Technology by its nature changes the market. The introduction of efficient solutions spurred by technology to meet consumer demand creates new positive effects across an economy. Plenty of industries — entertainment, transportation, the press and retail, for example — have experienced changes in business models, delivery methods and competitors, due to the development and deployment of new technologies.
Of course, technology also creates entirely new markets. The modern payments industry was shaped by critical innovations that made credit and debit cards as we know them today possible.
After all, we live in an age where virtually everyone carries a connected device more powerful than the computers that sent Neil Armstrong and Buzz Aldrin to the moon. Our smartphones connect us to a massive, near limitless network of social media, retailers, websites, financial service providers and entertainment platforms. This access has totally overturned expectations of the analog era, replacing them with the promise of faster, better, more convenient and more secure experiences at every juncture.
Imagine 25 years ago, in the nascent days after the commercial use restriction on the Internet was lifted. If someone told you that you would be able to buy something in a matter of clicks and expect it to arrive in days — or even hours — it might have been met with some skepticism. Or imagine that someone said you would be paying your babysitter, or taxi driver, or your favorite vendor at the farmers’ market, without ever pulling out your wallet.
Now imagine leaving your wallet at home altogether and using your phone to pay — or forgoing the use of cash and brick-and-mortar experiences completely. E-commerce accounted for around US$27 billion in retail sales in the U.S. in 2000, but it accounted for around $504 billion in 2018 — nearly 10 percent of total retail sales. It is projected to grow to $735 billion by 2023.
These changes have created transformational new ways for consumers and merchants to interact with each other, thereby changing the products, services and consumer experiences that payments technology companies provide to merchants.
Expansion of Merchant Touchpoints
In past decades, the forms and factors of making and receiving payments were simple. A consumer would rely on checks, magnetic stripe cards, cash and coins; a merchant on ledgers, registers, carbon copy slips and simple processing terminals. Put simply, the product that payments companies and financial institutions provided to merchants was a singular one: acceptance of a magnetic stripe card at a point-of-sale terminal.
The role of a payments technology company has become more complex as merchants pursue business models that blend e-commerce with brick-and-mortar, pursue new sales channels, and aim to offer consumers frictionless payments experiences.
Take the recent boom in mobile order-ahead for restaurants as an example. That payments innovation — allowing the digital acceptance of payment information via a mobile platform in a card-not-present environment — turns a transaction that otherwise would be limited to an offline, in-person affair into an expanded online touchpoint.
With six in 10 American consumers between 25 and 34 years old reporting use of restaurant or coffee shop mobile order-ahead, and two in three Americans reporting that they’ve been patrons at restaurants specifically because of order-ahead payment options, this new opportunity has driven payments companies to integrate mobile order-ahead functionality into their platforms. This capability increases the sophistication of the products that payments companies provide, and creates an e-commerce experience for a merchant segment mostly limited to brick-and-mortar.
Payments acceptance has been changing with the growing use of smart devices like smartphones and tablets as point-of-sale devices on merchant countertops. In 2017, the value of transactions on such devices grew 55.3 percent as the number of merchants using them approached 800 million.
Their popularity makes sense. The devices, often modified with simple hardware additions that allow for card acceptance, can leverage software innovation designed to provide sleek interfaces, fast operation, secure transactions and powerful analytics to merchants at an affordable price.
They can integrate directly with suites of software designed to help businesses do things like manage inventory, track invoices, and manage employee hours; they also can power in-aisle checkout and help businesses integrate their e-commerce operation with their storefronts.
Walmart, for example, has launched a smartphone app for its store associates that enables them to place online orders for customers in the aisle if they don’t have an item in stock at the store. It’s easy to envision that these types of products, which are powered by advanced payments technology, will further allow brick-and-mortar stores to move beyond their traditional limits and take advantage of the convenience and agility of e-commerce.
E-Commerce Can Happen Anywhere
For e-commerce merchants, the development of mobile payments and fintech also has had an impact. If abandoned carts are the enemy, and friction in the payments process is the means to that end, then payments innovation certainly has come a long way in progressing the fight.
