The Problem
New technology has made it possible to revolutionize how, and with what, merchants and consumers interact at the physical point of sale. But the fact that something is possible doesn’t mean that it is worthwhile. The new technology provides endless possibilities. That comes with multiple dead ends though: things that don’t work for consumers or merchants or payment companies or all of the above. It also comes with almost too many possibilities for a human to sort through. Yet moving to something new at the point of sale—if that makes sense at all—will require merchants to invest hard dollars in new equipment, not to mention retraining their employees; it will require card issuers to make investments in potentially new ways of enabling people to pay; and it will require pretty much every other stakeholder to make investments. The Scylla and Charybdis of this situation is that, either there is a stalemate among the players so not much will happens any time soon, or many participants will make investments on their side that are worthless because other participants don’t make the necessary investments on their side.
The Question
How can merchants, issuers, acquirers, networks, and perhaps even consumers work together to reach the best solution most efficiently?
Background
American merchant and consumers have gotten very used to “swiping” mag stripe cards at the point of sale. Consumers know how to do it, clerks know how to do it, both have the technology to do it, and, because of all this, “swipe and pay” happens very quickly. European consumers and merchants are getting used to “dip and pin and pay” as EMV technology completes its spread throughout Europe following mandates of a few years ago. With trillions of transactions taking place each year among tens of millions of merchants and hundreds of millions of consumers, changing anything about this process has enormous implications.
Payment networks and issuers invested hundreds of millions of dollars in NFC during the 2000s. But few merchants bit. Consumers didn’t learn to wave. This could still be the “right” solution. Or something else could be. But there is no doubt that there is both a huge coordination problem and financial risk. Consumers and merchants have to have technology that talks to each other at the point of sale. No payment solution can succeed without solving that problem. But merchants don’t want to spend money buying the equivalent of the Sony Betamax only to discover that the market is moving to the equivalent of VHS.
The payment networks have played a leading rule in encouraging technology adoption by merchants. They were responsible back in the 1980s for get merchants to install electronic terminals and get rid of knuckle busters. They even encouraged merchants to electronify by temporarily reducing interchange fees for those who did. The problem now is that there is a greater choice of technologies and therefore more uncertainty about what the right solution is—and therefore the problem that whoever “picks” it will make a mistake that will cost everyone. At the same time the level of trust between networks and issuers on one side and merchants on the other side is distressingly low.
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The Solutions
Team 4A
According to Team 4A, as an industry, we’ve been asking the wrong question related to how to upgrade POS technology to enable safer, faster, cheaper payments.
The real question is “how do we create more value for the consumer AND the merchant, with more value with less hassle, and a consistent experience between channels.”
Our focus should, says Team 4A, be on providing the consumer with value – with product reviews, comparison pricing, and a faster checkout. In exchange for these valu- adds, the merchant would receive the benefit of consumer information and the ability to use this information for marketing purposes.
The business model must change from solving the payment problem – to building a better experience.
Through this exchange of information for value, merchants are incented to make the technology investments necessary to take advantage of this new mobile-enabled experience.
To make this solution work, we must create a layer on top of payments that enables a standard transaction set for driving these new value services – customer enrollment, marketing permission enablement, offers delivery and redemption. The platform provides the flexibility for merchants to ‘subscribe’ to different aspects of the value-added services. These standard transaction sets then enable new innovation and ecosystems to be built upon them – and simplify the chaos of waiting for the market to settle on de facto standards.
Many constituents are in a position to help build this platform or the components to enable it – and the industry can support more than one. The critical ingredient will be in building an “open” definition that minimizes the focus on the standard itself, and focuses more on the “Apps” that are enabled on top of it to build consumer value.
Imagine a mobile application that enables the consumer to build their grocery-shopping list before going to the store to have the products ready when they arrive. The app recognizes the customer when they arrive and alerts the grocery store and can then send offers and promotions on special items. The consumer can then shop for other products and add it to their list. Payment is seamlessly integrated, and notifies an attendant at the door as they walk out the store via a Tablet or Phone app. This application leverages the platform to recognize the consumer, obtain permission information and relevant demographic information, present and redeem the offers at the POS and process the payment.
No checkout lane, no plastic, just go.
Team 4B
Team 4B adopted a few principles for solving this problem. Any solution needs to be very easy and safe, work the same way across all channels, and give equal access controls to all participants. The team looked at today’s POS and across the various commerce channels available today and identified what ‘best’ looks like for each interaction and how they can work the same way, wherever you use it, with any device. The conclusion was that this is not a hardware problem, but rather an infrastructure challenge. Therefore the solution is not about what hardware to use.
Team 4B proposed the following solution. The POS of the future will be an open platform with payment as merely one of its features. Any party, including merchants, consumers, third party loyalty companies, etc. can provide value through that open platform through easy API’s or even SDK’s. The key is: the consumer would need to identify and verify themselves and then payment and other services would get automatically triggered, no matter who is providing those services.
This solution is close to what PayPal is doing with Home Depot but as an open platform. The platform needs to be location, channel, ID, and preference “aware”. That same platform and identify and verify will need to be present across all channels so the consumer always has the same experience. We agreed the best identify and verify will be phone number and a passcode, so that consumers don’t have to learn a new language. This would not be a replacement to a POS but an addition. We believed acquirers will need to create standards for and deploy this platform, networks will need to adapt their rules so as to accept this new identify and verify and not discriminate against it, and merchants will need to deploy it across all channels and train consumers.
Team 4C
Team 4C started with a mission statement: To develop an association that promotes an open standard that provides a mechanism for all the parties in the value chain (merchants, issuers, acquirers, networks, technology providers and consumers) to interact and work seamlessly together at the point-of-sale. This standard will reduce risk and cost and provide competition resulting in the most cost efficient systems that provide incentives to the merchants as well as the consumers.
The would create the “Association of POS Technology Standards”
For year one, here are the Association Goals:
- Establish core membership of industry leaders across the current POS ecosystem including the voice of the consumer.
- Develop standards that are agreed to by the association and that covers all use cases.
- Obtain commitment from vendors to support the standards.
- Association will drive support of pilots and use cases and share results across membership.
- To provide merchants case studies that improves customer interactions without the burden of uncertain capital investment.
Readings
PYMNTS.com on Innovation at the Point of Transaction
The MPOS Tracker
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