Mobile has Potential to Change the Payment Paradigm

The most important process in all of retail is payment: It all comes down to the ability to accept the customer’s cash, credit card, debit card, check or gift card to complete the sale.

Retailers spend mega-millions to make the payment process fast, convenient and secure, and we are now on the verge of a revolution in payment processing enabled by mobile technology.
Payment began as barter and evolved through cash, check, proprietary (store) credit, third-party credit cards and debit cards. During this evolution the cost of payment processing has become a huge issue; in 2009, the interchange fees that card companies charged retailers reached a staggering $48 billion.

As recently as the middle of the last century, cash was king and only department stores had their own credit cards. The Diner’s Club card was introduced in 1950: It could be used by consumers at multiple businesses for a fee to participating merchants of 7 percent. Consumers liked the ideas, as numerous accounts could now be consolidated. Visa and American Express were established in 1958; seeking to increase sales, retailers promoted use of these third-party cards and made them so popular that, by the late 1990s, most merchants had sold or co-branded their credit operations. The fee percentage had declined, but the sheer volume of card sales created a huge cost for retailers and consumers.

Technology changed: Consumers began shopping on the Internet and account data was sent over wireless and public networks, but the credit card approval system was not updated. The criminal element started stealing confidential account data and selling this information or making unauthorized purchases. Card companies, led by Visa and MasterCard, created PCI-DSS to protect this data, largely passing the buck to the retailer/merchant. But the fraud continues.

In 2010, the impacts of card payments on the retail industry are:

• High interchange fees that add to the cost of products and services.

• Significant costs to implement, maintain and update requirements for PCI compliance, even as unsecure transactions continue.

But changes are coming, beginning with the financial reform legislation moving through Congress that will regulate debit card fees. Chip-and-PIN — using an intelligent chip in cards with a PIN — has been implemented in Europe, and Canada is in the process of doing so. Chip-and-PIN has been proven to reduce fraud, and Wal-Mart recently announced that its POS hardware is Chip-and-PIN-ready. Before spending millions to implement Chip-and-PIN, however, we strongly recommend you review the capabilities of mobile payments.

Alternative payments for e-commerce and mobile transactions come in many forms, from the use of credit cards or PayPal to placing charges on a cell phone bill, using e-checks and processing payments based on token numbers rather than actual card account information. All promise increased security and reduced fees, and many eliminate the need for PCI compliance.

Secure Vaulted Payments from NACHA, for example, allow consumers to pay directly through their banks, with guaranteed clearing for the merchant. Some new mobile marketing applications enable consumers to post offers for goods and create buying groups at that negotiated price with other consumers via social media. It’s almost as if we’ve come full circle back to another form of barter.

You can read more about alternative payments in the recently published Mobile Blueprint prepared by the Mobile Retail Initiative of NRF, and decide how to employ them to lower your fees and increase data security.