Gone are the days of bad authentications, and complex and cumbersome checkout processes. Integrating mobile wallets from consumer-facing tech giants like Apple and Google, plus well-known checkout buttons from PayPal and the credit card networks like Visa and Mastercard, creates consistent, seamless checkout experiences for consumers.
Payments technology companies have been investing even more in providing leading-edge payments products for online merchants. The new Secure Remote Commerce (SRC) standard from EMVCo will add greater simplicity and security to online payments for merchants and consumers.
Further, the nascent Internet of Things has provided new opportunities for e-commerce merchants. Take IoT ordering buttons as a prime example. With a simple click of a button, free from Web browsers, interfaces and other barriers, consumers can order from a predetermined selection of products they love and pay for them with ease. The Internet of Things turns any location into a point of commerce — your home, your car, or anywhere in a store.
Beacons, which are low-cost devices that communicate with nearby smartphones via Bluetooth, are used to send coupons directly to shoppers based on what’s available in-store. Beacons will be invaluable for communicating detailed, targeted information to consumers. Beacons will drive more than $44 billion in retail sales this year, Business Insider has projected.
In the meantime, Visa has debuted a connected car that allows drivers to make payments from the dashboard. These new types of communication technology are creating new points of commercial interaction. Commerce no longer requires a physical terminal or a point of sale — it can happen anywhere.
Similarly, voice assistants have created a new touchpoint for e-commerce merchants to increase the stickiness of their relationships with consumers. Fifty-five percent of U.S. households will have voice-enabled smart speakers by 2022, Juniper Research has predicted.
Both online and offline retailers, like Dunkin Donuts and 1-800-Flowers, have developed systems that integrate with voice assistants and allow consumers to order and seamlessly pay for goods and services with just a few commands. For the consumer, the payment process is divorced entirely from burdensome steps and even from a recognizable point-of-sale device.
Voice technology allows merchants and consumers alike to effectively multitask, making simple transactions — “Alexa, order more paper towels” — a background task rather than forcing users to switch contexts from what they’re doing.
A critical factor driving the development of voice commerce is voice recognition. How good is the physical device at picking up voices, recording them accurately, and translating them to text? Right now, most retail environments are too loud for voice technology to work reliably, but this could change as the devices and text-to-speech software improve.
For example, Google Assistant can differentiate between as many as six different voice signatures, allowing users to log into their Google accounts with just their voice.
As this type of voice differentiation technology improves, it will be possible to restrict device access to certain approved users as well as change levels of access and finely tune security controls.
With the growing use of biometric authentication, advanced behavioral biometrics, artificial intelligence, and advanced data analytics, e-commerce fraud — while growing — will face stiffer challenges from payments companies. In fact, payments technology companies will invest more in detecting and preventing fraud in e-commerce than in any other industry: $10 billion by 2023.
Science Fiction Dream Come True
The logical end to the increasing hybridization is a commerce experience that subverts the traditional understanding of transacting at a point of sale, offline or online. It may seem like a science fiction dream, but the technology being deployed today by payments companies is laying the groundwork for an economy that functions as a series of seamless touchpoints between life and commerce.
There will always be a place for cash, for registers, for in-person transactions, checks and cards. After all, the No. 1 goal of the payments technology industry is to provide consumers with a robust array of the most secure, affordable and convenient payment options available.
With the proliferation of so many devices that securely and easily can be the touchpoint for a payment — think a voice-enabled device, an IoT device, a smartphone, tablet, turnstile, even a doorway — it’s easy to envision a world where some of the norms of commerce we know now will no longer be necessary.
Such a reality blurs the line between online and offline commerce. Consider this scenario: Your IoT-connected refrigerator notices you’re low on your favorite honey and automatically orders more from the local beekeeper, who in turn is using a smart device to manage inventory and fulfill orders. Is this e-commerce, or is it more like going to a virtual farmers’ market?
Perhaps the question is altogether moot, for the advancement of payments technology — today and far into the future — allows for consumers and merchants to extend beyond the typical understanding of a transaction and build new horizons for commerce.