By Laurence Cooke, CEO and co-founder of nanoPay
The digital payments landscape is changing at a rapid pace. Virtual currencies are looking less like a fad and consumers are finally adopting digital wallets, like Apple Pay and Android Pay. What’s more – the deadline for merchants to become EMV compliant, the global standard that covers the processing of credit and debit card payments using a card that contains a microprocessor chip, is quickly approaching.
Today’s consumers show an increasing desire to use new payment methods because they’re convenient. However, this presents a challenge to merchants, as many have not made the switch to the modern technology required to accept these methods since they’re generally hard-wired to resist technology changes.
It’s a fair sentiment for merchants – the benefits of moving to new payment systems are often unclear compared to the high cost of upgrading their infrastructure. They are clinging tightly to the old theory, “if it ain’t broke, don’t fix it.” But in actuality, merchants must evolve with technology or they’ll find themselves unable to compete and in danger of losing customers.
Looking long term, the benefits of adopting new payment technology will outweigh the cost of transitioning. The fact is that new payment technology will reduce fraud risk due to counterfeit cards, provide greater insight into shoppers with sophisticated data and will ultimately lower costs for merchants over time.
Here is more on the value merchants will get out of new payment methods and how it offsets the investment.
The United States is the weakest link in the payments chain. BI Intelligence estimates that the United States accounted for 51 percent of global payment card fraud costs in 2013, totaling over $7.1 billion.
Investing in new payment technology will help reduce the risk of fraud. Take EMV, as an example. Beginning in October 2015, merchants and the financial institutions that have made investments in EMV will be protected from financial fraud liability for card-present fraud losses for both counterfeit, lost, stolen and non-receipt fraud.
EMV is already a standard in Europe, where fraud is on the decline. In turn, American credit card issuers are being pressured to replace easily hacked magnetic strips on cards with more secure “chip-and-PIN” technology.
At a purist level, there’s nothing that can guarantee 100 percent security, but when EMV is coupled with other payment innovations, like single-use transaction tokens that separate the customer’s identity from the payment, much of the cost and risk of identity theft is eliminated. When it comes down to the question of is this technology secure enough, merchants need to ask, “Is the effort to hack worth the value the hacker will get out if it?” That’s why single use tokens are effective, because if hackers get access to the token, all they get is information from one transaction. They don’t have access to credit card numbers or banking accounts, so the damage that can be done is minimal.
As card fraud rises, there’s a strong case to upgrade to a payment system that works with a smartphone or tablet and accepts both EMV chip cards and tokens.
Greater Insight into Customer Behavior
In addition to added security, upgrading to new payment technology opens up a door to greater customer insights, improved consumer engagement and enables merchants to grow revenue by providing customers with receipts, rewards, points and coupons.
Although it may seem trivial, the ability to provide customers with mobile receipts enhances the shopping experience. If you’re a company like Best Buy that gets a lot of returns and questions about returns, it’s useful for consumers to a have digital copy of receipts, so they don’t have to worry about losing or accidentally throwing out a paper receipt.
If you’re not a company that has a lot of returns, having access to SKU data to fuel marketing initiatives is still priceless. Merchants can quickly and easily accrue data – ranging from average basket size to how much money loyal customers spend – that allows them to launch strategic marketing initiatives.
With new payment tech, loyalty programs can also be tied to the merchant rather than the card issuer, giving merchants greater control over customer management. Merchants can use customer purchase history to tailor promotions and coupons to the customer in order to maintain a loyal base. This data can also be extracted and formed into mailing lists for loyalty promotion blasts. The use of big data analytics empowers merchants to keep customers coming back and making more purchases.
Investment Outweighs the Cost
New technology does have steep upfront costs, but merchants need to think about it as an investment that will grow top-line revenue.
As an example, one reason merchants are so hesitant to implement EMV is the cost. To integrate to the new anti-fraud technology and replace 15 million point-of-sale devices and 360,000 automated teller machines, Javelin Strategy & Research estimates the total cost to be around $6.75 billion.
However, the benefit is that payments’ fraud problem will be greatly reduced. By increasing security, merchants are further enabling mobile and emerging technologies, which will make shopping easier. Customers will also be more confident in using their cards.
As an added bonus to merchants, most EMV-enabled POS equipment will include contactless technology, allowing merchants to accept contactless and mobile payments. This will result in a quicker check-out experience so merchants can handle more transactions.
I hear a lot that merchants are skeptical of embracing new technology because they are afraid of becoming the lone wolf provider.
This won’t be the case. Keeping EMV as an example, it’s about to become a global standard. A positive to becoming compliant is that there should be no acceptance problem due to technical incompatibilities. Foreign travelers coming to the U.S. can use their cards here, thus enabling more electronic payments and opening up merchants’ customer base.
Evaluating Your Investment
Understanding when a new technology will be a worthwhile investment depends on a number of factors, including organizational commitment, implementation skills and the successful usage of the new technology inside the business.
Merchants considering implementing new retail management systems need to evaluate whether the investment will increase the business's operational efficiency and help the company increase revenue. The best system for is the one that makes the merchant as efficient and profitable as possible, as well as improves the customer checkout experience.
In today’s competitive retail climate, merchants have two choices: do nothing or embrace the fact that payments are changing. Transitions from old systems to new ones require work and risk, but merchants who use modern technology are investing in the future and will certainly outperform those who choose to do nothing.
About Laurence Cooke and nanoPay
Laurence is the former COO of Bell Mobility and Bell Distribution Inc. and the former VP Wireless for Shaw Communications Inc. Prior to this he was at Accenture in the UK, in the London Strategy Practice focused on High Tech and Telecommunications.
Laurence also co-founded three businesses in the mobile space, two of which were VC-funded: Xtempus (wireless data platform before the launch of GPRS) which was sold to Cable & Wireless Plc and Melodeo (Mobile Music Service) which was sold to HP.
Laurence holds a Masters in Business Administration (MBA) from the London Business School, and a BSc degree in Computer Science and Economics from the University of Witwatersrand in Johannesburg. He also studied at the University of Chicago's Graduate School of Business.
nanoPay website: https://nanopay.net/
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