What changes have impacted the payments sector this season, and what’s there ahead in 2015?
Individuals are increasing their love affair with eCommerce and creating a record number of online purchases in 2014, several now being initiated from their tablets. Most retailers have recognised that they might require effective websites if they are to fully capture this sales volume and not lose market share to competitors. The big losers were those without compelling online sales channels. Several high profile electronic banking and payments system failures have highlighted the mission critical nature of card processing today. Few organisations can risk the reputational damage of not being able to take card payments at whatever time or day a client decides and so can be buying high availability systems and eliminating points of weakness.
After many years of waiting, contactless has finally taken off; driven by the decision of Transport for London to displace cash with contactless bankcards on the buses and the rollout of contactless card readers by many of the UK’s largest merchants such as the supermarket chains. Criminals have maintained their interest in stealing bank card details and this has led to an increasing set of large, medium- and small-sized organisations suffering huge losses and fines consequently of data breaches. The payments sector remains highly appealing to investors and this really is shown by the appetite of venture capital and private equity funds to invest a huge selection of countless pounds to the sector during 2014. We’ve also seen a lot of merger and acquisition activity as the marketplace shows signs of consolidation, perhaps due to the ever-increasing complexity and regulatory impact. MasterCard, Barclaycard, ACI Worldwide, Oracle, Proxama, Skrill, CR7 Services and Eagle Eye, to name but several, have all completed transactions in 2014.
One on most significant bits of payments news this season was the ApplePay launch and although not currently available outside the US market this has really shaken up the industry. I close with highlighting the eventual win (after a multi-year campaign) by the European Commission from the international card schemes Visa and MasterCard within the levels of interchange rates that can be put on transaction charging.
Initiatives that didn’t surpass market expectations
Regardless of the record investment levels several payments initiatives have disappointed. This might be because of unrealistic timescales, the lack of technical standards or of greater concern invalid business case assumptions. We’ve to realise that the UK market has a wealthy payments environment in place today and that new offerings and technologies have to demonstrate superior value and competitive advantage if they are to succeed. You’ve to ask why would a client want to change their purchasing behaviour. What’s inside it for them?
Perhaps the area that’s most underperformed against expectations is that of mobile point of sale (MPoS) cards acceptance at micro-merchants. Results for several providers are very disappointing and well short of their targets. You can find significantly less than 20,000 live implementations from the 1.6 million PoS terminals in use in the UK. These new, or tiny, businesses have largely didn’t value electronic card payments sufficiently over cash/cheques and declined to agree to pay for the 2.75% card transaction processing charges. Another disappointment has been digital wallets. They have been much hyped and several heavyweights have thrown their names to the ring but up to now we’ve seen low adoption and little usage. You can find merely a limited number of wallets a client will anticipate to own and so a large push backed by strong marketing campaign is going to be needed.
InApp purchasing is though seeing higher take-up rates. It has become increasingly likely that loyalty programmes, promotional offers and ID will end up being the’killer app’within a digital wallet. The newest’this is actually the year of NFC’didn’t emerge (once again) although this technology is expected eventually ahead into mainstream use particularly with the iPhone 6 including NFC.
Point-to-point encryption (P2PE) was seen to be a silver bullet by many retailers because it promised to get rid of store estates from PCI DSS compliance scope. It has proved never to be quite so simple and brought with it the necessity for retailers to create procedural changes and undertake additional responsibilities such as for instance demonstrating secure chain of custody for security keys. Some retailers have started searching for alternatives to full P2PE such as for instance using secure segmented networks and TLS encryption as they’ve determined that the effort of achieving PCI approved P2PE outweighs the benefits.