Fundamental shifts in consumer behaviour, the emergence of new technologies and an evolving regulatory landscape means the payments ecosystem is poised for unprecedented transformation in 2018. The demand for safer data, faster payments and better experiences presents great opportunity, but also significant challenges, writes André Stoorvogel
The way we pay is changing. As shopping habits evolve, e-commerce and m-commerce methods such as in-app and one-click ordering are becoming increasingly popular. In addition, the exponential growth of the IoT is introducing a wealth of new payment use-cases, such as connected cars.
Issuers and merchants, however, must deliver enhanced and varied payment experiences in an exceptionally challenging security landscape. The success of the EMV Chip Specifications in securing the physical point-of-sale means increasingly sophisticated criminals have shifted their attention towards the more vulnerable e-commerce and m-commerce channels.
In addition, there must now be an assumption that the personally identifiable information of any consumer can be accessed and deployed by fraudsters, following the various massive data breaches over the years.
Not only are the challenges greater than ever, so too are the consequences. The average consolidated cost of a breach is $4m and this will undoubtedly increase when GDPR comes into force across Europe in 2018, where fines can total up to €20m or 4% of total annual turnover.
EMV payment tokenisation and the emergence of ‘omnichannel tokenisation’
will be key to addressing these challenges in 2018 and beyond. The technology is already widely used to protect certain in-store payment methods, most notably mobile NFC.
EMVCo’s updated tokenisation framework, however, extends these benefits to emerging channels including e-commerce, recurring one-click ordering and in-app payments. This is a hugely important step in creating a truly secure payment ecosystem.
As tokens are unique and restricted in their usage to a specific device, merchant, transaction type or domain, payment tokenisation enables issuers and merchants to react and isolate emerging threats, mitigating fraud across all channels. As payment technologies continue to diversify, this ability to ‘constrain the domain’ will become increasingly important.
Given the clear benefits, EMV payment tokenisation is becoming ubiquitous across issuers and merchants. Mandates are the next logical step and something to look out for in 2018. But as tokenisation use-cases continue to grow, issuing and managing these tokens will become increasing complex.
Specialised Token Service Providers therefore have a critical role to play in simplifying the tokenisation web and helping issuers and merchants stay up to date with evolving requirements.
Making faster work better
It is not only card-based payments that are changing. Account-to-account transactions such as salaries, utility bills and subscriptions can still take several days to clear and settle. In today’s on-demand world, this is something of a throwback. Real-time transactions, where funds are transferred in seconds, offer significant flexibility and convenience to both banks and consumers. And with PSD2 on the horizon, the potential use-cases and business models for instant account-based payments will increase exponentially in 2018.
Instant payments, however, do present challenges for banks. Most notably, banks have only milliseconds to assess risk and identify potential suspicious activity. Perhaps unsurprisingly, previous implementations of faster payments have coincided with notable spikes in fraud.
As more and more countries look to implement instant payments, mitigating fraud is a key consideration for banks. Again, tokenization has a hugely important role play. By tokenising account numbers, banks can significantly reduce the risk and impact of account-based fraud to support the development of a safe and secure instant payments framework.
The rise of ‘Merchant Pay’
Initial forays by retailers into the mobile wallet space received mixed results. High-profile projects such as CurrentC failed to gain traction, and there was a sense that the technology giants and banks were set to dominate the space.
Fast forward to 2017. Mobile order and pay accounts for 10% of Starbucks’ in-store sales in the US and Walmart Pay could shortly become the country’s most used mobile payment platform.
Emboldened by this success, we have seen the launch of various retail wallet solutions across the globe, such as Tesco Pay+ in the U.K. and Decat Pay in France. This is a trend that will undoubtedly continue into 2018 and beyond.
Resurgent demand for digital retail wallets is testament to the huge benefits they can deliver to retailers and their consumers. 51% of consumers want to use a retailer’s app for faster purchases while in a brick-and-mortar store.
Wallets incorporating in-aisle, scan-and-go technology enable shoppers to simply scan items with their smartphones, checkout in-app and walk out of the store, completely removing the frustration of waiting in line. If checkouts are still in place, however, wallets can support various payment technologies including NFC, QR Codes and Bluetooth for maximum convenience.
Digital retail wallets also offer the ability for retailers to get closer to customers than ever before. The future of marketing is in leveraging advanced artificial intelligence (AI) solutions to deliver unique, one-to-one interactions with consumers.
Device makers, social platforms and retailers are all converging in a bid to control these interactions. With a wallet offering, however, it is the retailers who are in prime position to collate and leverage consumer data and trends to provide personalised experiences.
Retailers can also utilise digital wallets as a platform to deliver meaningful value-added services (VAS) that consumers can easily use. Consumers are motivated by VAS, but the complexities involved in activating coupons or redeeming points means that some $160bn of reward currency lies dormant. By simplifying its VAS offering within a retail wallet, retailers can boost consumer loyalty, drive sales and get ahead of the competition.
André Stoorvogel, Director, Product Marketing in the Payments Group at Rambus