester, innovation in the eCommerce channel has been robust. Much of this is because the way merchant processing systems connect with eCommerce merchant points of sale is much less complex than it has been at the physical point of sale. Why?

Let’s look at a few of the major differences in these two environments:
– Transaction terminals: Instead of physical terminals with resident software and payments applications, requiring updates and changes to accept new payment types, online terminals are checkout page plug-ins connected more or less directly to merchant acquirer eCommerce gateways. 

– Payments applications: Rather than software upgrades and potential hardware changes through a host of systems that sit between the checkout line and the merchant processor, payments applications in eCommerce are most often integrated multi-brand acceptance solutions that sit within the online retailer site.

– Processing updates: Rather than systems changes that have to be updated and then validated through the multi-step physical infrastructure above, eCom processing changes are validated through Web servers and application interfaces.

AKAPayments: What all of this boils down to, in the simplest terms, is that innovations in eCommerce payments are primarily changes in software platforms and services. There’s not a lot of “hard” coding to work through at the physical point of sale. Payments software is delivered as a service to merchants by eCommerce merchant processors, simplifying their payments systems and streamlining their checkout processes. As basic payments checkout processing has become simpler and more streamlined, online merchants have been able to invest in building, testing, and rapidly implementing creative integrated solutions for consumer checkout.

As we discussed in eCom 301, those creative checkout solutions have typically meant a consumer registers payment credentials, billing and shipping information, and other preferences and then signs up for a user name and password to access those credentials while shopping. These credentials are often referred to as an “alias,” that is, a user identity and a secondary authentication that make it easy to access and make payments in an online, or “remote,” commerce channel. Anyone who has registered for iTunes or Amazon OneClick has created an alias for remote commerce. They’re easy to set up, and they feel even easier to use. Payments acceptance and processing delivered through software as a service in the eCommerce channel makes all of this possible. So, why not take a page from this playbook and improve the state of play in the physical retail world for making payments?

Taking it to the Streets. And that’s exactly what has begun happening. Processors and software providers have built payments application capabilities to bring flexibility to the business of building and managing eCommerce checkout solutions. Meanwhile, merchants and merchant processors have begun to implement systems at the physical point of sale based on internet (IP) protocols to take advantage of the opportunity to tap into distributed systems and application programmable interfaces (APIs) to build physical checkout systems that can update back-end systems like automated fulfillment, inventory, shipping, customer service, and vendor management applications with information from the point-of-purchase.

As these IP-based capabilities have been distributed into the marketplace, there’s been an interesting development in the way consumers check out at the retail point of sale. Point of sale terminals are evolving from hardware boxes hard-wired into dedicated networks into programmable screen monitors that are powered by payments application providers in the background, delivering software to the terminal as a service. Automated checkouts at grocers, customer-facing terminals that capture electronic signatures, and kiosks all use some form of IP-based payments application using software delivered as a service.

And as checkout devices become more mobile, IP-based shopping at the physical point of sale will grow. Anyone who’s been to an Apple retail store knows exactly how that experience might look: a service agent walks you around the store, offering assistance; when it comes time to check out the agent scans your product right there, swipes your card, and e-mails the receipt. And you’re on your way, never having stood in line. Might this be the future of retail? How might that future evolve if the same companies that bring you online checkout and manage your alias adopt this way to pay at physical retail? Might you stop using your card at the point of sale and instead e-mail the merchant your alias from a mobile while you’re standing there? Or better yet, would you scan a bar code with your phone at the point of sale to kick off a process that makes all of this happen? We’ll treat with those questions in our last class. For now, let’s discuss.

Lesson 2 Discussion Board: Why have eCommerce merchants been the ones to create simplified checkout processes for consumers? What have financial institutions been doing? Click here to respond.

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