By Mustafa Shehabi
PayCube Inc.
Let me begin by stating I do not believe mobile payments and related technologies will structurally change the position of ISOs, merchant level salespeople (MLSs), processors and banks in the merchant acquiring value chain. I believe this new technology will reinforce payment professionals' value at each point, thereby making their services more relevant and less commoditized.
Let me elaborate by stepping back to examine the key trends in payments. Over the years, the perception of money has changed from being a value exchange mechanism for buying goods and services to becoming a resource to fulfill aspirations based on lifestyle needs as well as the attention, interest, desire and action (AIDA) influencing factors. Purchase decisions and payments are becoming increasingly intertwined.
Since buying and related decisions are moving from the web to mobile environments, payments are surely following the same path. This, I believe, is going to enable mobile commerce adoption in a big way. To this extent, it is not hard to envision why the traditional networks of Visa Inc., MasterCard Worldwide, American Express Co. and Discover Financial Services would see the telecommunications networks and technologies, which could potentially make use of them, as a strategic threat. The telecoms are the only other omnipresent global networks that connect people. Mobile payment and related technologies, such as near field communication (NFC) and mobile wallets, thus have an advantage.
Which form of mobile payment - NFC or quick response codes, integrated magnetic stripe readers or something else - will succeed is an open question. I don't think even the big players know yet. In any event, the whole concept of consumers moving through the stages of the AIDA model to finally paying will increasingly happen on devices that are in the hands of consumers.
History repeats itself. In many ways, the payments industry illustrates this fundamental fact. If you look at its evolution from cash to check to electronic payments - specifically, credit, debit,automated clearing house, ATM, e-commerce and Europay/MasterCard/Visa (EMV) - the key enablers to mass adoption and success were:
In the early days of credit cards, the larger industry evolved around Bank of America-published specifications, which led to broader market penetration. The same can be said for ATM specs in the early stages and more recently EMV, which was a collaboration of sorts between the networks. This was one of the factors that made adoption of EMV easier among varied stakeholders.
Similarly, we are in the early stages of implementation, but sooner or later industry standards will emerge for mobile payments and related technologies such as mobile wallets and NFC.
For most mobile payment initiatives to succeed they will have to provide more value than the friction they produce. Hence, the ability of any such initiative to integrate closely to consumers' lifestyles, and then reward, prompt and assist them, will determine its success. This can be seen at work in PayPal Inc.'s strategy to create a broad ecosystem of partners and vendors to integrate with their technology.
PayPal realized earlier on that to move from the commodity world to the value-added world, they had to provide AIDA to consumers and offer merchants relevant data that can be monetized. This is primarily an acquirer play. To that extent it is interesting to note the increasing roles of the acquirers and merchants.
Payments today have moved from a state where the player that owned the consumer (that is, the issuer) ran the network to a place where the player that owns the merchant (that is, the acquirer) runs the network. This is a good position for acquirers to be in, but with this we are also seeing liabilities shifting from issuing to acquiring.
Much of this has been discussed in various articles and viewpoints shared in the media. However, I believe the point to note is that to achieve broad-based adoption of various emerging trends (mobile payments, wallets, etc.), a set of industry standards must be adopted. The initiative here will most likely be taken by industry leaders across the hardware, software, network and mobile spectrum.
Mobile payment and related technologies are currently at the peak of the inflated expectations stage of the technology life cycle. We will see a lot of hype dissipate as some expectations are dashed and others are realized, and larger players consolidate around collaborations and return on investment based on implementations and actual use.
Only then will we see common standards that will ease adoption for retailers and consumers, which will spur mass adoption.
I am refraining from predicting how this will happen because which players take the lead is not important. Distribution in payments follows the same principles as distribution of any other product or service. And for mobile and related payment technologies to achieve mass adoption, some level of standardization will be necessary in distribution as well. The main point is that ISOs and MLSs will be most able to distribute these value-added payment offerings to the merchant base.
Further, acquirers should take note of the proliferation of technology in the payments space and the devices consumers hold in their hands today. Keeping in mind the increasing influence of acquirers in the payments value chain, we should not underestimate the value the leading and forward thinking acquirers can yield in shaping consumer experiences at the point of sale and point of service.
Next generation acquirers will have to be ready to provide new services to their retailers. Most likely, this will be a technology play, and acquirers will need to position themselves accordingly. Assuming this point of view, it is possible to envision the value of product management and information technology.
Any technology investment will need to be closely allied with business dynamics and procedures as the market matures. Therefore working with a nimble model that integrates processes and technology to serve the needs of people will be crucial.
ISOs and next-generation acquirers will need to develop these capabilities, or find them in partners, so they can provide strong product and platform offerings that have a compelling technology differentiation. This will reinforce their positions in the payments value chain.
The acquiring space is where the future of payments will be fought and won.
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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