By Mustafa Shehabi
PayCube Inc.
If you've been reading the headlines the payments industry has garnered over the last several months, it is probably easy for you to visualize the increasing influence of payment systems on consumer behavior at the POS and vice versa.
In my consulting tenure over the years, in payments and more specifically retail payments, I have observed two distinct issues facing the varied players in the payments ecosystem. The players I'm referring to are those involved in POS transaction acquiring and processing, including switching, settlement and reporting, as well as entities involved in the broad space of security related to transactions and payments.
Though seemingly different, the two primary issues these players are dealing with are at the core of the headlines we see hogging the limelight. The issues are:
Most large retailers and e-commerce merchants, and more so now the smaller merchants, want a way to have their presences felt across various consumer interaction channels. The merits of this, and whether this will yield true and measurable benefits to merchants and consumers, is an entirely different subject. However, the fact is that almost every retailer is exploring more than one electronic channel as a means of interacting in some way with consumers and thereby opening the way to enable that channel for payment transactions.
2. Payments industry shift from cost-based to value-based processing
Focusing on value-based processing is a very strategic position to take in the world of payments. I believe the big players in the game - for example, Visa Inc., PayPal Inc. and Google Inc. - are clearly positioning themselves to use this as a leading differentiator. I also believe the future battle of payments will be fought right here.
If you look at how players large and small are aligning themselves around these issues, it begs the question, What true value will today's ISOs, merchant level salespeople (MLSs) and others in the acquiring community need to deliver?
I started my career in information technology (IT) distribution and have always believed that harnessing distribution channels can provide power in any ecosystem. In the payments space, the ISO channel has traditionally played the role of sales distributor - primarily selling credit and debit transaction processing services to merchants on behalf of acquiring bank partners.
However, with the advent of multichannel integration, involving offline channels trying to merge with those of online channels, it is an imperative for ISOs and their partners to ask, What do I need to do to provide better value to my merchants?
The answer to this lies in how you look at the payments industry now and how you think it is going to evolve. I believe this industry is going to change drastically. If you look at the last few years in payments, there has never been a more dynamic time in which industry leaders have taken bold moves, and new players, models and ways of doing business have emerged.
Unlike what we all have grown accustomed to in recent years, the payments industry today is not selling a commodity. If you, like me, were to subscribe to this view, then I think we would have to believe that today's ISOs, which thus far have not taken full advantage of technology as a value add, have to start selectively looking at technology as a way to differentiate themselves and help them play a meaningful role in the distribution channel they are part of.
I think this is a broad discussion; however, one compelling aspect to explore is that ISOs can gain certain benefits by "touching" transactions, which are now typically routed straight from the payment terminal (as an example) to the acquiring processor. Having a custom acquiring infrastructure that allows an ISO to touch, and thereby control, transactions is becoming more relevant. A gateway can facilitate this.
Having a gateway and a switch of your own helps ISOs in the following ways. It provides ISOs:
This can sound complicated, but all of this can be phased in. For instance, you can decide not to store or manage cardholder data, thereby keeping your involvement with the Payment Card Industry Data Security Standard and related mandates to a minimum.
Building and managing technology today is cheaper than ever, but anyone thinking of embarking on this journey needs guidance and a well-rounded, incremental approach toward building or buying gateway components. Before doing this, it is essential to make sure you have an IT strategy that is aligned with your business objectives.
The challenge is to plan for and invest in a scalable architecture that takes care of traditional as well as emerging payment types. This can be daunting, as most technology outsourcing shops are not payments focused.
However, today's next-generation payments infrastructure can use diverse and scalable components, and there are many suitable approaches. As long as your architecture and business and functional requirements are thought out and planned, you will have a solution fit for your purpose.
Nowhere does this imply that you have to process transactions yourself. You just need to provide a value-added layer before you hand over the transactions to the processor of your choice. This will thereby increase stickiness with your merchants, something all ISOs and MLSs desire.
Mustafa Shehabi is the co-founder of PayCube Inc., which is a Bay Area, Calif.-based payment consulting and IT services company providing custom software solutions and custom gateways for acquirers, ISOs, retailers and varied organizations in the world of payments and consumer transactions, including prepaid and gift card program, loyalty and promotion, payment start-up, POS solution, mobile payment and e-commerce players. PayCube uses a blend of on-site and offshore delivery capabilities, with a focused staff of retail and payment focused software engineers, architects, project managers, tech leads and systems analysts. More information, email ms@paycubeinc.com, call 925-285-6265 or visit www.paycubeinc.com.
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