The battle hots up but who will emerge winner in the multi-channel payment arena?
All the major players in the payments industry are trying to innovate, with companies such as Visa and MasterCard both pushing contactless technology and supporting near field communication (NFC). So far the results have been mixed.
Travel companies need to keep an eye on how payment solutions are shaping up in the multi-channel shopping environment. As an expert in this sector, Peter Matthews, director, Smart Transactions Group expects this space to remain very interesting, with no clear winners as yet.
“Visa and MasterCard will certainly be in the frame, together with all their existing partners. PayPal is trying to break into physical retail and Google, Facebook and Apple could also spring a big surprise,” he says. “The mobile phone networks are also looking to participate – especially in the developing world, where concepts like Safaricom’s M-Pesa have really taken off.”
Here EyeforTravel’s Ritesh Gupta talks to Matthews about in-store payment solutions and developments in the travel sector.
EFT: What new payment solutions or improvisations have you observed that enable shoppers to transact in the multi-channel shopping environment?
PM: Everyone is fighting for a slice of consumer transactions in what is perceived to be a juicy, growing market, where electronic transactions can replace cheques and cash, and there are almost as many mobile phones in the world as there are inhabitants.
Much of the innovation we are seeing is around what I call ‘the last-inch’ or, in a contactless world, waving your card or phone to pay. However, I see this as simply a delivery vehicle for transactions and the technologies involved may, or may not, become ubiquitous. What’s more interesting is looking at who is challenging the dominant but inflexible and expensive bank and card networks, which charge high transactions fees largely because so many participants take a cut of each transaction.
EFT: Which in-store payment solutions are shaping up ?
PM: Electronic Point of Sale equipment is expensive, so there has been a lot of action around replacing the hardware with mobile devices that can read credit or debit cards with a swipe (Square) or chip and pin (iZettle). However, these transactions are not particularly cheap for merchants, but they do allow acceptance of cards for merchants who find the solutions provided by existing players unsuitable.
Mobile wallets are also in vogue, although questions remain as to whether an app is sufficiently secure unless its security keys sit in the SIM or on silicon elsewhere in a smartphone. For this reason, I believe cards have a long life ahead of them, as millions of consumers use them every day for secure transactions for transit and payments using proven RFID contactless technologies. In the UK, our transit business manages more than 2 million secure contactless transactions every day and our payments business, sQuid, more than 100,000 payment transactions a day using these technologies.
NFC is just a variation of RFID and the jury is out as to whether NFC readers and smartphones will be out there in sufficient numbers to make a big impact. One security scare with a train full of commuters having their NFC details hacked and their mobile wallets emptied, will put the cause back years. More likely, the fraudsters will find a way of collecting contactless accounts and ‘skimming’ small amounts from multiple accounts, which will be harder to solve because police aren’t interested in small fraud. The industry will need to wake up to these problems.
EFT: How do you think payment options have evolved in the now multi-channel travel environment?
PM: In the travel sector, the main agenda is the high cost of surcharges levied on consumers for using debit and credit cards to buy flights and other services. Generally, hotels and restaurants do not apply a surcharge and swallow the merchant fees. That doesn’t mean they wouldn’t prefer a lower cost payment system.
In December 2010, the UK Office of Fair Trading claimed that in 2009 transport companies, especially led by low-cost airlines, imposed levels of debit and credit card transactions of £300 million ($450m). Subsequently all airlines have to offer a payment option that does not incur charges, such as Visa Electron.
Google has a strong presence in the travel sector and Google Wallet could make inroads into payments if – and it’s a big if – it gains momentum, probably combined with Google Offers. However, as Google Wallet has been defined as a point-of-sale solution, it’s not as well matched to the needs of travel, where most transactions now take place online.
PayPal, as the leader in electronic payments, could also make headway, but its transactions are rarely cheaper than credit cards.
Perhaps the most interesting potential development is the combination of hugely successful rewards programmes (Starwood Preferred Guest, Marriott Rewards, Hilton HHonours, etc) with a flexible e-money platform, such as sQuid. This would create a ‘closed’ community where rewards can come together with a low-cost payment system which could more than halve the cost of bookings for hotels or airlines for their most valuable customers.
EFT: Can you provide an insight into the sort of new payment solutions or technology that look promising and the ones you think still require work?
PM: The jury is out on NFC. Vast investment has already been made, but retailers and, for instance Transport for London, remain unimpressed. The problem with payments is that you need users to have the technology at the same time as merchants.
E-money, as an alternative to bank money is in its infancy, but players like sQuid in the UK are showing the potential for a low-cost payment network, topped up online, especially for closed-loop communities like campuses or for pay-as-you-go smartcard transit services.